India’s EPC boom faces a reality check

From Larsen & Toubro (L&T) and NCC to KEC International and Kalpataru Projects International, recent earnings calls and investor presentations have been replete with references to all-time-high order inflows, robust bid pipelines and unprecedented revenue visibility. Some companies are sitting on order books equivalent to three to four years of revenue.

Others have guided investors to double-digit growth in FY27 despite geopolitical uncertainty and execution challenges.
The optimism is understandable.

After years of benefiting from the government’s infrastructure push, the sector has built the strongest project pipeline in its history, spanning roads, railways, power transmission, urban infrastructure, buildings and energy-transition projects.
Yet beneath the celebratory narrative lies a less comforting reality.

What does data from India Ratings & Research (Ind-Ra) suggest?

A recent report by India Ratings & Research (Ind-Ra) argues that the sector’s biggest challenge is no longer winning orders but converting them into revenues, profits and cash flows. While EPC companies collectively ended FY26 with order books worth nearly ₹5 lakh crore — around three times their annual revenue — sector revenue growth slowed to just 2.8%, Ebitda margins fell to a multi-year low of 10.2%, and operating cash-flow conversion slipped below 30%.

In other words, order books are expanding far faster than the financial returns they are generating. The rating agency has cut its FY27 revenue growth estimate for the sector to the mid-single digits from around 10% projected earlier, despite companies guiding for growth of nearly 13%.

It warns that labour shortages, supply-chain disruptions, commodity-price volatility, geopolitical uncertainty and persistent working-capital pressures could continue to weigh on performance. “The EPC sector is at a difficult inflection point, with profitability and cash flows under sustained pressure despite healthy order-book visibility,” Ind-Ra said.

Interestingly, the concerns highlighted by the rating agency are not entirely absent from management commentary. During recent analyst interactions, several companies acknowledged that execution remains challenging despite strong order inflows.

L&T has guided for 10-12% revenue growth in FY27 but cautioned that the first half could remain uneven due to global disruptions and supply-chain challenges. KEC International, despite reporting record order inflows, flagged payment delays in certain water projects and continued pressure on working capital.

NCC reported an order backlog of more than ₹83,000 crore but saw revenues decline in FY26. Kalpataru Projects has emerged as one of the stronger performers, aided by robust demand in transmission, a healthy overseas order pipeline and tighter working-capital discipline.

What makes the Ind-Ra report noteworthy is that it challenges one of the market’s most widely accepted assumptions: that a large order book automatically translates into growth.

Tender awards declined nearly 18% year-on-year in FY26, particularly in roads and water projects, suggesting that the pipeline of fresh projects may not be as strong as headline order-book numbers imply. At the same time, cash-flow stress has intensified.

Cash-flow-from-operations-to-Ebitda conversion fell to 29% in FY26, less than half the historical average of around 65%, reflecting delayed collections and rising working-capital requirements. Sector Ebitda and operating cash flows have now declined for two consecutive years.

The deterioration is beginning to show up in credit metrics. Interest coverage has slipped to around three times, net leverage has risen and total outside liabilities relative to Ebitda have increased, underscoring growing balance-sheet stress.
The divergence within the sector is also becoming more pronounced.

Power transmission and distribution remains the standout segment, supported by strong domestic demand, grid-modernisation projects and overseas opportunities. Roads could finally stabilise after two difficult years. Water projects continue to grapple with payment delays linked to Jal Jeevan Mission and irrigation contracts, while buildings and factories remain constrained by labour shortages and execution bottlenecks.

The stock market, however, appears only partly persuaded by the rating agency’s caution. Shares of leading EPC companies continue to reflect confidence in India’s long-term infrastructure cycle, government capex push and energy-transition investments.

Investors have largely rewarded companies perceived to possess superior execution capabilities and stronger balance sheets, such as L&T and Kalpataru Projects, while remaining more selective towards firms burdened by working-capital stress.

Analysts say investor focus has gradually shifted from order inflows to cash conversion, receivables and execution quality. In that sense, the market may no longer be rewarding the size of the order book alone, but the ability to convert those orders into earnings and cash.

That may well be the defining challenge for India’s EPC sector in FY27. The industry has perhaps never enjoyed greater visibility on future business. Yet the question investors are increasingly asking is not how much work companies have won, but how much of it they can execute profitably — and how quickly they can get paid for it.