Debt to rise for road developers amid strong revenue growth: Crisil1 min read 22 Mar 2023, 12:59 PM IST
Profitability is estimated to fall 150 basis points this fiscal, impacted by high input prices. Improvement in net cash accrual, hence, is expected to be limited
New Delhi: Sizeable equity commitments in under-construction projects and rising working capital requirement will increase the debt burden of road developers, though revenue growth will also be high in the next two fiscals driven by strong awarding and execution, together with significant budgetary allocation to the sector, ratings agency Crisil said on Wednesday.All the same, with the leverage low at present, developers have headroom to borrow, which would keep their credit risk profiles stable, an analysis of 18 engineering, procurement and construction (EPC) players, constituting 70% of the sector, as per Crisil Ratings.According to it, asset monetisation will be crucial to rein in debt at comfortable levels.“Total equity commitment towards under- construction public private partnership (PPP) projects is estimated at over ₹21,000 crore by fiscal 2025. Further, the working capital requirements are expected to increase with expected strong revenue growth of 10-15% over the next two fiscals and rollback of liquidity support provisions under the Atmanirbhar Bharat package," said Mohit Makhija, senior director, Crisil Ratings.“Accruals will fund 45% of these incremental outflows, while the balance is expected to be funded through asset monetisation and debt. Consequently, debt of the sample set is expected to inch up to ₹30,000 crore as of March 2025 from ₹17,000 crore as of March 2022," he added.Projects awarded through the hybrid annuity model (HAM) route typically form large share of National Highways Authority of India (NHAI’s) total awards. These projects require 12-15% of project cost to be funded through equity.