Ahluwalia Contracts faces labour and raw-material bottlenecks as margins and growth weaken

Investment View and Valuation

In its August 18, 2026 result update, ICICI Securities downgraded Ahluwalia Contracts (India) Limited to REDUCE after Q1 FY27 margin compression, labour shortages and raw-material bottlenecks increased uncertainty around earnings growth. The broker revised its target price to Rs 670, valuing the company at 15 times FY28E EPS.

Ahluwalia Contracts remains a diversified construction company serving residential and commercial complexes, hotels, hospitals, institutional and corporate offices, IT parks, railway-station redevelopment, metro stations and depots.

Q1 FY27 Financial Performance

Consolidated operating income in Q1 FY27 was Rs 1,125.8 crore, up 12.0 per cent year-on-year but below ICICI Securities’ expectations because of labour shortages and raw-material supply disruptions. EBITDA declined 44.1 per cent year-on-year to Rs 48.3 crore, while EBITDA margin contracted by 430 basis points to 4.29 per cent.

The margin decline was principally attributed to higher labour costs, reduced labour availability and a Rs 29 crore final bill-value reduction on the completed AIIMS Jammu project. Reported PAT was Rs 10.4 crore, down 79.7 per cent year-on-year, according to the report narrative.

Growth and Margin Outlook

Management reduced FY27 revenue-growth guidance to 12–15 per cent from 15–20 per cent, citing seasonal disruptions and expected National Green Tribunal construction bans in the National Capital Region during Q3 FY27. Management also indicated that double-digit EBITDA margin is unlikely in FY27 following the Q1 FY27 outcome.

Margins are expected to gradually recover towards historical levels over the next three quarters as mega-project execution increases, but double-digit profitability is deferred until FY28. To protect future margins, the company is incorporating higher cost assumptions in new tenders, increasing staff-overhead provisions above 5 per cent and raising safety budgets to 3 per cent of project costs.

Labour and Raw-Material Cost Pressures

Labour availability and wage inflation are the key operating concerns. Statutory minimum-wage increases of 35–40 per cent in Haryana and Uttar Pradesh, combined with shortages of bar binders, carpenters and masons, reduced NCR project-site labour capacity to 40–50 per cent of requirements.

NCR accounts for nearly 50 per cent of the order book, and the resulting wage and staffing inflation caused an estimated 1.5 percentage point drag on Q1 FY27 EBITDA margin. Ahluwalia Contracts is negotiating item-rate revisions and compensation claims with private clients including DLF, Godrej and Signature Global, while increasing labour-unit-rate assumptions in future bids.

Cement and steel costs are largely pass-through costs, although price changes have a lag. Haryana regulatory action also temporarily shut nearly 90 per cent of Ready-Mix Concrete plants.

Order Book and Order Inflows

The unexecuted order book stood at Rs 20,663.5 crore at Q1 FY27, equivalent to 4.4 times trailing-twelve-month revenue. The order book was diversified across the following segments:

Private clients represented 61.7 per cent of orders, while fixed-price contracts accounted for only 10.3 per cent. Management reduced FY27 order-inflow guidance to Rs 4,000–5,000 crore from Rs 8,000 crore to prioritise margin protection. Year-to-date inflows were Rs 512 crore.

Major Projects and Balance Sheet

Major projects are expected to support FY27–FY28 turnover. The expected contribution from key projects is as follows:

Ahluwalia Contracts had cash and bank balances of Rs 920 crore as of June 30, 2026, with gross debt of about Rs 1.3 crore.

Revised Estimates and Key Risks

ICICI Securities cut its FY27E revenue estimate by 6.0 per cent, EBITDA estimate by 25.6 per cent and PAT estimate by 35.7 per cent. Its revised FY27E estimates imply revenue of Rs 5,105 crore, EBITDA margin of 8.0 per cent and PAT of Rs 213 crore.

The key risks identified in the report are:

• Lower-than-expected execution.
• Heightened competitive intensity affecting margins.