PNC Infra, Ashoka Buildcon, IRB others: Increase in competition may lead to a moderation in operating margins

Construction stocks :Road construction majors as PNC Infratech Ltd, Ashoka Buildcon, IRB Infrastructure Developers Ltd, KNR Constructions Ltd and others have seen their share price decline 10-36% year to date in 2025. While steep correction in the markets has also contributed to this decline, the rising competition is often sighted as a concern on margins. The order flows in FY25 to remained subdued due to general elections ,the prjects awarded were at discount to base prices, higlighted ICRA

ICRA Ratings expects the construction industry to grow by 8-10% in FY2026. However they add that increased competition will remain a drag on profitability of construction companies. Road-focused contractors witnessing pressure on revenue, as order inflows take a hit as per ICRA

Order flow in slow lane during FY25

The order inflows remained soft in first nine months of FY25 owing to General elections in June 2024, followed by the monsoon season where construction activities slow down. The expectations remin that the order inflows will improve now in FY26.

According to ICRA, construction operations were greatly impacted by the Model Code of Conduct (MCC) in Q1 FY2025, an extended monsoon season, and a switch to milestone-based invoicing in Q2 FY2025, particularly for the road projects.

After witnessing a muted 1.5% YoY growth during H1 FY2025, the execution pace gained momentum in Q3 FY2025, which sustained in Q4 FY2025 as well. Nonetheless, owing to a muted H1, the growth in the overall Order inflows or ICRA’s sample set in FY2025 is estimated at a low 1-3%. The fresh order inflows were modest in the first nine months of FY2025, mainly due to the impact of the General Elections, said ICRA Ratings.

Outlook for road construction majors

The contractors, focused largely on the road segment, are likely to under-perform compared to broader trends owing to slowdown in order-awarding activity from the MoRTH/NHAI, as per Suprio Banerjee, Vice President and Co-Group Head, Corporate Ratings, ICRA. Several mid-sized road construction entities have order book/revenue of less than 2.0 times, indicating imminent stress on their revenue prospects in FY2026. Diversified players, especially those focussing on urban infrastructure, renewable and water-related projects are anticipated to perform relatively better in the current fiscal, added Banerjee.

Contracts awarded at significant discounts

Sub-segments like railways, road as well as urban infrastructure reported stiff competition in the recent years. Majority of the road projects under the MoRTH/NHAI were awarded at a sizeable discount compared to the authority’s base price.

The competition for other sectors (Metro, Railways, and Water Supply and Sanitation) has also intensified, with new entrants trying to diversify their order book, as per ICRA. ICRA expects the operating margin of the players to remain range-bound within 10.5-11.0% for FY2025 and FY2026, supported by the relatively stable input prices and operating leverage benefits. However ICRA highlights that the Operating Margin has gradually moderated from 13-14% levels in FY2021 owing to increasing competition.