ICRA has projected a year-on-year (YoY) growth of 8–10% in the operating income (OI) of the Indian construction industry for FY2026, supported by a healthy order book and a low base in FY2025. This growth estimate, however, reflects a moderation compared to the compound annual growth rate (CAGR) of approximately 15% recorded during the FY2018–FY2024 period.
ICRA estimates the aggregate order book-to-OI ratio for its sample set of entities at approximately 3.5 times as of March 31, 2025, indicating strong revenue visibility and positive growth prospects. The operating margin for construction players is expected to remain steady at 10.5–11.0% for both FY2025 and FY2026.
The Model Code of Conduct (MCC) in Q1 FY2025, along with a prolonged monsoon season and a shift to milestone-based billing in Q2 FY2025, significantly impacted construction activity—particularly in the road sector. After a muted 1.5% YoY growth in H1 FY2025, execution activity picked up in Q3 and sustained momentum into Q4. Nevertheless, due to the weak performance in the first half, overall OI growth for ICRA’s sample set in FY2025 is estimated to be subdued at 1–3%.
Order inflows remained modest during the first nine months of FY2025, largely due to the General Elections. Offering more perspective, Suprio Banerjee, Vice President and Co-Group Head, Corporate Ratings, ICRA, noted: “The aggregate order book/OI for ICRA’s sample set of entities is estimated at ~3.5 times as on March 31, 2025, reflecting healthy growth prospects and revenue visibility. Although order inflows in FY2025 are likely to trail those seen in FY2024, a pickup in awarding activity from Q3 FY2025 is expected to support a satisfactory order book. Contractors focused largely on the road segment may underperform relative to broader trends due to a slowdown in order-awarding activity from MoRTH/NHAI. Several mid-sized road construction companies have an order book-to-revenue ratio of less than 2.0 times, signalling potential stress in FY2026. Conversely, diversified players—particularly those engaged in urban infrastructure, renewable energy, and water projects—are expected to perform better this fiscal.”
Sub-sectors such as railways, roads, and urban infrastructure have experienced intensified competition in recent years. Many road projects under MoRTH and NHAI were awarded at significant discounts to the authority’s base price. Similarly, sectors like metro rail, water supply, and sanitation are seeing heightened competitive pressure, with several new entrants aiming to diversify their order portfolios.
Despite these pressures, ICRA expects operating margins to remain range-bound between 10.5% and 11.0% in FY2025 and FY2026, supported by relatively stable input costs and operating leverage benefits. However, margins have softened from the 13–14% levels seen in FY2021 due to increasing competition.
“The cash conversion cycle is expected to remain at current levels, especially after the expiry of the Atmanirbhar Bharat relief measures, which have already stretched working capital cycles in FY2025. While debt levels are likely to rise to support higher working capital needs, operational leverage benefits are projected to keep interest coverage at a comfortable 3.6–3.9 times in FY2026,” Banerjee added. “Given the moderate leverage and satisfactory debt protection metrics, ICRA maintains a Stable outlook on the construction sector.”