Metro rail projects will generate Rs 80,000 crore of opportunities for construction companies over the next five years, ICRA research said.
Given the sizeable approved metro projects and a large number of projects which are under evaluation or approval stage, the order inflows to the construction sector from the metro rail development segment are expected to remain robust, ICRA noted in the research report released on Tuesday.
Currently, out of 18 cities with over 2 million population, nine cities have an operational metro network, while another five cities have either, under implementation metro projects or proposals for the development of a metro. Further, many of the cities with the operational metro network have sizeable expansion plans. In total, about 440 km of new metro network development has been approved and another 800 km of the metro network is under the proposal stage.
Apart from the operational and under implementation metro projects, another 15 cities have proposals for the development of metro which has a potential of over 1,400 km of the metro rail network. Currently, the metro rail projects worth Rs 2 trillion of project cost is under the approval stage. Assuming 400 km of the metro network is taken up for the development over the next five years, this would involve a total capital investment of Rs 1 triillion, thereby providing large construction opportunity, said Abhishek Gupta, sector head & assistant vice president, corporate ratings, ICRA.
Due to the presence of a limited number of players in the sector, the competitive intensity has so far remained moderate with no signs of aggressive bidding as witnessed in other infrastructure segments like roads, railways, etc. As per ICRA’s analysis, about 58% of the projects (by value) were awarded at a premium over the base price, with 14% of the projects awarded at a premium of over 20%. While 42% of the bids were awarded at a discount; majority of these were at a nominal discount and only 7% of winning bids were at discount of over 25%.
Gupta further adds, “Competitive intensity is expected to remain moderate in the near to medium term, with the incumbents expected to benefit the most. Given that majority of the orders are funded by multilateral agencies as well as Central Government allocations, the cash conversion cycle of the industry participants will remain comfortable.”