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Road construction in the fast lane, order flow expected to sustain

The outlook appears bright for road contractors as new order flow from NHAI is expected to stay uninterrupted in the coming years

July 22, 2021 / 12:40 PM IST
Representative image

Representative image

Road construction has picked up ever since Nitin Gadkari took charge for the road transport ministry. The pace will accelerate further with government looking to spend more on infrastructure to revive the economy.

The National Highways Authority of India (NHAI)  awarded projects worth Rs 1.7 lakh crore in FY21, constructing 4,788 km of highways at a record speed of 30.5 km a day.

Of the planned 34,800 km awards in Bharatmala - Phase 1, NHAI has already awarded 13,521 km and called bids for another 4,008 km. NHAI is likely to award new projects worth Rs 2.25 lakh crore in FY2022.

The construction is expected to reach 40 km a day. Among key states, Uttar Pradesh, Maharashtra, Karnataka, and Tamil Nadu have projects to be awarded over the next few months.

Rising debt a worry but not a roadblock

Close

Increased speed of construction has come at a cost. Due to higher cost of land acquisition, the overall cost of Bharatmala has moved up more than 50 percent from an initial estimate of Rs 5.35 lakh crore. NHAI's debt has likely gone up from Rs 2.5 lakh crore in FY20 to Rs 3 lakh crore in FY21.

However, the situation stands to improve once NHAI's asset monetisation programme kicks in. Conditions are ideal for that, considering the current easy liquidity condition. NHAI has already monetised 1,247 km of assets worth Rs 14,700 crore through ToT (toll-operate-transfer)1 and ToT 3, It has also finalised 160-km worth Rs 2,200 crore via ToT-5. It plans to raise between Rs 5,000 and 15,000 crore via three projects in FY22 and targets to monetise assets worth Rs 75,000 crore in total via ToT till FY2024.

Assets are likely to fetch attractive prices from bidders, considering the revival in the economy and improved toll collection since the ease of lockdown.

Toll collection has also improved with added transparency since the implementation of FASTag. FASTag penetration across the country is at around 96 percent, with electronic toll collection operational at 780 toll plazas.

Project momentum expected to sustain

Out of the planned 34,800 km awards in Bharatmala - Phase 1, NHAI has awarded projects for the construction of 13,521 km of highways and prepared detailed report for the remaining 21,000 km. The government is expected to invite bids for projects worth 4,008 km in FY22 and the rest in the following year.

Apart from that, the government has also planned greenfield expressway corridors at an investment of Rs 3.3 lakh crore, spanning over 7,900 km under Bharatmala Phase-1. With these projects, new order momentum is expected to remain robust at least till FY25.

The policy support

The government has relaxed various norms, making the policy extremely supportive of the road-construction sector. It has recently waived off penalty on delay in submission of bank guarantee. The timeline extension for project has been increased from three to six months and a monthly payment system introduced for work completed.

This relaxation has reduced the financial constraints, improved the flow of money, and reduced working capital requirements for road construction players.

Closing comments

The order outlook appears bright for road contractors as new order flow from NHAI is expected to stay uninterrupted in the coming years. Cash flow is also expected to improve after the recently introduced friendly policy measures.

However, the rising cost of commodities is a concern for companies that could play on their margins in the near to midterm.

Apart from road construction, players in this segment have also opened up other streams of revenues by migrating to other segments like railways, metro, mining, water and irrigation, etc.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Vaibhav Agrawal
first published: Jul 22, 2021 12:40 pm

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