India鈥檚 renewed mojo and its attraction as a
global destination have principally emanated
from one single fact: that its government at the
centre has continued for a third term. This has
ensured the continuity of reforms and policies
without missing a beat in terms of pace.
Investors need stability and uninterrupted
execution as per plan; this generates
confidence. The continuity has also helped in
another way: it has allowed the stock markets
to avoid shocks caused by the backtracking
that often occurs when regimes change.
Exuberance in the stock market has allowed
large companies to raise capital and keep their
debt low; and even small and medium
enterprises are aspiring to grow with the
availability of equity capital. Availability of
resources - in this case capital - which has
traditionally been scarce in our economy, has
led the economic rally.
This has provided an opportunity to the
country to place itself where it rightfully
deserves to be, i.e., among the top five
economic powers of the world. The construction
industry has opportunity knocking at its
doorstep, but it also faces challenges. India鈥檚
infrastructure elasticity is now proven. If you
provide infrastructure, it adapts quickly and
reaches scale, but when infrastructure fails, its
resilience cushions it from breaking down. If
plain vanilla EPC construction companies want
a piece of assets yielding revenue, then they
ought to know the exact extent of their risk
appetite: EPC versus HAM or BOT. With a good
capital war chest, companies can run SPVs,
which can provide them a good IRR over the long term, or they can simply choose to
remain strictly EPC and chase high-margin
construction contracts. Finally, it has emerged
that focusing on the strong suit has its own
advantages; developers should focus on risk
management while EPC companies should focus
on project management.
Listed companies have now scaled to
Rs.3.6 trillion of operating revenue from Rs.2.8 trillion five years ago, which is not very
impressive, reflecting a growth of 29 per cent
over five years. However, profits after tax have
doubled from Rs.100 billion to Rs.200 billion. Larsen
& Toubro, which represents the best that the
Indian construction markets have to offer, rose
from an operating revenue of Rs.823.84 billion to Rs.1,262.36 billion, a growth of 53 per cent, while
profits rose from Rs.54.14 billion to Rs.88.56 billion,
a growth of 64 per cent, during the same
five-year period. L&T鈥檚 order book stands at Rs.4.75 trillion, with 38 per cent from overseas,
and it added new orders worth Rs.3 trillion in the
last financial year alone.
When we compared the market
capitalisation of construction companies in
June this year, we were pleasantly surprised by
the steep increase in valuations. L&T itself had
risen by over 70 per cent. Others, like Patel
Engineering, grew by 394 per cent,
ITD Cementation by 350 per cent, HCC by
294 per cent, Welspun Enterprises by
238 per cent, and J Kumar by 222 per cent.
Out of the 27 companies we studied,
18 companies had grown by over
100 per cent.
The top three
companies contribute
50 per cent of the
industry鈥檚 operating
revenue! The top
10 companies contribute
over 70 per cent of the
industry鈥檚 revenue. The
redeeming story this year is
that 15 large companies,
each with less than
`100 billion of operating
revenue, are contributing
28 per cent of the
operating revenue of nearly Rs.1 trillion.
Spending in the first quarter of the current
fiscal year has been tepid due to the general
elections. For the first five months, the
government's capital expenditure, or spending
on building physical infrastructure, was
Rs.3.01 trillion, or 27 per cent of the annual
target, compared to Rs.3.74 trillion for the same
period a year earlier. However, it is heartening
to see the private sector announcing project
capex worth Rs.4.1 trillion in the second
quarter ended September 2024, indicating a
42 per cent rise from the previous year,
according to CMIE. In addition, the government announced projects worth Rs.1.4 trillion for roads,
railways, and other sectors during the second
quarter. Manufacturing is showing great signs
of making a comeback, with new project
announcements worth Rs.3.39 trillion.
Land continues to be the biggest problem
for the construction industry. More than
two-thirds of litigation in the country is related
to land. Road construction projects should only
be awarded if 100 per cent of the land has been
acquired, instead of the current 90 per cent.
Huge corridor projects are
still stuck at 90 per cent
completion. According to
the latest reports from the
government, more than
90 per cent of the total
projects (7,244 projects
amounting to `1.45 trillion)
undertaken under the
Smart Cities Mission have
been completed. However,
the remaining projects are
still under completion.
The Western Dedicated
Freight Corridor (WDFC),
which connects JNPT Mumbai to Dadri in
Haryana, is 93.2 per cent complete and is
likely to be finished by December 2025.
The Maha Samruddhi Marg is expected to be
completed next month as it nears its final
76 km. The Coastal Road in Mumbai is likely
to be completed by December 2024, as is
Mumbai Metro Line 3. The Ram Mandir in
Ayodhya is also likely to be finally completed by
December 2024 The Delhi-Mumbai Industrial Corridor
(DMIC) is strategically built around the Western
Dedicated Freight Corridor (WDFC). The WDFC
serves as a backbone for the DMIC, facilitating the efficient transportation of goods between
industrial hubs along the corridor and major
ports in Mumbai. However, both the Dedicated
Freight Corridor and the DMIC are 鈥渙ver
90 per cent complete鈥�! The fruits of this
development will remain unutilised and provide
suboptimal results for our investments, until
these projects achieve 100 per cent completion.Prime Minister Narendra Modi and the
Cabinet recently approved 12 new project
proposals under the National Industrial
Corridor Development Programme (NICDP).
This decision entails an estimated investment
of `286.02 billion and aims to establish a
network of industrial nodes and cities. These
12 industrial areas, located across 10 states and
planned along six major corridors, are expected
to support India's manufacturing capabilities
and contribute to economic growth. There
should be a timeline for these mega projects, as
our large resources remain stuck in projects
without an outcome target, and they balloon to
the point that they become unsustainable.
Throughout 2024, Construction
World has covered a variety of topics in line
with industry trends. We began the year
focusing on affordable housing; then
highlighted the Atal Setu, the longest seabridge;
scanned Mumbai鈥檚 realty scene and
explored redevelopment; gathered solutions for
the skill shortage in April 2024; gave a
heads-up to the booming hospitality
opportunities; and observed the technologies
behind the tall towers in June 2024. We also
revealed the companies that created wealth
during the year, identified the most admired
construction brands in August 2024, and
felicitated India鈥檚 top architects and builders.
The October issue focuses on RAHSTA (Roads
& Highways Sustainable Technologies &
Advancements), with road construction being the prime driver of infrastructure development.
These are only the cover topics; each issue
provides much more to keep you absolutely on
top of your game.
Construction World鈥檚 27th Anniversary
issue is a testament to our commitment to the
development of this sector, raising awareness
around new technologies, efficient methods,
accountability, and sustainability. Once again,
we have selected India鈥檚 fastest-growing
companies through our PerGRO model, and
despite multiple jury discussions, we have not
yet needed to tweak the mission of finding the
fastest-growing construction companies. Our
goal is to add more companies to our list with
their financials, and we see several rising as the
allure of the bourses remains strong.
At this juncture, halfway through the
fiscal year, the project order flow continues to
remain strong.
Best wishes for the festivities!
PS: My first book Tarmac to
Towers 鈥� The India
infrastructure Story, published
by Westland Publishing will be
released this month. The book
captures the journey of
infrastructure in India and
explores where we faltered
and what we need to do to
become a developed nation.
Do follow me on twitter and
Instagram for updates.
