Manufacturers of pre-engineered building (PEB) are expected to record a revenue growth of 10-12 per cent during this as well as next fiscal, stated a report by CRISIL Ratings. This, it added, will be backed by strong demand because of industrial capital expenditure (capex) and government spending on infrastructure development.
The revenue growth of PEB players is constrained by optimal capacity utilisation, and hence the industry is witnessing capacity addition. Despite the capex, the report stated, the credit profiles of PEB players are expected to remain stable due to limited reliance on debt funding.
CRISIL Ratings analysed five large PEB players that command more than 80 per cent of the organised industry in order to reach the findings.
Given the time and cost benefits they offer, PEB structures have emerged as the preferred choice for industrial and infrastructure buildings. These structures typically take 40-50 per cent lesser time in installation as compared with conventional structures with significant cost savings due to reduced steel and labour requirement. This is fuelling demand for PEB structures along with additional benefits such as modular design and high recyclability of materials used. The key industries driving demand for PEB structures are industrial/manufacturing, infrastructure and real estate, per the CRISIL report.
“Industrial capex, which accounts for around 50 per cent of the PEB demand, is expected to remain healthy over the next two fiscals. Additionally, rising penetration of PEB due to cost benefits over traditional structures will also drive demand. Within the industrial sector, warehousing and logistics parks have emerged as the key segment. Here, growth will be strong over the next couple of years, backed by e-commerce and associated expansion of logistics players,” said Anand Kulkarni, Director, CRISIL Ratings.
Further, infrastructure capex which is the second key driver, typically contributes 38-40 per cent of the PEB demand. Diverse applications across sectors such as airports (hangars, terminal buildings), roads (toll plazas), railways (yards, parts of stations), etc. will drive broad-based demand for PEB structures. Increasing government outlay in infrastructure is expected to support demand going forward.
“The capacity utilization of the PEB players stood healthy at more than 70 per cent in fiscal 2024 backed by strong demand. To capitalise on demand, PEB players are incurring capex, with the industry capacity expected to grow 20 per cent by end of next fiscal over fiscal 2024. A gradual build-up of capacities will allow players to fund the capex through accruals, keeping balance sheets healthy,” said Prateek Kasera, Team Leader, CRISIL Ratings.
Increasing scale of operations with better absorption of fixed costs along with steady raw material prices shall drive improvement in industry profitability. According to CRISIL, any material impact on profitability due to rise in steel prices will bear watching, going forward.