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Media Information
Construction sector outlook stable: Fitch

Published & Updated as on - 2010-02-16

Fitch Ratings said that it expects 2010 outlook for the Indian construction industry to be stable, though a significant increase in asset ownership through build, own, operate and transfer (BOOT) projects might lead to some negative rating pressure.

The agency expects the credit profile of construction companies to remain stable in 2010. Revenue growth is likely to remain strong given the comfortable order-book positions and expected increase in new orders.

In addition to strong government and power sector spending, a revival of private capex is likely to aid companies in gaining new orders.

Margins are expected to remain stable, as construction material cost — especially steel and cement — will be at the same level as last year. The stability will also be driven by the trend for many companies to move away from fixed-price contracts to one that incorporates price escalations. Increase in new orders will ease the competitive situation. The liquidity positions of Fitch-rated companies have improved, with some of them accessing the equity markets. Internal liquidity is also expected to strengthen during 2010, with lower working-capital cycles due to lower receivables. There was some build-up of government receivables during the general election in 2009; this situation has since alleviated. However, Fitch expects the FCF (free cash flow) position of most companies to remain negative in 2010, due to an expected increase in working-capital requirements commensurate with revenue growth. However, interest rates may rise, driven by inflationary pressures, although the impact is not likely to be significant in 2010. Source : Hindu Business line

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