Three Construction Firms That Broke Into Big League During The Pandemic

As eased norms during the pandemic allowed more smaller firms to bid for road projects, three companies stood out.

KCC Buildcon Pvt., GHV India Pvt., and Gawar Construction Ltd. ranked among the top 10 firms by road length awarded in fiscals 2019-20, 2020-21 and 2021-22, according to data collated from the website of the National Highways Authority of India.

India had eased eligibility criteria and requirement of earnest money, allowing smaller construction companies to bid as Covid-19 curbs disrupted business. The government has since rolled back some of the relaxations to avoid aggressive, abnormally low bids that increase the risk of delays and defaults.

The reversal of Covid-19-led relaxations is expected to bring down competition in the road sector. The enhanced performance guarantee and requirement of bid security will ensure that companies with strong cash flow and balance sheet participate in the auctions. There is also a risk of rising raw material costs squeezing liquidity of projects bid at steep discounts in the last three years.

Yet, eased norms helped KCC Buildcon, GHV India and Gawar Construction improve their financial metrics as they entered the top league of construction players.

The three companies have yet to respond to BQ Prime's emailed queries.

Here's how they have fared in the last three years:

Incorporated in 2009, KCC Buildcon constructs roads and bridges in Rajasthan, West Bengal, Delhi-National Capital Region, Haryana, Madhya Pradesh and Punjab.

According to ICRA Ltd., it has two built-operate-transfer or BOT annuity road projects, one operational and six under-construction hybrid annuity model projects.

The construction firm’s operational performance and profitability improved in the last three years as it was awarded bigger projects. Interest coverage ratio, a measure of a company’s ability to service the debt, also improved.

According to CARE Ratings Ltd., KCC Buildcon has a healthy and geographically diversified order book, improvement in the operating performance, financial risk profile and gearing levels during FY21.

While interest coverage ratio did come down in the first half of the previous fiscal, CARE said it improved in the seasonally strong fourth quarter for most construction companies bidding for road projects.

Nearly all of KCC Buildcon’s order book comprises road and airport highways projects, the bulk of which are in Haryana, Tamil Nadu, Karnataka, Madhya Pradesh and Maharashtra.

CARE Ratings, however, highlighted significant exposure towards HAM projects—or where the government pays part of the cost upfront and the rest is linked to milestones.

These projects are still at a nascent stage and expose the company to implementation risk and competition, the rating firm said.

GHV is a Maharashtra-based construction contractor. About 90% of its revenue is derived from the road sector, with 95% of the order book comprising central government projects.

The company, set up in 1965 as a partnership firm GH Vijapura & Co. and reconstituted in 2009, executes projects in Maharashtra, Kerala, Madhya Pradesh, Gujarat, Rajasthan, Karnataka, Himachal Pradesh, Assam and Bihar.

Its financials have remained stable in the last three years, according to ratings agency ICRA Ltd. Brickwork Ratings Pvt. in May 2021 assigned a stable outlook to the company, citing good order book position and experienced management.

The Haryana-based company constructs roads and buildings for the government. Incorporated in 2008, the firm is promoted by siblings Rajender Singh, Rakesh Singh, and Ravinder Singh, according to CARE Ratings.

The company’s margin widened over the last three years along with an improvement in interest coverage ratio. It has low reliance on debt.

Gawar’s business risk profile improved, marked by a sustained growth in its scale of operations with a compounded annual growth rate of 24% in the four years ended March 2021, CARE Ratings said in a February 2022 report.

According to the rating firm, the stable outlook on Gawar’s long-term bank facilities also has been underpinned by the government’s continued thrust on the road construction sector and rapid pace of both EPC and HAM project awards.

But CARE Ratings flagged the risk of deterioration in PBIDT margin below 14%; delays or execution issues in HAM projects requiring enhanced financial support; aggressive addition of BOT projects resulting in high exposure of its investments and advances; and deterioration in available liquidity.