Construction SMEs to Survive on Government Projects
With the real estate sector reeling heavily under recession, most private sector projects have been either stalled or deferred due to the lack of funds. With the construction work coming to a sudden halt across the country, the small and mid-sized construction units are struggling to stay afloat.
Several industry insiders opine that in these uncertain times, government projects are the only hope for the cash-strapped units. According to the Construction Industry Development Council, around 40% to 50% of the Rs 2,48,000 crore Indian construction industry comprises SMEs.
woes
KP Baney, Chairman and MD, Devi Constructions, a mid-sized construction company in Pune, said, “The SME units in the Indian construction industry mainly consist of subcontractors and other small players. These small players are finding it tough to sustain their businesses in the face of rising raw materials cost, delayed payments and an increasing risk of downfall of suppliers.”
“Presently, SMEs are going through a rough phase. This is because the decelerating economy has resulted in large-scale cancellation of orders, diminishing working capital credits, stalling of projects and an increase in the working capital cycle,” said AK Yussouf, President of Builders Association of India (BAI).
Ray of hope
In contrast to private projects, which have hit a major roadblock, the government projects are relatively steady and ensuring a steady flow of business for SMEs in the sector.
“Though government projects have been cited as comparatively ‘low-profit’ and involving higher turnaround time, SME sector firms have little choice but to opt for government construction undertakings to survive the slowdown,” shared Mr Baney.
Apart from dwindling business, the ongoing credit crunch has also squeezed the margins of these SMEs. Unavailability of bank loans and lack of equity has made it difficult for these players to participate in infrastructure projects that are executed under the Public Private Partnership (PPP) business model.
Moreover, a report by Motilal Oswal Securities Ltd shows that the net working capital cycle for construction companies has increased from 138 days in 2006-07 to 145 days in 2008-09, further pressurising the margins earned by SMEs.
For more detail on B2b log on to http://www.bizxchange.in
About the Author:
David Parks is a well known author and has written articles on India Finance Guide, B2B Portal, Trade Leads, suppliers, Manufactures and many other subjects.
