In a new assessment of India’s infrastructure landscape, Crisil Ratings has projected steady revenue growth of 9–11% in FY26 for emerging diversified construction firms, driven by robust project pipelines and consistent execution performance. This comes on the heels of a 15% compounded annual growth rate (CAGR) over the five years ending FY25, signaling enduring momentum in the sector despite challenges related to margins and input costs.

The report, released on June 4, 2025, is based on a comprehensive analysis of 200 emerging construction companies across the country. These firms accounted for an estimated Rs. 1,00,000 crore (US$ 11.68 billion) in revenue in FY25—roughly 10% of India's total infrastructure expenditure—highlighting their significance within the broader construction ecosystem.

Stable Growth Amid Macroeconomic Pressures

According to Crisil, the anticipated 9–11% growth in FY26 is a reflection of resilient order inflows, improved operational execution, and increasing scale of activities. These firms are leveraging:

• Timely project completions, which enhance credibility with public and private sector clients.

• Geographical and segmental diversification, reducing dependence on a single vertical or state.

• Improved bidding strategies to lock in long-term projects with high execution visibility.

While revenue trends remain positive, the agency has flagged certain macroeconomic challenges, particularly the limited ability of these firms to pass on commodity cost escalations, such as those for cement, steel, and diesel. This has led to a projected stagnation in operating margins at 10–11%, consistent with FY25 levels.

Commodity Prices and Subcontracting Costs Keep Margins Flat

Despite topline expansion, rising competition and limited pricing flexibility are expected to impact profitability. The Crisil report highlights several margin-suppressing factors, including:

• Volatile input costs, especially commodities essential for road, urban, and industrial projects.

• Subcontracting cost escalation, as firms outsource more work to manage project scale and speed.

• Higher compliance and regulatory costs, especially in states with rigorous environmental and safety mandates.

However, Crisil also notes that strategic cost control measures and operational efficiencies, such as better logistics coordination and digital site management tools, are being increasingly adopted to cushion the impact on margins.

Funding and Working Capital Dynamics

One of the report's core insights involves working capital management, a critical factor in construction sector sustainability. As the size and complexity of projects increase, working capital requirements are expected to rise modestly in FY26. Nevertheless, Crisil projects this need to be well-supported by:

• Improved operating cash flows.

• Judicious use of non-fund-based credit instruments like bank guarantees and letters of credit.

• Selective use of fund-based bank borrowings, thereby reducing exposure to high-interest debt.

Capital Expenditure and Equipment Financing

The report also anticipates that to meet execution timelines and manage growing order books, firms may need to undertake capital expenditure for modern construction equipment. This will likely be partially debt-funded, but the firms' strong internal accruals and retained earnings are expected to maintain controlled leverage levels. Crisil projects that most firms will retain their stable credit ratings, thanks to prudent financial management and disciplined expansion.

Government Support and Sectoral Tailwinds

Crisil underscores that the Indian government’s continued infrastructure thrust—with heavy investments in transportation, housing, water supply, and urban infrastructure—is providing long-term visibility for these firms. Key drivers of this policy tailwind include:

• National Infrastructure Pipeline (NIP) allocations across roads, metros, ports, and railways.

• Smart Cities Mission and AMRUT 2.0, enhancing urban construction demand.

• PM Gati Shakti Master Plan, improving coordination and integration across projects.

These initiatives, alongside improved funding access via credit lines, infrastructure bonds, and public-private partnerships, create a conducive environment for emerging construction players to thrive.

Credit Profile Outlook and Sectoral Resilience

The study affirms that despite tighter margins and rising operating expenses, these companies will largely maintain stable credit profiles. Key factors contributing to this resilience include:

• Low to moderate debt-equity ratios, as firms rely less on external debt.

• Comfortable interest coverage ratios, aided by moderate financial leverage.

• Consistent project execution, ensuring predictable receivables and reduced working capital cycle risks.

Additionally, many firms are investing in digital construction platforms, automated billing, and real-time project monitoring tools, which help minimize project delays and cost overruns, further strengthening financial health.

Competitive Landscape and Strategic Trends

Crisil’s report also highlights emerging strategic trends among these companies:

• Consolidation in the sector, with mid-sized firms merging or entering joint ventures to expand their footprint.

• Adoption of ESG (Environmental, Social, and Governance) principles, particularly for large public-sector tenders.

• Skill upgradation of workforce, as construction becomes increasingly technology-driven.

With increasing competition for government contracts and the rise of design-build-operate (DBO) models, firms are also recalibrating their bidding strategies, focusing on sustainable growth rather than aggressive margin chasing.

Conclusion: Steady Path Ahead

The FY26 outlook for emerging construction companies remains strong, bolstered by:

• High project visibility from strong order books.

• Effective working capital and credit management.

• Supportive government infrastructure policies.

While margins are expected to remain flat at 10–11%, the sector’s overall financial stability and revenue trajectory remain positive. With better execution capability, digital integration, and expanding geographic presence, these companies are well-positioned to play a significant role in India’s infrastructure growth story.

Crisil’s findings reiterate that the emerging construction segment is maturing, and despite cyclical headwinds, its fundamentals remain robust. Stakeholders across the ecosystem—investors, lenders, policymakers, and clients—can draw confidence from the sector’s improving discipline, operational scale, and long-term growth potential.

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