After a stutter during the first half of this fiscal year, road and highway project awards are picking up again. At least that’s what it seems at first blush.
In the past two weeks, there has been fresh media buzz about new project awards. The National Highways Authority of India (NHAI) is looking at awarding 1,600km worth of road projects in the current quarter, according to a CNBC-TV18 report quoting an NHAI official.
A Monday report by DNA newspaper said that a finance ministry panel has already cleared eight projects spanning 907km.
After awarding road-making contracts for 2,580km in the first two months of this fiscal, only 777km of projects were given out till October, according to HDFC Securities Ltd estimates. Another set of estimates by brokerage Elara Securities India Pvt. Ltd puts the total road contract awards between April and December at 5,500km, still a shortfall of 50% from targeted levels.
The arrest of two senior NHAI officials, differing project estimation costs between the authority and bidders, and land acquisition costs have been cited as reasons for the delay in awarding projects. But time is running out.
Assuming an average construction period of two-and-a-half-three years, NHAI has to award some 30,000km worth of road projects under the National Highway Development Programme by March 2014.
Remember that under this programme, the government had targeted upgrading some 55,000km of national highways by 2017, of which a quarter has been completed and one-fifth is under various stages of implementation.
So while the news about the awards for a new 907km is welcome, a lot more needs to be done.
Will this be a shot in the arm for infrastructure stocks? This sector has been underperforming the broader markets for a year now. The recent housing scam has made things worse.
Major road maker stocks such as IRB Infrastructure Developers Ltd and IL&FS Transportation Networks Ltd have lagged the broader index by as much as 20 percentage points in the past year.
Awards of new road projects would certainly help as will the typical gains in revenue in the second half of the year. But with higher commodity prices and interest rate hikes lurking around the corner, gains in road maker stocks— just like roads minister Kamal Nath’s dream of building 20km of roads a day—could be some time away.
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