• Report
  • Credit Quality
  • Hybrid Annuity Model
  • Road Construction
  • Infrastructure
  • Road Sector
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.