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Construction industry likely to grow by 8-10% in FY26: ICRA

21 Apr 2025 Evaluate

Credit rating agency ICRA in its latest report has said that the construction industry is likely to report a YoY growth of 8-10% in operating income (OI) for FY2026, supported by an adequate order book position, on the low base of FY25. However, it said this marks a moderation from the long-term CAGR of around 15% for the FY18-FY24 period. ICRA estimates the aggregate order book/OI for its sample set of entities at around 3.5 times as on March 31, 2025, reflecting healthy growth prospects and revenue visibility. ICRA forecasts the operating margin of the players to be steady at 10.5-11.0% for FY25 and FY26.

According to the report, the Model Code of Conduct (MCC) in Q1 FY25, along with an elongated monsoon period and a shift to milestone-based billing in Q2 FY25, significantly impacted construction activities, especially for the road projects. After witnessing a muted 1.5% YoY growth during H1 FY25, the execution pace gained momentum in Q3 FY25, which sustained in Q4 FY25 as well. Nonetheless, owing to a muted H1, the growth in the overall OI for ICRA’s sample set in FY25 is estimated at a low 1-3%. The fresh order inflows were modest in the first nine months of FY25, mainly due to the impact of the General Elections.

The report further said 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. ICRA expects the operating margin of the players to remain range-bound within 10.5-11.0% for FY25 and FY26, supported by the relatively stable input prices and operating leverage benefits. However, the Operating Profit Margin (OPM) has gradually moderated from 13-14% levels in FY21 owing to increasing competition.


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