Eased Lockdown Conditions May Kickstart 30% Construction Activity

The home ministry has allowed construction activity after April 20, bringing relief to a labour-intensive sector that was ailing under the national lockdown following the novel coronavirus outbreak.

There are caveats, though. The government has mentioned in guideline number 16 of a circular that it released today that, “construction activities will be allowed to operate—which includes road, irrigation projects, buildings of all kind, in rural areas. This is defined as “areas outside the municipal corporation and municipalities”.

The notification also states that construction in all sites, within the limits of municipal areas, can begin—provided workers are available on sites, and no workers are expected to be brought in from outside. Movement of trucks (inter- and intra-state) is allowed, it said, adding that this will depend a lot on the local administration’s approval.

The circular is a positive for all construction companies, according to Rohit Natrajan, associate vice president of Antique Stock Broking. A lot of companies will have to depend on the local administration giving clearance on time and availability of labour in the municipal areas, he said.

Should all the issues be resolved, the impact on earnings for the first quarter of the new financial year won’t be as severe, Natrajan said, adding that he expects Dilip Buildcon Ltd. and Ashoka Buildcon Ltd. to benefit the most from the move.

“This move would immediately kickstart at least 30-40 percent of construction activity while remaining 60-70 percent is expected to start by end of the month once raw materials also are made available within a week’s time,” Paresh Mehta, chief financial officer of Ashoka Buildcon, told BloombergQuint. He expects the company’s Ebitda margin to fall by around 1-1.5 percent sequentially for the quarter ending June.

Mehta also said that the industry has some liquidity after National Highways Authority of India released payments in the last week of March.

However, Edelweiss Securities said that the construction sector, already grappling with lower capex amid rising fiscal stress, has been dealt a body blow by the Covid-19 crisis. Ebitda margins of these companies which have held up until now is expected to falter for the first time since FY13 on the back of higher competition, receding order inflows and operating deleverage led by muted execution, the brokerage said in a recent report.

KPMG, in a report on reviving the sector after the Covid-19 pandemic, suggested that the sector should consider the introduction of new clauses in future contracts to set out clear guidelines for action and relief in extreme eventualities, and to minimise disputes that may arise in such an eventuality.