According to its report released on February 11, the agency expects the infrastructure sector to remain stable in FY20 on the back of “stable economic growth”
Ratings agency India Ratings & Research has maintained a “stable” outlook on India’s road and aviation sector for the financial year 2019-20.
According to its report released on February 11, the agency expects the infrastructure sector to remain stable in FY20 on the back of “stable economic growth”.
According to Ind-Ra, the per day road construction touched a record high of 31.4 km during 2018-19, constructing close to 11,000 km of roads and highways so far.
It, however, lagged caution for the government’s ambitious flagship highway construction programme, Bharatmala, stating that with only 13 percent of projects being awarded under the programme so far, the project is yet to gain momentum.
Works awarded under Bharatmala stand at an approximate value of 2,000 km, which is less than what the government had hoped for this year.
According to union road transport and highways minister, Nitin Gadkari, 12,000 km of national highways works were to be awarded by December 2018. This was half of highway construction target under the phase one of the project.
Bharatmala is the government’s flagship highway construction programme which envisions to construct more than 60,000 km of national highways in two phases. The total estimated cost of the project is Rs 6.92 lakh crore.
The first phase of the programme was launched in October 2017, which envisions to construct 34,800 km of national highways at an estimated cost of Rs 5.35 lakh crore.
Another revelation made by Ind-Ra was the shift from hybrid-annuity-model (HAM) to engineering-procurement-construction (EPC) model.
According to the report, in the last one decade, builders opting for build-operate-transfer (BOT) model have been replaced by builders opting for HAM first and EPC later.
In 2014, 15 percent road projects were being done under BOT model and 85 percent were being done under EPC. The trend shifted with the government introducing HAM in late 2016, when 20 percent of the projects were being done under BOT, 72 percent under EPC and eight percent under HAM. The popularity of HAM, however, increased in 2017 with 56 percent of projects being done under HAM and only 10 percent under BOT. in FY19, however, the agency foresees a total of mere 17 percent projects under HAM and 83 percent under EPC.
The fading popularity of HAM has been attributed to dry financing for infrastructure projects due to rising interest rates and lack of credit availability as banks avoid extending loans for projects with longer gestation period.
Under HAM, 40 percent of the project equity is provided by the government while the remaining amount has to be arranged by the builder. Whereas, under EPC, the onus of raising finance is with the builder completely.
“With peak order book to revenue ratio, FY20 would be a litmus test for some developers. While availability-based roads are stable, mushrooming minor maintenance issues and increased oversight standards reinforce timely maintenance. Therefore, financial health of the operation and maintenance operator remains a key monitorable for the investors/developers,” the report said.
As far as the airport capacity is concerned, the rating agency estimated a peak passenger growth for Delhi Airport (Indira Gandhi International Airport) in FY22. It said that the passenger count at DIAL could touch close to 90 million by 2022. For Mumbai airport, the rating agency projected a stable passenger count till FY22.
“Although the historical average delay in private airport of 30 months in tariff order did not materially dent the revenue, with multi-billion capex on the cards, timely order from Airport Economic Regulatory Authority of India is eminent,” the report said.India which is world’s seventh largest aviation market, expects to be 3rd largest market by 2022. According to recently launched Vision document for 2040, India will need 200 airports to fly 1.1 billion passengers.