The road sector has seen a steady revival since the last Budget. An increasing number of stalled road projects have been cleared for construction after the new government took charge in 2014.

While the S&P BSE 500 Infrastructure Index has fallen 25 per cent since the last Budget, stock performance within the road sector has been a mixed bag. Shares of major road players — Ashoka Buildcon and KNR Constructions — moved up 21 per cent and 26 per cent, respectively, while that of IRB Infrastructure and Sadbhav Engineering fell 12 per cent and 25 per cent, respectively. L&T and IL&FS Transportation Networks also took a knock, falling 33 per cent and 67 per cent, respectively.

Fiscal years 2013 and 2014 were challenging for the road sector, with few takers for many of the projects. The sector has started to look up, thanks to the favourable policy climate. Better tidings are expected for road sector after a series of policy changes in the last one year, such as delayed premium payments for BOT projects starting from fourth year of operations, increased equity support to projects by NHAI, 100 per cent exit by equity player after two years of project completion and hybrid annuity model. Though weak economic growth played spoilsport, some companies witnessed a healthy growth in revenue and net profit.

Healthy traction

Ashoka Buildcon’s revenue and net profit grew by 7.4 per cent and 38.4 per cent respectively for nine months ended December 2015, compared with the same period last year. Similarly, IRB Infrastructure’s revenue grew by 25 per cent while net profit increased by 19 per cent during the same period.

Revenue picked up pace after the government accepted delayed start of premium payments for BOT projects. This helped to partially offset the decrease in toll pricing because of negative wholesale price index and a slowing traffic volume. Engineering, Procurement and Construction (EPC) majors reaped rich dividends with the government’s shift to build majority of highway network through EPC and hybrid annuity model frameworks.

Road construction major Sadbhav Engineering recorded a healthy 24 per cent in net profit for nine month period ended December 2015, compared with same period last year.

During the same period, KNR Constructions also posted a strong net profit growth of over 100 per cent.

MEP Infrastructure, one of the biggest toll collection, operation and maintenance players, saw net profit turn positive in the last two quarters.

Infrastructure conglomerates such as L&T and IL&FS, which had a diversified (a mix of projects from multiple sectors – road, power, metro etc) infrastructure portfolio, performed poorly.

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