Interested in stocks of highway developers? The worst may be over
The Indian roads and highways sector, which had seen pumped-up action with record 17,000 km worth of contracts awarded four years ago, had seen the momentum fade thereafter.
Although the execution statistics continued to climb and hit an all-time high in the year ended March 31, 2021 with 13,327 km, this too lost steam last fiscal year when the country added around 10,457 km in the 2021-22 period.
The per day execution declined by about 22% to 28.6 km/day vis-à-vis execution of 36.5 km/day in FY21.
But this is expected to pull up in the current year, giving an impetus to roads and highway developers as well as toll road companies.
Contracts improved to 12,731 km in FY22 from 10,965 km in FY21 and are expected to increase further to 13,500-14,000 km in the current year, according to credit rating and research firm ICRA.
At the same time, execution—which had declined by nearly 30% from 13,327 km in FY21 owing to prolonged monsoons—is also expected to improve to 12,000-12,500 km this year due to ramp-up in execution and strong unexecuted pipeline.
The hybrid-annuity model, followed by engineering, procurement and construction model, have emerged as preferred modes of project award by the NHAI, the nodal body monitoring road projects in the country. Almost 55% of the road projects awarded by NHAI in FY22 were through the HAM route and the trend is likely to continue in FY23 as well.
Project awards under the build-operate-transfer-toll mode will remain subdued, with its share likely to remain below 5% over the medium term, according to ICRA.
Meanwhile, NHAI toll road assets are likely to witness 17-20% toll collection growth in FY23, supported by toll rate hike of 8.4-14.5% and 5-6% incremental growth in traffic.
Toll road tariff is partly inked to wholesale price index and that has shot up largely due to rise in crude oil price.
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