Year Ender 2021: India's road development continued unhindered despite Covid second wave

Activity in the roads & highways sector continued unabated despite a temporary setback due to the second wave of the Covid-19 pandemic and unseasonal rains. In fiscal 2021, the country had constructed 13,505 km of national highways or 37 km of roads a day, leading the ministry of road transport & highways to revise the target upwards for the current fiscal to 40 km a day.

Under National Monetisation Pipeline (NMP) announced by the central government in August, the highest asset monetisation of Rs 1,60,200 crore is planned for the sector. Spanning four years from FY2022-25, the NMP initiative seeks to unlock the inherent value of public sector assets through private investments.

"The government unveiled 23 new national highways to be constructed by 2025 in FY2021, while also launching the Gati Shakti National Master Plan to help in the holistic and integrated development of infrastructure this year. With Rs 111 lakh crore being allocated under the National Infrastructure Pipeline (NIP) for FY2019-25, the roads sector is likely to account for 18 per cent capex," surmised senior VP & managing director for Asia at the engineering consultancy Louis Berger, Kshitish Nadgauda.

Tolling across the national highways remained buoyant during the post-Covid period and it was one of the first sectors to recover from the pandemic.

"The resilience brought in a lot of confidence to the investors such as private equity and pension funds to engage in both buy and sell-side mandates. An important behavioral shift also happened in 2021 when a majority of the users adopted FASTag as a mode for paying tolls and this has led to complete digitisation of toll collection," remarked director and practice leader for transport & logistics at CRISIL Infrastructure Advisory, Jagannarayan Padmanabhan.

The national road development agency, National Highways Authority of India (NHAI) expects to generate Rs 1.40 lakh crore in revenue annually from tolling and other sources over the next three years.
 
In 2022, in addition to meeting construction targets, the focus would be on ensuring the smoother movement of traffic and enhancement of logistic efficiency through multi-modal integration and technology.

"The use of information technology applications will get increased. Initiatives related to the administration of existing funding have also been launched. The government is working on a series of policies to attract significant investor interest. A total of 200,000 km of national highways is expected to be completed by 2022," observed Nadgauda.

NHAI is already working on a plan to provide broadband connectivity in public-private partnership (PPP) mode along greenfield highways.

Enhanced competition among road developers

Experts also expect competitive bidding for road projects witnessed in the first half of the current fiscal to sustain for some more time.

"Relaxation in the bidding criteria and changes in the model concession agreement of hybrid annuity mode (HAM) projects intensified competition in the bidding from the third quarter of the current fiscal. The number of maximum bidders rose to 20 in FY2021 as against maximum 10 bidders till FY2020," averred senior director CARE Ratings, Amod Khanorkar.

Khanorkar also foresaw a dip in profit before interest, lease rentals, depreciation and taxation (Pbildt) margins by around 210 bps during FY2022 over FY2020 levels due to disproportionate hikes in commodity prices over inflation indexation and the impact of the pandemic.

"Assuming a nullifying impact of commodity prices in the upcoming bids by developers, CARE Ratings estimates margins to taper down to 14-15 per cent in the medium term owing to increased competitive intensity," he added.

The sector is projected to remain stable with capital structure and debt coverage indicators of road developers continuing to remain strong, with asset monetisation also aiding their balance sheets.

In another notable development, the National Investment and Infrastructure Fund (NIIF) made considerable progress on integrating its roads & highways portfolio. The India-focused sovereign wealth fund acquired Essel Devanahalli Tollway and Essel Dichpally Tollway through its NIIF Master Fund. These road projects will be supported by NIIF's proprietary road network, Athaang Infrastructure.

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