Covid's second wave unlikely to materially impact large construction companies

Covid’s second wave unlikely to materially impact large construction companies

NEW DELHI: In ICRA’s assessment, while the ongoing second wave of covid-19 could cause some disruptions in the overall construction activity in the country, the performance of most mid and large-sized construction companies is not expected to be materially impacted due to this.

Unlike the first wave, there is no nationwide lockdown and only localised lockdown with exemption for construction activities.

Abhishek Gupta, assistant vice president and sector head, ICRA, said, “While the second wave is more widespread than the first one, the Government is not considering nation-wide lockdown yet, given the severe economic fallout of disrupting major economic activities. With this, the reverse migration of labour has also been significantly lower thus far, compared to that witnessed during the first wave. While the situation is changing rapidly, as things stand today the disruption in construction activities is not expected to be severe.”

Nevertheless, projects which are located within the urban areas such as metro-rail projects, building construction etc. are likely to feel a greater impact due to localised restrictions and reverse migration of labour.

Prior to the second wave of Covid-19, the construction sector had started witnessing strong recovery and pace of execution had crossed the pre-Covid levels as reflected in the construction GVA growth of 6.2% in Q3 FY2021, and estimated growth of 8.4% in Q4 FY2021.

Due to this recovery, the construction GVA for FY21 is expected to contract by only 10.3%, despite a sharp 29.1% contraction in H1-FY21.

The recent sharp spike in the covid-19 cases does increase the risk of restrictions on construction activities at the localised level and curtail labour availability at project sites, which could cause short-term disruptions in construction activities.

Recently, Delhi and Maharashtra have announced lockdowns of 1-2 weeks, while many other states have announced weekend lockdown/restrictions, which would impact the movement of labour and raw material. If the situation deteriorates, other states could also impose lockdowns in the near term.

However, unlike earlier lockdowns, relaxations have been given to certain activities. Further, construction activities are permitted at sites where labour is available, though transportation of labour is not permitted.

ICRA expects such a disruption to be limited and short-tenured.

Further, given that the sector had faced a more intense effect during the first wave, most companies have improved their preparedness in terms of labour and raw-material availability.

Companies which are focused on construction of real estate projects would witness a higher impact, given that most of these projects will be in metro/large cities where the risk of labour migration and localised lockdown could constraint their execution.