Shadow of cess cut over NHAI finances
PremiumHigher pump level prices can weaken fuel sales volume growth, and eventually affect collections from RIC
The capital budget allocation for the ministry of road transport and highways in FY23 was just 1% higher from the FY22 revised estimates, including borrowing, which is underwhelming considering rising inflation. Furthermore, the National Highways Authority of India (NHAI) will borrow almost nil, which will result in increased reliance on budgetary support.
“The toll collections in itself have fallen short of interest servicing in H1FY22. Prescient of this precarious outcome, the policy mandarins have rightly reined in the debt" said Rohit Natarajan, analyst at Antique Stock Broking Ltd. NHAI’s debt is already high. For the nine months ended 31 December, NHAI’s debt is around 26 times of 9MFY22 annualized toll collections.
View Full Image
The road and infrastructure cess (RIC) collections have funded a material portion of the NHAI budget historically besides funding other sectors such as ports, shipyards, inland waterways amidst others. But in FY23, there will be a significantly higher dependence for NHAI on RIC owing to pretty much nil allocation to internal and extra budgetary resources.
With rising crude oil prices, this could pose a risk. “If current Brent prices above $100 per barrel were to be sustained, the government may be under increased pressure to cut RIC further, in our view. Even otherwise, we think higher pump level prices could lead to weak fuel sales volume growth, which could eventually affect collections from RIC," analysts at Nomura Financial Advisory and Securities (India) Pvt. Ltd said in a report.
In November, the government had cut RIC from ₹18 per litre on petrol and diesel to ₹13 per litre and ₹8 per litre, respectively to offer some respite to customers.
Ashish Shah, analyst at Centrum Broking Ltd, also shared similar views. “The possibility for cuts in RIC can’t be ruled out as the rise in crude oil prices cannot be entirely passed on to customers," he said.
The fall in RIC collections raises concerns on funding for NHAI and could result in a weak capex outlook. This, in turn, will impact stocks with larger exposure to NHAI such as PNC Infratech Ltd, Dilip Buildcon Ltd and KNR Constructions Ltd.
Though the risks persist, analysts do not expect it to be severe.
MINT PREMIUM See All
“The shortfall in the budget for NHAI could be compensated by the government either by a supplementary budget or by revising their current plan of not borrowing as the possibility of a capex cut seems relatively smaller. Even so, there might be a near-term impact on the stocks with exposure to NHAI," said Shah
Never miss a story! Stay connected and informed with Mint. Download our App Now!!