• Credit Quality
  • Road Sector
  • CRISIL Ratings
  • Hybrid Annuity Model
  • Highway Projects
  • Roads and Highways
May 29, 2017

Driving past potholes

The hybrid annuity model (HAM) and engineering, procurement and construction (EPC) model of road construction are gaining currency, replacing the older build-operate-transfer (BOT) route.

CRISIL analysis found that, in the past three years, over 80% of highway projects in the country have been bid out under non-BOT channels. While EPC contracts ruled the roost until fiscal 2016 (72%), it is estimated that 56% of highway projects were bid under HAM in 2016-17.The benefits of these models, especially the lowering of implementation risks on account of substantial pre-acquisition of land, and no traffic risk have translated into higher growth for companies in the sector.Revenues of 50 EPC companies rated in the investment-grade by CRISIL grew at a compound annual growth rate (CAGR) of 20% through three years ending March 2017 – a trend that is expected to sustain in the medium term on copious orders. Not just that, profitability and credit profile projections of these companies, too, look optimistic.