India Ratings and Research (Ind-Ra) has maintained a negative outlook on energy and transport infrastructure for H2FY21, factoring the current challenges of relatively low demand.

This assessment is based on low demand, low thermal plant load factor (PLF), subdued wind generation, and the resultant impact on coverage metrics. The agency has also maintained a negative outlook on the roads and airport sectors.

Rebound in toll collections was strong at around 90 per cent of pre-Covid-19 levels in the first 15 days of September 2020, exceeding Ind-Ra’s April 2020 expectations. Nevertheless, possible regional lockdowns, a surge in Covid-19 infections, travel restrictions, people’s behavioural changes and weaker economic recovery are threats to further growth.

The airport sector was impaired by almost nil operations in Q1FY21, and restrained passenger movements. The short-term risks to traffic recovery cloud the sector’s prospects, but the long-term potential is intact, given the protected returns for airports and a long concession framework for others. Liquidity would be an important rating consideration for airports.

Also read: All-India energy demand on a recovery path

The effect of liquidity enhancement on distribution companies (discoms) are likely to be temporary, and payables from discoms are likely to increase slightly by FY21 year-on-year. The receivables’ profile would have exacerbated the generators’ problems. Policy actions such as the Reserve Bank of India’s Covid-19 moratorium and discom package play a critical role in beefing up liquidity for projects. The weak operating profiles of most discoms continue to be a drag on the sector.

The recovery in toll roads has been swifter than originally expected. However, projects have displayed a varied trend of revenue recovery due to individual corridor-specific dynamics. Commercial traffic contributes 75 per cent-80 per cent to the toll collections and the balance is from passenger vehicles.

Under-construction hybrid annuity model (HAM) projects face execution challenges with nearly 50 per cent of the projects running behind schedule. Of the impacted projects, nearly 30 per cent are facing sponsor-related issues, 30 per cent force majeure events such as excessive rains and floods, and the balance 40 per cent are grappling with authority-related issues such as right of way, utility shifting, and pending approvals.

It has revised Airports’ Outlook to Negative from Stable. In the midst of capex, the Covid-19-led passenger shock has derailed the plans of relying on internal cash accruals for funds. Absent liquidity and limited flexibility on capex phasing plan, airports could increase their leverage ratios to meet capital expansion targets.

It has also revised the Solar Power Outlook to Stable from Negative; for Wind Power it has maintained a Negative Outlook. It highlighed uncertainties compounding the under-construction solar projects, given the Covid-19-related lockdowns, changes in duties for solar panels and consequent difficulties in importing panels, and constraints in mobilising labour for implementation. It also said that delays in signing of power purchase agreements (PPAs) after bidding, delays in tariff adoption, and changes in module prices will bring the economics of project under significant stress.

Ind-Ra has retained a Negative outlook for thermal power, with general fall in demand having affected the PLF for projects and discom stress being elevated on thermal assets. Projects with untied capacity face revenue pressure due to low prices in merchant market.

Ind-Ra has revised the outlook for Transmission Power to Stable from Negative.

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