Infrastructure Companies May See Margin Recovery From Q2FY27 As Cost Pressures Ease, Report Says

Infrastructure companies may experience a recovery in margins by the second quarter of FY27 as project execution improves and cost pressures ease, according to a report by Centrum. Even though the immediate impact of higher input costs has affected margins, most firms have maintained their FY27 outlook for revenue, margins and order inflows, suggesting that the current pressure is temporary.

Despite the temporary margin softness due to cost factors, companies broadly reaffirmed their guidance for Q1FY27. The sector's performance in the first quarter of FY27 was mixed, with some companies seeing strong order momentum and growth, while others faced challenges like site-level restrictions, approvals delays, labor shortages and slower ramp-up of newly won orders.

Profitability was under pressure due to factors like commodity inflation, higher royalty and input costs, geopolitical-led material inflation and elevated employee expenses for pre-emptive capacity building for upcoming projects. However, some companies reported margin expansion due to operating leverage and forex gains. The overall order position of the infrastructure sector remains robust, with all-time high closing order backlogs backed by strong order inflows and a robust tender pipeline.

Comfortable balance sheets across the sector provide companies with the ability to bid for larger projects. Infrastructure companies have maintained their FY27 guidance for revenue, margins and order inflows despite the near-term cost pressures, expecting margin normalization from 2QFY27 as project execution scales up and cost pressures ease.