Engineering, Procurement and Construction:
Braving the headwinds

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This report discusses the potential opportunity and recent trends witnessed by the EPC sector, challenges for re-enforcing sustainability and possible ways to overcome the challenges.

Highlights of the EPC sector

  1. India’s EPC market witnessed consistent changes over the last few years with solid growth in project size and complexity, increasing private clients and entry of several foreign players.
  2. The concept of EPC has been evolving over the last few years and has emerged as a preferred form of contracting by clients along with PPP models.
  3. Specialized EPC sectors such as marine, tunnelling, hydro, industrial, and oil and gas continued to prefer awarding projects in the EPC mode.
  4. In the current market landscape, EPC contractors have a healthy mix of both government and private sector clients.
The Government of India’s continued focus on developing India’s infrastructure has resulted in an ambitious target of INR56.3 trillion in the Twelfth Five Year Plan.

Major sector trends

  • Investment in niche areas on the rise
  • Globalization
  • PE in pure-play EPC companies
  • Formation of infrastructure holding companies by EPC players
  • Evolution of the market landscape

Key Challenges of the EPC sector

  1. The growth in revenues is not truly reflective in the bottom line. This is primarily due to significant cost overruns, regulatory bottlenecks and aggressive bidding positions taken by a few of market players.
  2. With increasing working capital requirements and the resultant increase in leverage, the EPC players are left with limited opportunity to raise further capital to fuel growth in the current scenario.
  3. The recent turmoil in the financial sector, including the rupee depreciation, has increased the level of uncertainty in project execution. Therefore, the sector is reeling under significant liquidity constraints.

Overcoming the challenges

Some of the remedial measures in overcoming the challenges in the EPC sector include:

  • Sector and role diversification
  • Strategic alliances and technical partnerships with global and domestic players in the EPC industry
  • GoI initiatives in driving EPC sector
  • Merger and acquisitions

Conclusion

The EPC sector needs to undergo a high level of transformation to ensure sustainability. It has great potential to grow further, with the Twelfth FYP targeting infrastructure spend of INR56.3 trillion.

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