Ind-Ra: Small and medium road construction companies may face tough task in getting new orders

New Delhi, Dec 16 (PTI) Small and medium road construction companies may face challenges in securing new contracts in the medium term in view of reduced engineering, procurement and construction (EPC) order flow from NHAI, Ratings and Research India (NHAI). Ind-Ra) said on Monday.

The Ministry of Road Transport and Highways (MORTH) has recently increased its reliance on Build, Operate and Transfer (BOT) and Hybrid Annuity Model (HAM) projects.

“This is likely to increase the intensity of competition in the EPC sector, with large players with strong balance sheets benefiting from the benefits of small and medium-sized enterprises,” it said.

Furthermore, Ind-Ra said the ability of SMEs to bid for HAM and BOT projects will require significant upfront capital expenditure, which may limit their participation and expose them to execution and financing risks.

“This situation may be exacerbated by toll risks from BOT projects,” the rating agency said, adding that the financial closure of these projects has been slow.

However, according to Ind-Ra, the BOT and HAM models also require the developer to remain in the business throughout the concession period (usually 15 years), resulting in a more stable business profile and balance sheet than in the EPC business.

As a result, some medium-sized highway EPC developers began to gradually turn to HAM projects and won some orders.

With the government once again returning to the time-tested but improved BOT/HAM project awarding method, Ind-Ra said it believes the long-term stability of small and medium-sized EPC players will be affected and the focus will now be on the quality of construction as well as the acquisition of funds before construction begins. Financial settlement.

Mid-sized EPC players typically exhibit moderate to high levels of geographic and customer concentration, often operating in specific states or sub-sectors with varying levels of order sustainability.