The sales of construction companies are expected to rise in the current quarter and financial year on the back of strong order books and increased activity in infrastructure.
The proposed increase in the budgetary allocation to infrastructure projects and leveraging of foreign exchange reserves for infrastructure development will also help the core sector companies.
The outlook on the bottom lines, however, is uncertain. The finance minister has withdrawn the tax benefits under Section 80 IA for contractors and sub-contractors in infrastructure projects with retrospective effect and clarified that only the developer was entitled to the concessions.
Many companies had availed of the benefits under this Section and now will have to pay taxes. They have to make a provision for the previous years' tax in the profit and loss account of the respective quarters. About 70 per cent of the companies will take a hit on their income and bottom line.
According to industry estimates, 25 per cent of the total income of these companies will go towards providing for taxes under the changed norms.
"The withdrawal is the biggest negative factor for all the companies. Since all road construction projects come under BOT (build-operate-transfer), most of the companies took benefit. Going forward, they have to take 30 per cent hit on the bottom line," said an analyst of a brokerage.
But industry watchers unanimously expect that sales of construction companies will be good since the government is investing heavily in infrastructure projects and providing impetus to projects under the public-private partnership.
"The coming quarters will be good as the order books of all construction companies are full. The constant increase in the number of core sector projects across the country and a boom in construction activity will add to their top line," said Arun Kedia, director, Garnet Construction.
Garnet posted 211 per cent increase in quarter ended March 31 at Rs 13.10 crore (Rs 131 million) compared with Rs 4.21 crore (Rs 42 million) in the corresponding previous year's quarter.
Analysts feel that the outlook could be slightly bleak as the industry is in the first quarter of the financial year.
"In the first quarter, top line is not large since budget is allocated to various projects and orders start flowing in. The third and the fourth quarters are generally good for the industry. Otherwise, I see healthy sales and strong order book throughout the year," said Amar Ambani, an analyst at India Infoline.
