ICRA Maintains Stable View on Construction Sector, Sees 8–10% Revenue Growth in FY27

India’s construction sector is expected to maintain steady momentum over the medium term, with ICRA reaffirming a stable outlook and projecting revenue growth of 8–10 percent in FY2027. This marks a modest improvement over the 6–8 percent growth anticipated for FY2026, reflecting resilience in select infrastructure segments despite moderation in overall activity.

According to ICRA, construction companies with diversified exposure are likely to be better placed as public spending patterns evolve. While road-focused developers may continue to face muted execution and tighter cash flows, firms aligned with urban infrastructure, water-related projects and energy segments are expected to report healthier order inflows and execution visibility. This divergence is becoming more evident as government capital allocation increasingly prioritises urban mobility, utilities and energy transition initiatives.

Construction Gross Value Added growth is projected to soften to around 6.5–7.5 percent in FY2026, compared with a robust 9.4 percent recorded in FY2025. Recent quarterly trends also indicate a gradual slowdown, with growth easing sequentially but remaining above seven percent for multiple consecutive quarters. Key indicators such as capital goods output, state government capital expenditure and central government capex have shown some deceleration, signalling a more measured pace of expansion.

Despite this moderation, the sector’s medium-term revenue outlook remains supported by healthy order books. As of September 2025, the order book-to-billing ratio stood at roughly 3.7 times, based on FY2025 operating income, suggesting adequate revenue visibility for the next few years. This provides comfort to lenders and investors, even as competition within the sector stays intense.

Operating margins are expected to remain largely stable at around 10.3–10.8 percent in FY2026 and FY2027. While this is lower than peak levels seen earlier in the cycle, margin stability is being aided by operating leverage benefits and relatively stable commodity prices. At the same time, pricing pressure from competitive bidding continues to cap any sharp upside.

ICRA also expects the cash conversion cycle to remain elongated but manageable, broadly in line with FY2025 levels. With borrowings likely to stay range-bound and coverage indicators comfortable, the overall financial risk profile of the sector remains balanced. Taken together, these factors underpin ICRA’s stable view on the construction sector, even as growth becomes more selective and execution-driven.