India’s Infra Sector Faces Margin Strain Despite Strong Order Inflows in Q4FY25: Nuvama Research

New Delhi, June 12, 2025

India’s infra sector under pressure despite positive order momentum

India’s infra sector is experiencing significant pressure on revenue and operating margins in the fourth quarter of FY25, despite a healthy uptick in order inflows, according to Nuvama Research. The report raises concerns about the sustainability of growth in the infrastructure industry, which remains a crucial pillar of the country’s long-term economic development.

Infra sector witnesses strong order book, but margins take a hit

Nuvama Research highlights that while India’s infra sector saw an increase in project allotments and order inflows, especially in the roads, railways, and urban development segments, companies are facing difficulties in converting these into higher earnings. Elevated raw material costs, execution challenges, and delayed payments from government agencies have continued to weigh heavily on profitability.

The research also notes that the infra sector’s revenue growth was slower than expected in Q4FY25. Although the order inflow grew by nearly 20% year-on-year, operating margins declined sharply, averaging around 9.5% compared to over 11% a year earlier. This drop is a worrying sign for investors and stakeholders tracking the financial health of India’s infra sector.

Cost inflation and execution lags stifle performance

A primary driver behind the declining margins in the infra sector is cost inflation. Cement, steel, and fuel prices have remained volatile throughout the quarter, putting pressure on cost projections. Additionally, labor shortages and regulatory delays have affected the pace of project execution, resulting in increased overheads and missed deadlines.

The infra sector is particularly vulnerable to macroeconomic fluctuations due to the long project cycles and dependency on governmental clearances and funding. Nuvama’s findings show that project execution timelines in Q4FY25 extended by an average of 3 to 6 months, adding further financial burden on contractors and developers.

Government push remains strong, but cash flow concerns persist

Despite the central government’s continued focus on infrastructure expansion under schemes such as the PM Gati Shakti initiative, cash flow constraints remain a critical issue. Delayed payments from government departments and public sector clients are slowing down project progress and stretching balance sheets. Several infra sector players have flagged receivables piling up, leading to working capital pressures.

This financial stress is prompting infra companies to resort to short-term borrowings, thereby increasing their debt burden. The infra sector is becoming increasingly cautious in bidding for new projects, with several mid-sized firms prioritizing execution and cash flow stabilization over aggressive expansion.

Outlook cautious for FY26 despite policy tailwinds

Looking ahead, the outlook for India’s infra sector in FY26 remains cautiously optimistic. While policy support, enhanced budgetary allocations, and rising private participation are likely to sustain order flow momentum, actual earnings recovery will depend on margin normalization and resolution of cash flow challenges.

Nuvama Research suggests that infra sector firms need to focus on operational efficiency, leaner balance sheets, and improved risk management to navigate the current challenges. Technological adoption, digitization of project tracking, and improved contract structuring can also play a critical role in boosting profitability.

Industry analysts believe that the infra sector will continue to be the backbone of India’s development plans, but the short-term performance may be clouded by the dual pressures of cost inflation and execution lag.