India's road construction sector is seeing a sharp decline in activity as new project awards from the National Highways Authority of India (NHAI) drop significantly. With reduced government spending and increased competition, construction firms like Larsen & Toubro, IRB Infrastructure, and PNC Infratech are reporting pressure on profit margins and revenue growth.
What Happened
India’s road construction sector, which has been a major pillar of infrastructure growth, is facing a difficult period. A combination of reduced capital spending by the government and a sharp decline in project awards by the National Highways Authority of India (NHAI) has slowed down the industry. This slowdown is affecting both the speed of road building and the financial performance of major construction firms, including Larsen & Toubro, IRB Infrastructure, PNC Infratech, and KNR Construction.
The NHAI Award Data
One of the clearest signs of the sector's cooling is the drop in new project awards. In FY27, NHAI awarded projects worth INR 4,230 crore, and in FY26, the figure was INR 4,700 crore. These numbers are significantly lower than the levels seen in FY22 and FY23, where awards exceeded INR 10,000 crore. These figures suggest that NHAI is struggling to meet its awarding targets. Several factors are contributing to this decline, including delays in project approvals, land acquisition hurdles, and a lack of interest from private players in taking up Build-Operate-Transfer (BOT) highway projects.
Construction Slowdown and Revenue Impact
Beyond new project awards, the actual pace of road construction has also decelerated. In the year-to-date for FY27, only 364 km of roads were constructed, marking a 35% decrease compared to the previous year. For construction firms, this slow pace means that even companies with large order books are struggling to convert those orders into revenue (billing). When construction activity is slow, companies cannot meet their revenue targets, which directly impacts their quarterly financial reports.
Margin Pressure and Competition
Profit margins for many firms are under pressure. The sector is seeing intense competition, with companies bidding aggressively to win the few projects that are available. In some cases, firms are quoting prices significantly lower than NHAI’s estimates to secure contracts. While this may win them a project, it leaves very little room for profit. For instance, IRB Infrastructure recently reported revenue growth that was driven more by toll collections rather than its core construction projects, highlighting a dependency on operational assets rather than new building activity. Rising commodity costs due to global geopolitical tensions have further squeezed these already thin margins.
The Bharatmala Cost Reality
The Bharatmala highways programme, a massive project launched in 2017, has also faced significant hurdles. Costs have doubled from an estimated INR 5.3 lakh crore to INR 10.6 lakh crore. This ballooning cost, driven by soaring land prices and changes in the design of expressways, has led to a pause in the project, creating uncertainty for the entire construction value chain.
What Investors Should Track
Investors looking at this sector may want to monitor three key areas. First, watch for the speed of order execution, as a slow order book conversion will continue to hurt revenue. Second, keep an eye on profit margins; aggressive bidding can lead to leaner profits in the coming quarters. Finally, monitor the debt levels of these companies. In a sector where project timelines are uncertain and construction is slow, firms with high debt may face higher interest costs, which can further impact their bottom line.