India Ratings and Research (Ind-Ra) expects revenue for engineering, procurement and construction (EPC) to grow around 10% yoy in FY27, following two continuous sluggish years of FY25-FY26 with single-digit revenue growth contrary to the FY22-FY24 CAGR of around 20%. The key positive is the broadening of capex cycle, with higher growth in central capex (about 12%), an expectation of faster growth in state capex (approximately 16%), and sector-specific acceleration in private sector capex (mid-single digit growth). The EPC sector’s revenue growth is closely linked to movements in nominal gross fixed capital formation (GFCF), which Ind-Ra expects to grow 13.1% yoy compared to 8.3% yoy in FY26.

The centre’s capex growth in FY27 has been projected at 12%, after a muted 4% yoy increase in FY26. Over 85% of the centre’s capex budget continues to be allocated to roads, railways, finance (primarily interest‑free loans to states) and defence. Further, Ind-Ra estimates the state capex to rise 16.4% yoy in FY27, up from 10%-12% yoy in FY25-FY26, supported by higher capital grants from the centre. Private sector capex, however, may remain sector-specific and is expected to deliver mid-single digit growth in FY27, while central public sector enterprises (CPSEs) are likely to maintain momentum,” says Krishan Binani, Director, Corporate Ratings at India Ratings and Research.

Sub-sectors View for FY27:

T&D/Power: an improving outlook on steady order flows and margin improvement.

Roads and Railways: a neutral outlook due to 8%-11% yoy growth in central capex in FY27. Revision in deteriorating outlook of roads sector is driven by diversification-led stability and increased state road project awards.

Buildings, Metro, Defence, New Age Sectors: a neutral outlook led by a stable demand environment

Water and Allied Infra: Uncertain outlook after sluggish FY25-FY26, specially in Jal Jeevan Mission projects. Higher budget allocations positive, but actual spending is key monitorable. Specific segments/states to do well.

Margins are likely to remain largely rangebound at around 10.6% in FY27 (FY26E: 10.3%), driven by heightened competition, segment diversification imperatives, changing business mix, and difficult operating environment, despite a relatively stable input price environment and operating leverage.

Credit metrics and liquidity position are expected to improve in FY27, supported by higher profitability and continued improvement in working capital cycle following the election‑related lock-up in FY25. EPC companies are likely to witness sustained capex spend and increased equity requirements on rising public-private-partnership (PPP) projects, although funding environment is likely to remain benign with maturing of asset monetisation vehicles. The interest coverage is expected to rise to 3.3x in FY27 (FY26: 3.1x; FY25: 3.1x), while the net leverage is likely to decline to 1.2x (1.5x; 1.6x), driven by an improvement in the cash flow from operations (CFO)/EBITDA ratio to 70% (64%; 47%).

Ind-Ra believes the liquidity profile of EPC entities will remain adequate in FY27, supported by a steady improvement in CFO, adequate working capital limits, capex-linked financing tie-ups, and a healthy monetisation environment. The CFO margin is expected to improve to 7.4% in FY27 (FY26: 6.7%). The EPC sector has witnessed an encouraging rise in non-fund-based working capital exposure during FY24-1HFY26, following the withdrawal of COVID-related relaxations. In 1HFY26, the overall non-fund-based exposure to the construction and infrastructure segment increased 15% yoy to INR7.5 trillion. Moreover, adoption of surety bonds is picking up. Although EPC companies’ leverage profiles may structurally rise as they increasingly participate in public–private partnership projects – with government announcing pipeline worth over INR17 trillion of PPP projects over FY26-28, and monetisation pipeline of over INR10 trillion over FY26-30 – comfort is derived from the availability of monetisation platforms developed by major EPC players, either in-house or in partnership with infrastructure investment trusts.

Slower growth in state and private sector capex cycle, weather-related disruptions, commodity price spikes/shortages, and a global slowdown are key risks.

For the purpose of this report, Ind-Ra has considered 91 EPC companies, excluding Larsen & Toubro Ltd due to its large scale and diversified operations, which would have skewed the analysis.