Road construction to see 16-21% jump in FY2024 ahead of General Elections: ICRA

Road construction activity is expected to see a 16-21 per cent jump in FY2024 translating to 12,000-12,500 km, the Investment Information and Credit Rating Agency (ICRA) said. The strong growth is backed by several government projects, increased capital outlay and focus on project completions, ahead of the General Elections. ICRA also projected a toll collection growth of 6-9 per cent in FY2024, supported by a 4-5 per cent growth in traffic.

By: HT Auto Desk
| Updated on: 04 May 2023, 18:16 PM
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Providing more insights, Vinay Kumar G, Sector Head, Corporate Ratings - ICRA, said, “The execution was impacted in H1 FY2023, on account of elevated commodity prices as well as prolonged monsoons in certain geographies, which affected the productive days. The situation improved in H2 FY2023 with road construction witnessing a YoY growth of 2 per cent, thereby containing the overall decline at 1 per cent in FY2023 (to 10,331 km from 10,457 km in FY2022)."

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ICRA further said that the project pipeline remains strong at 55,000 km under various stages of execution. This, along with the upcoming General Elections should help fast-track the completion of projects to 12,000-12,500 km in GY2024.

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Kumar further explained, “With the model code of conduct in place during Q4 FY2024 (Q4 typically accounts for 50-60 per cent of awards in a year), ahead of the General Elections, the awarding activity is likely to be impacted in FY2024 and the overall awards are expected to decline to 9,000-9,500 km from 12,375 km in FY2023.

The EPC (engineering, procurement and construction) will continue to be the mainstay of awarding accounting for 70-75 per cent of awards in FY2024. The BOT-Toll awards accounted for less than 5 per cent of the orders in the last five years, and its share is expected to remain at similar levels in FY2024, the rating agency said in its report.

Also Read : Mumbai to Goa in less than 5 hours? New highway to be ready by 2024: Gadkari

While the bid competitive intensity remained high for EPC projects, notably this trend caught up with the HAM projects as well in FY2023 with about 40 per cent of the HAM (Hybrid Annuity Model) bids at a discount to the authority bid price. The median premium declined from above 20 per cent levels during FY2019 to FY2021 to 15 per cent in FY2022 and 4 per cent in FY2023.

“In the backdrop of easing WPI inflation, the inflation-linked toll hike is relatively modest at 1.3-5 per cent in FY2024. Consequently, the toll collection growth in FY2024 is estimated at 6-9 per cent, primarily supported by 4-5 per cent growth in traffic. Despite the moderation in toll collection growth, lower outflow towards O&M and major maintenance expense on account of the recent moderation in key commodity prices, especially bitumen, should support the debt coverage metrics for BOT toll road assets. ICRA’s outlook on toll roads for FY2024 is Stable," Kumar added.

First Published Date: 04 May 2023, 18:06 PM IST
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