The ongoing second wave of Covid-19 could cause some disruptions in the overall construction activity in India but is not likely to materially impact the performance of most mid- and large-sized construction companies, ratings agency ICRA said.
Most of these companies are focussed on non-urban infrastructure projects which are primarily located in remote areas, or at a distance from metros or large cities, it said.
Besides, unlike the first wave, there is no nationwide lockdown and only localised lockdowns or restrictions with exemption for construction activities, it added.
Nevertheless, projects which are located within the urban areas such as metro rail projects, or building construction are likely to feel a greater impact due to localised restrictions and reverse migration of labour.
“Prior to the second wave of Covid-19, the construction sector had started witnessing strong recovery and pace of execution had crossed the pre-Covid levels as reflected in the construction GVA growth of 6.2 per cent in Q3 FY2021, and estimated growth of 8.4 per cent in Q4 FY2021.”
“Due to this recovery, the construction GVA for the full financial year 2020-21 (FY2021) is expected to contract by only 10.3 per cent, despite a sharp 29.1 per cent contraction in H1-FY2021,” ICRA said.
The recovery that time was driven by healthy pace of execution, supported by favourable policies from the government in terms of lowering the bank guarantee requirement, faster clearance of bills, and speedier clearances or approvals.
Furthermore, the recent sharp spike in the Covid-19 cases does increase the risk of restrictions on construction activities at the localised level and curtail labour availability at project sites, which could cause short-term disruptions in construction activities.
Recently, Delhi and Maharashtra have announced lockdowns of 1-2 weeks, while many other states have announced weekend lockdown or restrictions, which would impact the movement of labour and raw material.
“If the situation deteriorates, other states could also impose lockdowns in the near term. However, unlike earlier lockdowns, relaxations have been given to certain activities. Further, construction activities are permitted at sites where labour is available, though transportation of labour is not permitted.”
“ICRA expects such a disruption to be limited and short-tenured, and hence has not revised its revenue growth estimates of 15-20 per cent for FY2022.”
In addition, given that the sector had faced a more intense effect during the first wave, most companies have improved their preparedness in terms of labour and raw material availability.
“Companies which are focussed on construction of real estate projects would witness a higher impact, given that most of these projects will be in metro or large cities where the risk of labour migration and localised lockdown could constraint their execution.”