Power firms, ports to weather 2nd wave better than airports, roads: Moody’s

Indian power firms and ports will be better able to weather the impact of the second coronavirus wave as compared to airports and toll roads, Moody’s Investors Service said in a report on Wednesday.

Even as states have eased lockdown restrictions imposed during the second wave, India’s growth projections have been subdued and below 10% for the current financial year. “Any further regional lockdowns will increase uncertainty over India’s recovery. While infection rates are declining, vaccination rates remain low, leaving open the risk of subsequent infection waves that could bring further lockdowns. The government’s ability to limit the virus spread and materially increase its vaccination drive will have a direct impact on the economic recovery,” Moody’s Investors Service said in a statement.

Last year India had announced a ₹20 trillion stimulus package, with the economy contracting 7.3% in FY21 due to the first wave of the pandemic.

“Many states in India have reimposed regional lockdowns as daily new cases increased sharply in May 2021. The lockdowns, along with public behavioural changes, are curbing economic activity and mobility, which will have a varied impact on infrastructure companies,” said Abhishek Tyagi, Moody’s vice president and senior credit officer in a statement.

After the first wave, India’s highways started getting busy again reflecting a rebound in economic activity before the second wave hit the country. India has a 137,635 km of national highway network. “Among the sectors most severely affected by the movement restrictions are airports and toll roads, whose liquidity buffers will be key for their credit quality,” the statement said.

Some analysts believe India’s toll road projects may still register low revenue growth in the current financial year, despite the interstate and intrastate restrictions put in place to contain the second wave of coronavirus pandemic that originated in Wuhan, China.

“In contrast, Moody’s-rated power companies can manage the current demand contraction and elongated cash conversion cycle, given their good access to liquidity and sponsors that can provide financial support. Likewise, rated ports are well-positioned to handle any medium-term slowdown in cargo volumes, given their dominant market share and material buffer in their financial profiles to absorb temporary disruptions,” the statement added.

This assumes importance given that energy consumption, especially electricity and refinery products, is usually linked to overall demand in the economy.

With the second wave of the coronavirus pandemic keeping a large part of India’s population indoors, the country’ electricity demand dipped in May, according to S&P Global Platts. India’s low power demand scenario may also continue till July.