Easy financing and flexible qualification criteria help unlisted road companies gain market share

ET Intelligence Group: The importance of unlisted road construction companies has increased over the past five years as they have captured a large share of hybrid rent projects awarded by the National Highway Authority of India (NHAI) to the during the period. According to an analysis by national brokerage Edelweiss Securities, the market share of listed road construction companies in NHAI hybrid projects has fallen to nearly 21% currently, from nearly 61% in FY16-18.

Two key factors contributed to this trend. Unlike build, operate, and transfer (BOT) projects, which are capital intensive, hybrid annuity construction projects are light, as 40% of the project cost is borne by the government. For this reason, banks financed construction projects of unlisted companies. The second factor is flexible pre-qualification standards to secure projects.

These factors have intensified competition in the sector. The number of bidders for construction projects increased to 15 in the current fiscal year, from 5 to 10 in fiscal 2020.

In the coming quarters, if unlisted players are unable to seek financial close for their projects, the NHAI may tighten pre-qualification standards. This will help companies such as KNR Constructions, PNC Infratech, Dilip Buildcon and Ashoka Buildcon to gain market share given their good financial statements and balance sheet.