New Delhi

India’s national highway (NH) construction pace is expected to grow by 5-8 per cent y-o-y to 12,500-13,000 km in the current financial year, which ends in March 2025, aided by a healthy pipeline of projects.

ICRA said it expects road execution to witness a growth of 5-8 per cent to 12,500-13,000 km, after recording a robust expansion of around 20 per cent in FY24.

Pace of execution

“The pace of execution in this fiscal will be supported by a healthy pipeline of projects, increased capital outlay by the government of India (GoI) and focus on completion of projects by the Ministry of Road Transport and Highways (MoRTH),” the ratings agency added.

Road execution was impacted in H1 FY24 on account of the prolonged monsoon in certain geographies, which affected productive days, resulting in muted growth during that period, it said.

“The execution situation started improving from September 2023 with road construction witnessing a y-o-y surge of 30 per cent in H2 FY24, enabling an overall growth of around 20 per cent in FY24 (to 12,349 km from 10,331 km inFY23), slightly higher than ICRA’s estimate of 12,000 km for that fiscal,” ICRA VP and Sector Head Corporate Ratings Vinay Kumar G said.

This increase was supported by the road ministry’s focus on the completion of projects ahead of the general elections. ICRA expects the road construction momentum to sustain in FY2025 as well, he added.

Project pipeline

The Ministry’s project award pipeline is healthy, at above 45,000 km as of March 2024. This is despite the awarding being significantly impacted in FY24 amid delay in approval from the Cabinet for the revised cost estimates of Bharatmala Pariyojana Phase 1 (BMP).

Consequently, the overall awards declined by 31 per cent to 8,551 km in FY24 from 12,375 km in FY23. A similar trend was seen in FY19 before the last general elections, when the project awarding had declined by over 67 per cent on a y-o-y basis.

“Despite the recent changes in the model concession agreement for capacity augmentation of BOT-Toll projects, given the higher equity commitment and the inherent traffic risks in BOT-Toll projects, a material shift in the overall project awards towards BOT-Toll in the near to medium term is unlikely,” he said.

ICRA expects the BOT-Toll awards’ share to increase to around 10 per cent in FY25 compared to less than 5 per cent of the orders in the last five years, Vinay Kumar added.

The EPC and HAM project bidding process in FY24 witnessed intense competition, as reflected in the consistently discounted bids (with respect to the authority’s base price) since FY21. The maximum and median discounts in 11 months FY24 stood at 46 per cent and 21 per cent, respectively, against 51 per cent and 25 per cent, respectively, in FY23.

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