National Highways construction to decline by 7-10% in FY25, amid execution challenges: CareEdge Ratings

The pace of National highway construction in India is expected to decline by approximately 7-10 per cent in FY25, with construction slowing from 12,350 km in FY24 to an estimated 11,100-11,500 km in FY25, translating to a rate of nearly 31 kilometres per day, according to CareEdge Ratings.

The slowdown is attributed to execution challenges, intensifying competition, and significant delays in the receipt of appointed dates after project awards.

Maulesh Desai, Director of CareEdge Ratings, said, "Among the under-construction projects, totalling ₹1.83 lakh crore, 55 per cent with an aggregate BPC of ₹1 lakh crore are delayed by more than six months."

He added, "It is owing to escalating execution challenges, heightened competitive landscape, and significant delay in receipt of appointed dates post award of the project."

CareEdge Ratings conducted an extensive financial analysis of 17 sponsors and EPC contractors engaged in Hybrid Annuity Model (HAM) projects.

While timely execution contributed to a 14 per cent compound annual growth rate (CAGR) in total operating income (TOI) between FY21 and FY24, lower project awards in FY24 and H1FY25 have significantly reduced revenue visibility.

The order book-to-TOI ratio declined from 2.78x in FY22 to 2.15x in FY24, with many projects awaiting appointed dates, leading to a much lower executable order book.

Furthermore, operating profitability is projected to decline by 200 basis points (bps) in FY25 from FY23 levels due to higher competition and increased overhead costs.

The discontinuation of the Atma Nirbhar Bharat scheme for monthly payments is expected to lengthen the working capital cycle by 15-20 days in FY25, further straining developers.

The Hybrid Annuity Model (HAM) continues to dominate highway project awards, accounting for nearly 55 per cent of total projects awarded between FY21 and FY24.

CareEdge Ratings analysed 374 HAM projects awarded by the National Highways Authority of India (NHAI) between 2015 and 2024, covering 16,000 km with a total BPC exceeding ₹4.03 lakh crore.

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