EPC Companies Face Margin Compression Amid Rising Costs, Crisil Says

Large engineering, procurement and construction (EPC) companies are set to see operating margins fall 50-70 basis points to 8.2-8.4% this fiscal, as higher commodity, freight and insurance costs stemming from geopolitical disruptions outweigh the benefit of stronger project execution, according to Crisil Ratings. The margin compression comes even as revenue growth of large, diversified EPC companies is expected to improve by 100-200 bps to 9-10%, powered by accelerating investment in generation and transmission, steady government infrastructure spending and overseas opportunities. Crisil’s assessment covers 14 large EPC companies with aggregate revenue of more than ?3.8 lakh crore last fiscal. Cost pressures have intensified across key inputs including cement, steel and bitumen, while freight and insurance costs also remain elevated. Materials typically account for 55-60% of total costs for these companies. Although index-linked escalation clauses provide some protection, cost pass-through remains partial across a sizeable share of projects. Recent rupee depreciation could, however, partly cushion companies with significant overseas exposure. Power is emerging as the principal growth driver. Investments in the sector, which account for nearly 25% of EPC order books, are expected to rise 15-20% this fiscal. Renewable-energy capex is likely to remain robust, thermal investment is reviving to meet baseload demand, while transmission spending is increasing to address connectivity bottlenecks. “The power sector is emerging as the key swing factor for revenue growth among EPC players,” said Gautam Shahi, Senior Director, Crisil Ratings. The order book-to-revenue ratio of large EPC companies is expected to strengthen to around 4 times this fiscal from 3.5 times last year, improving execution visibility and providing a stronger revenue pipeline. Government infrastructure expenditure is projected to grow 6-8%, broadly in line with last fiscal , and remain the largest contributor to EPC revenues. Approval and payment delays under the Jal Jeevan Mission, however, remain a monitorable. Overseas business is providing another growth cushion. Overseas orders accounted for about 33% of total order books as of March 2026, up from 28% a year earlier. The Middle East alone represents 70-75% of overseas order books, with opportunities across energy-transition and hydrocarbon projects. Execution in the region was temporarily disrupted during the initial phase of the West Asia conflict but has largely normalised. Crisil said reconstruction opportunities after the conflict could further support order inflows. “The anticipated margin moderation is unlikely to weaken credit profiles,” said Ankush Tyagi, Director, Crisil Ratings. Interest coverage is expected at 3.5-4 times, compared with 3.8 times last fiscal, while total outside liabilities to tangible net worth should remain stable at 1.6-1.7 times.