Sharp rise in commodity prices along with increased competition will have an adverse impact on the profitability of construction industry, domestic rating agency Icra said on Wednesday.
The industry is battling with input cost pressure due to considerable rise in major commodity costs, particularly steel, bitumen and cement.
"Sharp increase in commodity prices, along with increased competition, will have an adverse impact on industry profitability, with anticipated decline in operating profitability by 100-200 basis points in the current fiscal," Icra said in a statement.
A sharp rise in commodity prices seen in FY22, if sustained, can reduce players' profitability by 100-200 basis points in the current financial year.
Notwithstanding some moderation in steel prices in the past 6-8 weeks, the
prices of steel were still higher by 40 per
cent compared to the rates of March 2021, which will continue to remain a drag on
Similarly, fuel prices and bitumen prices have also seen a sharp increase in the last
one year. The commodity price increase
has been much sharper than the overall
inflation rate and hence inflation-linked
price escalation clauses (in some contracts)
will not be able to absorb the commodity price hikes.
It further said that it expects the construction industry in India to witness a healthy revenue growth in the medium term.