Liquidity crunch and labour shortage are the two major constraints for the construction sector even as the nationwide lockdown is easing in a phased manner. Given this, companies which earn revenues from tolling of projects and executing own projects instead of pure construction companies are better placed than the pure play construction companies.

According to industry estimates, labour shortage is as high as 50% in the case of some construction projects. This has caused execution delays thereby increasing project costs, which will be borne by the construction companies. Analysts believe that companies which have a right balance of construction and build, operate, and toll projects, have limited downside in terms of cost escalation and loss of revenues.

Tolling has reached 75% of the pre-lockdown days for these companies, according to CRISIL, a rating agency. This adds to the attractiveness of companies which have adequate funds to complete their road projects and which execute their own construction projects instead of providing services to other players. Companies such as IRB Infrastructure Projects and Ashoka Buildcon have reduced their debt and generated cash flows. Given these factors, their stocks will remain on investors’ radar.

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