Road developers’ debt to rise to Rs 30,000 crore by FY25: Crisil Report

Driven by strong project awarding and execution, the debt of road and highway contractors in the country is likely to rise to Rs 30,000 crore by the end of 2024-25 from Rs 17,000 crore in FY22, according to a report by Crisil Ratings.

“However, with the level of leverage currently low, developers have room to borrow, which would keep their credit risk profiles stable. Asset monetization will be crucial to control debt at comfortable levels,” the report said.

the ascent debt It is primarily due to capital commitments on projects under construction, coupled with an increase in working capital requirements.

“Total capital commitment for public-private partnership (PPP) projects under construction is estimated at over Rs 21 000 crore by FY 2025. Furthermore, working capital requirements are expected to rise with strong expected revenue growth of 10-15% over the next year. two fiscal ones and the reversal of liquidity support provisions under the Atmanirbhar Bharat package,” said Mohit Makhija, a senior director at Crisil.

He added that accumulations are likely to finance 45 percent of these cash outflows, while the other half will be covered by monetizing assets and raising debt. The report took into account 18 engineering, procurement and construction (EPC) companies that account for more than 70 percent of industry revenue.

The players’ ability to execute projects efficiently and improve profitability, as well as the incremental monetization of assets, will continue to be key variables to monitor in the medium term, according to the report.

So far, the sector has been able to maintain a healthy balance sheet, as total external liabilities have been almost equal to the tangible net worth of road contractors. These liabilities were 1.6 times tangible net worth in the run-up to the pandemic.

According to industry estimates, the current pipeline of road and highway projects is approaching Rs 1.5 trillion, with most of the projects awarded under EPC mode or Hybrid Annuity Model (HAM). Recent years have seen a completely muted response to the build, operate and transfer (BoT) model, with the awarding of such PPP projects falling from 733 kilometers (km) in FY16 to 67 km in FY22.

The Center is currently working on reworking the rules to attract more private investment in the deserted PPP mode.

Meanwhile, a report by research firm DAM Capital said earlier that EPC road contractors’ order books had declined over the past nine months due to high competitive intensity and tepid bids.

Due to the Center’s pandemic relief measures for infrastructure companies, the last two years have seen aggressively competitive bids from even non-serious players, which was partially offset by the reversal of some of the relief measures. However, many of these measures were recently extended until April 2023.