Ordering in the roads sector is likely to pick up from FY20 onwards, after a lull in the current year. In a report on roads, JM Financial Services Ltd highlights how orders have typically picked up after elections. During 2009 and 2014 elections, ordering in roads picked up after the new government assumed office, irrespective of the ruling party.

This time around, there is greater optimism because about 26,000km of roads have been earmarked for ordering over the next two-three years, under the Bharatmala Pariyojana. Within this, the draft project report is ready for about 17,000km. In fact, soon after the plan was announced, road orders, mainly from National Highways Authority India (NHAI), had gained traction, touching 7,400km in FY18.

However, the pace dropped in FY19. Analysts feel that total orders may fall short of the targeted 6,000km for the year. The target was anyway lower than that of the previous year. This is mainly due to delays in land acquisition and clearances on some awarded HAM (hybrid annuity model) road projects. In some cases, the stress in the banking sector made financial closures lengthy. Most of these issues have been ironed out.

For now, construction firms’ revenue is growing through execution, based on their existing order books. However, shares of these firms have cooled off due to weak order flows.

Hence, fresh orders post-elections will be the next trigger for investors. “With a healthy debt-equity of 0.8x (as of Sept’18), NHAI has ample cushion for 2-3 years of EPC/HAM ordering by leveraging its balance sheet, even if budgetary allocation to NHAI remains stagnant," adds the JM Financial report.

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