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September 01, 2018

Sector Report: Roads and Highways

This report is available to users in India for ₹40,000 + applicable taxes

 

Table of Contents

 

  • Summary
  • National highways
  • State roads
  • Rural roads
  • Public funding
  • Private funding
  • Competition

 

Summary

 

Awarding by NHAI is expected to be ~7,600 km in FY19

 

The overall awarding is expected to reach new heights in FY19. NHAI awarded ~7,400 km in FY18. More than 6,000 km wasawarded in last quarter of the fiscal year itself. However, given the current share of EPC and HAM, same level of awardingcannot be sustained post FY19. Thus, CRISIL Research expects awarding to fall to ~5,000 km level FY20 onwards.CRISIL Research expects awarding momentum to be high in the coming years on account of strong pipeline of projects,backed by the Bharatmala Pariyojana, and delegation of increased autonomy to NHAI. Awarding in FY19 is expected to behigher than that post FY20 on account of increased push prior to Loksabha elections.

Currently, most of the HAM players are looking for selling off equity stake in operational as well as under-construction projects,including newly awarded HAM projects. If this trend of selling equity stake in under-construction projects continue, givingbandwidth for the eligibile players to bid for new projects, the share of HAM projects in future could increase, thus increasingthe total awarding by NHAI.

 

EPC & HAM expected to constitute ~95% of total awarding

 

NHAI awarding in H1 FY19 has been low, however it is higher than activity in H1 FY18. Awarding is expected to pick up in H2,especially in Q4 of FY19. EPC constituted about ~51% of the total length awarded in FY18 and HAM constituted ~46%. Theshare of EPC was just 34% in FY17. EPC is expected to constitute majority of awarding in FY19 as well, since only a limitedset of players are currently participating in HAM and thus, total competitive intensity in HAM projects could fall till substantialexecution of existing projects is achieved.

 

Competition in HAM to remain low, EPC to stay competitive

 

6 players, viz. Dilip Buildcon, Sadbhav Engineering, MEP Infra, IRB Infra, Ashoka Buildcon and Welspun Enterprises constitutemore than 60% of the total HAM awards in FY18. The number of bidders in HAM projects have been limited to 5-6 biddersgiven the cautious approach undertaken by banks towards lending for HAM projects. On account of high number of projectsfloated on HAM and limited bidders, the bids have remained non-aggressive. Most of the HAM projects in FY18 were awardedat higher price than NHAI benchmark cost.