Construction Sector Hit By Highways Projects Slowdown

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New Delhi, Aug 18: Slowdown in the national highway development project (NHDP) has hit the construction industry in a curious way. The works in its portfolios are complete and not many more are coming its way. Companies complain that in a scenario where 20 per cent project cost is towards equipment, fewer number of fresh works means idling of investment.

There has been negligible award of contracts under the second phase of NHDP in the past six months. The second phase comprises north-south east-west corridors. The other NH programme, Prime Minister Bharat Jodo Pariyojana (PMBJP), has not reached the contract award stage though it has been more than four months since price bids were submitted for the first package.

"The thumb rule in construction is that 30 per cent of money invested in equipment is earned back in one project of reasonable size. Problem arises if on completion of one project, next does not follow," said a member of the National Highway Builder Federation.

Some consolation for these companies comes from the fact that equipment can be deployed in other kinds of construction like dam, power plants, tunneling, etc. "This advantage is however enjoyed only by companies like Larsen & Toubro, Hindustan Construction Company and Punj Lloyd which are into multifaceted activities," said Arun Kapur, president and CEO of Quipo, the equipment bank of Kolkata-based Srei group.

He said maximum impact was being felt by mid-size companies which were solely into road construction. It is estimated that heavy construction equipment in the country is worth about Rs 6,000 crore. Mr Kapur said it would be wrong to say that most equipment is not gainfully employed at the moment but it is a fact that equipment manufacturing companies owe 25-40 per cent compounded annual growth rate in the past few years to the national highway works.

Quipo’s bulk revenue came from equipment utilised by highway projects in 2003-04, but the situation in the current year changed with revenue from this sector declining by about 10-15 per cent.

The equipment has however been diverted to other sectors.