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Our view

A smoother road ahead for developers

The Indian roads sector has seen quite afew twists and turns over the past decade.

Between fiscals 2006 and 2010, the sector saw a boom in build-operate-transfer (BOT) awards.

This was followed by a lull due to issues related to land acquisition and project clearances, which led to stalled projects and highly leveraged balance sheets for most developers in the sector. The period between fiscals 2010 and 2014 thus saw tepid private participation.

To revive the sector, the National Highways Authority of India (NHAI) introduced new models such as the hybrid annuity model (HAM) in fiscal 2016 and the tolloperate-transfer (TOT) model the following year. Following this, fiscal 2018 saw the awarding of projects peak at around 7,400 km.

However, in fiscal 2019 again, project awarding dropped to around 2,200 km due to a slowdown in land acquisition and issues related to awarding of appointed dates for projects.

On the upside, the sector has also seen growing interest from global investors, as reflected in the large M&A deals and anchor investments in road infrastructure investment trusts (InvITs). The companies active in the sector have been financially more disciplined (having kept leverage levels low), while bidding has been more rational compared with the heydays of the BOT era. This bodes well for the sector and will need to continue for credit profiles to sustain.

With the NHAI’s focus now on land acquisition, CRISIL believes project awarding will hold around 4,000 km over the medium term. This would translate into a pace of construction of about 26 km per day, down from 30 km per day now. Engineering, procurement and construction (EPC) and HAM projects will continue to dominate both awarding and execution. With this, the share of public investments is expected to remain high and government support to the sector will remain critical.

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