Tightened norms for road constructions awards benefits players with strong balance sheets: Report

New Delhi [India] July 16 : The award for road construction projects by the National Highways Authority of India (NHAI) has slowed down because of the tightened bidding norms imposed by the Ministry of Road Transport & Highways (MoRTH).

A report by HDFC Securities noted that new orders are coming on developer models, hence players with strong balance sheets stand to gain.

"Some of these new orders are coming on developer models; hence, players with strong balance sheets stand to gain," the report added.

MoRTH has tightened the bidding norms through the requirement of additional performance security (APS). Previously, the relaxed bidding norms had intensified competition in Central Government Road projects, with most construction projects being awarded at significant discounts - a median of around 25 per cent between January 2024 and March 2025.

Despite the award pipeline of Rs 3.5 trillion, ordering for new projects by NHAI has been muted in recent months.

The report added that recent steps taken by NHAI to strengthen bidding and increase entry barriers are aimed at keeping frivolous aggressive bidders out.

"We have seen smaller unlisted players bidding 25-40 per cent below NHAI cost, which is very aggressive and casts aspersions on road quality. Buildings, T&D, and urban infra projects saw a pickup in awarding. We expect FY26 NHAI ordering to be back-ended at Rs 600 billion," the report added.

Roads ordering has significantly slowed down over FY24/25. This was a key driver of ordering, contributing 50-60 per cent yearly inflows for EPC companies. Muted ordering led to a miss in growth guidance and valuation de-rating of the construction companies. added the report.

"Diversification is now paramount to maintaining growth trajectory and new drivers like solar, BESS, river interlinking, and T&D present an opportunity to make up for loss in order inflows from roads," the report added.

The report observed that road or diversified EPC players (Engineering, Procurement, and Construction (EPC)) are looking at participation in non-road segments like solar, BESS, transmission TBCB, railways, river interlinking, etc., to keep growing.

"Cyclically, the EPC players are sitting on the lowest order inflow, lowest valuation multiple and muted growth expectations. We believe that any recovery in ordering will help sector re-rating," noted the report.

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