Business News/ Industry / Infrastructure/  Road construction to clock 16-21% rise in FY24 ahead of general elections: Icra

New Delhi: Road execution activity in FY24 is expected to see an increase of 16-21% year-on-year (YoY) to 12,000-12,500 km, amid a healthy pipeline of projects, increased capital outlay by the government, and focus on project completions ahead of general elections next year, ratings agency Icra Ltd said on Thursday.

Toll collection will also likely grow 6-9% in the year, supported by a 4%-5% growth in traffic.

“The execution was impacted in H1 FY23, on account of elevated commodity prices as well as prolonged monsoons in certain geographies, which affected the productive days. The situation improved in H2 FY23 with road construction witnessing a YoY growth of 2%, thereby containing the overall decline at 1% in FY23 (to 10,331 km from 10,457 km in FY2022)," said Vinay Kumar G, sector head, Corporate Ratings, Icra.

“The project pipeline remains strong at 55,000 km under various stages of execution. This, along with focus on project completions ahead of general elections, is expected to boost execution to 12,000-12,500 km in FY24," he added.

While road construction activity is expected to pick up, EPC (engineering procurement construction) segment will continue to remain the mainstay of awarding, accounting for 70-75% of awards in FY24. The BOT-Toll awards accounted for less than 5% of the orders in the last five years, and its share is expected to remain at similar levels in FY24, the ratings agency said.

While the bid competitive intensity remained high for EPC projects, notably this trend caught up with the HAM projects as well in FY23 with about 40% of the HAM bids at a discount to the authority bid price. The median premium declined from above 20% during FY19-21 to 15% in FY22 and 4% in FY23.

“In the backdrop of easing WPI inflation, the inflation-linked toll hike is relatively modest at 1.3-5% in FY24. Consequently, the toll collection growth in FY24 is estimated at 6-9%, primarily supported by 4%-5% growth in traffic. Despite the moderation in toll collection growth, lower outflow towards O&M and major-maintenance expense on account of recent moderation in key commodity prices, especially bitumen, should support the debt coverage metrics for BOT toll road assets. Icra’s outlook on toll roads for FY24 is Stable," Kumar said.

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Updated: 04 May 2023, 02:44 PM IST
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