Fitch Ratings says outlook for Indian construction stable

Fitch Ratings says outlook for Indian construction stable
07 August 2012

Fitch Ratings says that the outlook for the Indian construction sector remains stable for 2H12, despite the continued unfavourable macroeconomic environment, as some of the risks have already been factored into the ratings. However, the medium-term outlook could be affected by ongoing challenges in execution, coupled with high interest rates and lacklustre equity markets.

Fitch is concerned about the construction sector's growing order book position amid slowdown in project execution, as this impacts cash flows and leads to higher working capital requirements. Execution delays are generally a result of issues concerning land, fuel-supply shortages and environmental clearance. While the government of India has announced a Project Clearance Board and a monitoring mechanism to speed up project execution, the effectiveness of this system remains to be seen.

Also, companies are facing delays in raising debt for build-operate-transfer/build-own-operate-transfer (BOT/BOOT) projects, with banks exercising greater due diligence on the project execution capability of construction companies. The ability to raise equity has also weakened with the subdued equity markets.

The outlook may be revised to positive upon successful execution of the government's infrastructure plans and better availability of funding (both debt and equity) leading to faster turnover of order books. Conversely, a continued pile-up of orders without matching execution capability and an inability to fund investments in BOT/BOOT projects or working capital requirements could lead to a revision of the outlook to negative.

Published under Cement News