The 21-day lockdown is a far more complex problem for the construction sector, than other large industries. Since the sector relies heavily on contract labour, the suspension of trains and bus services has restricted the mobility of the workers. “Due to the Holi holidays, the labour force had reduced to 60-65%, since then labourers have extended their holidays," said HDFC Securities Ltd in a recent report.

Also, suppliers may take time to resume work and may prefer to wait and watch for normalcy, as liquidity tightens across the economy. Some infrastructure firms also highlight that it would take weeks after the lockdown is lifted to ramp-up execution and for billing to resume.

Precipitous fall
Precipitous fall

Note that force majeure clauses would enable these entities to secure extension of timeline for project execution and also insulate them from any non-performance-related liquidated damages.

But bureaucratic procedures, uncertainty on treatment of interest costs payable to banks and reworking debt on the companies’ books, stack up as key concerns. All these factors would delay the billing cycle and hamper revenue and profitability, despite costs remaining benign.

It may take some time for the government to resume tenders and to award contracts. Even before the Covid-19 pandemic struck India, analysts had stated that slowing order flows in the roads sector would start reflecting in FY21 and FY22 revenue traction.

After peaking at about 17,000km in FY18, there were hardly 3,500km worth of road contracts awarded in eight months of FY20.

“In the current situation where the government focus is on the pandemic, contract awards in Q1FY21 could remain muted," said Rajeshwar Burla, vice president and associate head (corporate ratings) at Icra Ltd.

Not surprisingly, investors have hammered infrastructure stocks. Larsen and Tourbro Ltd has seen nearly 40% of its market capitalization shaved off in the past two months. Stocks of mid-sized companies such as Dilip Buildcon Ltd, Sadbhav Engineering Ltd, Ashoka Buildcon Ltd and PNC Infratech Ltd have tumbled between 45% and 76% in the same time frame. For the next few quarters, one cannot expect much change as weak orders and execution challenges will continue to haunt.

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