Objective

Financing in Construction Industry

Balanced Scorecard As-Is Analysis Competitive Analysis Opportunity Analysis Practical Implications
Issues Being Faced
Lenders do not understand dynamics of construction
sector
Lack of adequate safeguarding for the banks about the
credibility of the Industry
Banks have better options to lend money to sectors
having assured returns.
State Governments do not make funds available after
they approve the projects
BOT funding issues

Type of Financing Required
Working capital requirements
Capital requirements for
modernization of equipment and/or
expansion of industry
Project specific bridge loans
Loans for BOT projects
Equity for BOT and real estate
project

Short Term
Sources: Team Analysis ,India Rating and Research
Enhancing flow of finance through
grading of construction companies
Construction industry-specific lending
norms
Setting up of a Mortgage Refinance
Company
Letter of Credit for contractors
Single Window Clearance
Sector Specific innovative financial
instrument can be launched.
Access to international finance market
to generate funds

Long Term
National Investment Board
Credit Enhancement
Developing long term Bonds Market
Policy Initiatives
Financial:
o Implement uniform stamp duty across the
states
Regulatory:
Allow banks and domestic FIs to provide
credit enhancement for the infrastructure
bonds
Develop regulatory framework for multi-asset
CDOs
Securitization
Currency & Derivatives Market Development

Construction Industry Financials
Item FY10 FY11 FY12 FY13 PFY14
Receivable Days 105 105 116 123 129
Inventory/WIP Days 71 75 73 64 71
Leverage 2.83 3.15 3.14 3.84 4.81
Interest Coverage 3.92 3.41 2.69 2.15 1.7
EBITDA Margins 11.47 11.86 11.94 10.79 10.2
2950.0
1573
426
262
220
85
35
349
Total
Sepnding
Budgetary
Support
Commercial
banks
Equity and
FDI
NBFCs Insurance/
Pension
Funds
ECB Investment
Funding
Gap
Construction Sector Financing 2013-
23(Projected)

Financing Funding USDbn
Objective
Construction employs an estimated 35 million people
second only to agriculture
Infrastructure account for an estimated 49% of demand
for construction in India.
Real Estate and housing account for a 42% while
Industrial projects account for an estimated 9%.
Order booking is stagnant at 2.5x-3.5x
Industry expects a growth rate of 7-8% per annum over
the next 10 years.
The forward and backward multiplier impact of the
construction industry is significant.
Highly unorganized sector with over 95 per cent of the
enterprises employ less than 200 persons.










Construction Sector
Balanced Scorecard As-Is Analysis Competitive Analysis Opportunity Analysis Practical Implications
Growth Drivers
Real estate
construction segment
forecast 13.6% CAGR
for 2012-16
Infrastructure target
for 12
th
five year plan
is 1 trillion dollars
Focus on affordable
housing projects by
government.


0
1
2
3
4
5
6
7
8
0
50
100
150
200
250
300
350
400
2
0
1
2
2
0
1
3
e
2
0
1
4
P
2
0
1
5
P
2
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1
6
P
2
0
1
7
P
2
0
1
8
P
2
0
1
9
P
2
0
2
0
P
2
0
2
1
P
2
0
2
2
P
2
0
2
3
P
Construction
Value in USDbn
Growth Rate
1028
162
119
166
83
498
Total Loss in GDP Tendering Non Financing Subotimal Design
and Engineering
Procurement Construction
practices
Projected GDP loss(2023) due to current inefficencies in system
Loss GDP USDbn
Source: Team Analysis:Mckenzie:Building