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COVID-19: Construction disruption across India in Q4 may hurt companies

Construction work has come to a standstill as the lockdown kicked in, triggering concerns that the companies would see revenues being hurt and may even incur losses on some projects.

, ET Bureau|
Last Updated: Mar 27, 2020, 08.33 AM IST
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Mumbai: Construction work in the country has come to a standstill as the nationwide lockdown to combat Covid-19 pandemic kicked in, triggering concerns that the companies would see revenues being hurt and may even incur losses on some projects.

Typically, the January-March quarter is crucial for most construction companies as it accounts for 30-40% of their annual revenue. It is also the time when a bulk of orders are finalized, industry insiders said.

For a sector already under stress due to poor financial health of many companies and dwindling orders, this is more bad news.

“The financial stress upon the construction sector is expected to worsen over the coming year,” said Shapoorji Pallonji Group, a conglomerate with focus on construction and real estate. “It is too early to estimate the full financial impact of the coronavirus crisis. Even after the crisis is contained and work resumes –hopefully by end of April 2020 – it would take another 7-8 months,” the company said in response to an ET query. “Moreover, the upcoming monsoon will additionally and severely obstruct the construction works from June 2020 onwards.”

Executives from the sector said it is still early to assess the financial impact of the disruption caused by Covid-19, and most companies are working on safety of people and managing working capital in this unprecedented situation.

“While we expect disruptions in the short term, including progress at our project sites, we expect solutions with our various government agency clients as things normalize,” Mumbai-headquartered HCC said.

Finance minister Nirmala Sitharaman on Thursday announced a slew of measures and a relief package to deal with the impact of the Covid-19 pandemic. She said state governments have been directed to use the welfare fund for building and construction labourers, which has around Rs 31,000 crore, to help those who are facing economic disruption because of the lockdown.

The concern for the sector is that most of it has already been facing financial stress, shrinking orders and tight working capital. Now with the disruption in work, movement of labour and breakdown of the supply chain, recovery would be a challenge.

India Rating and Research has already revised its outlook on the construction sector to negative from stable for 2020-21 on account of likely muted order inflows, exposure to certain states, and concerns that loan disbursements and sanction of additional limits to construction companies would be sluggish due to funding woes of the banking sector and the overall fragile economic scenario.

The rating agency said in a note that any extensive spreading of the pandemic in the country for a longer period can have a significant bearing on the credit profiles of the companies operating in the sector.

Taking care of workers
Engineering and construction conglomerate Larsen & Toubro said it is recalibrating efforts and reorganising resources to meet the new requirements at its more than 500 ‘live project sites’ across the country.

“We employ a huge number of contract labour who are totally dependent on us for their daily livelihood and it is important for us to protect them at this point of time from the vagaries of work and ensure that their daily needs are met at both the worksites and camps,” L&T said in an email response to ET. “At the camps, special attention is being given to maintain hygiene and cleanliness, provide drinking water, adequate medical facilities, efficient waste removal and the like.”

The company said, “As the country’s largest engineering and construction company, we are in the business of nation building and in this moment of national crisis, we are doing everything possible to help governments in their effort to curb the spread of Covid-19.”
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