India Ratings and Research has maintained a negative outlook for the infrastructure sector for FY18 while providing revised outlook for a couple of sub-sectors.

Venkatraman Rajaraman, Senior Director, Infrastructure and Project Finance, India Ratings, said the sector continued to face headwinds with some sub-segments doing better.

In the report released here today, the rating firm stated, “A reduction in interest rates and the stability of the Indian rupee can help ease the overall pressure on projects’ cash flow while a pick-up in economic activity will have a salutary effect on traffic volumes and energy demand, leading to portfolio-wide increases in coverage metrics.”

Apart from revising wind energy sector outlook as negative from stable (FY 2017), the road sector has seen assigned a negative outlook on the expectation of sluggish traffic growth.

With hardly much improvement in the toll roads sector such as low inflation, slower ramp up, lower toll rate growth, and coal-based thermal power (demand-supply mismatch, increased thrust on renewables), Ind-Ra continues with its negative outlook on these two sectors.

However, it observed that favourable policy actions and strong passenger growth drive the outlook revision to positive for airports for FY18 from stable, while other sub-sectors such as solar, ports and transmission have been maintained on a stable outlook.

The Ind-Ra’s analysis reveals the vulnerability of projects, especially the ones with a short operational track record of less than three years, hinting at impairment in debt serviceability.

The road developers have found a penchant for infrastructure Investment Trusts (InvITs) with 75 per cent of the InvITs in the listing stage are from the highway sector.

Discord over valuation may be one of the issues to watch out for, it highlighted.

The pace of financial closures under the hybrid annuity model is marred, due to low termination payments and less equity contributions.

The thermal power sector has received negative outlook mainly due to suboptimal plant load factors, lack of interest for long-term power purchase agreements which has been compounded by low priority in power scheduling. There is uncertainty in awarding compensatory tariffs.

The solar power sector has been assigned a stable outlook on the back of predictable nature of cash flows, decreasing panel prices and favourable debtor days.

Despite global macroeconomic headwinds, the capex plans of couple of airports are likely to be advanced. Airports are well poised to refinance their debt and the agency expects issuances with elongated tenors and bullet repayments.

The outlook for seaports is maintained at stable.

Related Topics
comment COMMENT NOW