Credit rating agency Crisil has predicted that revenue growth for engineering, procurement and construction (EPC) road companies is likely to halve through FY21. However, their credit profiles will sustain on the basis of healthy order books and strong balance sheets.

Following its findings of 75 companies, Crisil said road developers in the EPC segment could see revenue growth halve in financial years 2020 and 2021 to 15 per cent, compared with 30 per cent in financial year 2019.

The decline would be largely due to slower awarding of projects and delayed receipt of appointed date, which is the zero date or kick-off date for start of a project received from the National Highways Authority of India (NHAI).

Sachin Gupta, Senior Director, Crisil Ratings, said, “The NHAI awarded a whopping 7,400 km in fiscal 2018, which slowed down the following year to about 2,200 km. In the current fiscal and the next, awarding is expected to be 4,000 km a year. The delay in declaring appointed dates for the projects awarded, on the other hand, is primarily due to issues in land acquisition.”

Crisil’s analysis of 119 hybrid annuity model (HAM) projects shows almost 30 per cent of these have not received appointed dates more than a year after these were awarded.

The slowdown, however, is unlikely to impact the credit profiles of the EPC players as they have healthy order book of ₹2-lakh crore, which is at over three times their revenue in financial year 2019, and provides high revenue visibility for the next two years. Second, these companies have kept a check on their debt levels while pursuing growth. At the consolidated level, the capital structures were robust as on March 31, 2019.

There is renewed interest from global funds in road projects. While a delay in receipt of appointed date may lead to a delay in recognising revenue for some of the projects, there is an assurance that a project, once started, would not be stalled.

This is because the NHAI notifies the appointed date only when majority of the land ― 80 per cent for HAM projects ― is procured. Thus, once a project is under construction, there is limited risk of delays due to non-availability of land and thereby minimal impact on the credit profile of the EPC companies.

However, there is a risk that any further delay in declaring appointed dates could result in termination of some of the awarded projects.

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