India’s road sector offers a mammoth investment opportunity of Rs 20 trillion under National Infrastructure Investment Pipeline for the period FY2020-25. Over past two years, the sector has witnessed robust activity in project awards and execution pace despite the Covid induced pandemic.

The Government of India through central project awarding authorities has initiated a series of reforms – the introduction of modified concession agreement, issuance of COD on partial completion, monthly billing, easing of exit norms are some of the prominent measures towards resurrecting investor confidence and aiding liquidity of the developers. With estimated increase in portfolio of completed Hybrid Annuity Model (HAM) projects and resilient performance of toll roads in FY2022, asset monetisation and refinancing transactions are slated to gain momentum. Nevertheless, downside risks triggered by heightened competitive intensity amid hike in commodity prices and toll disruptions prompted by ongoing farmers’ agitation in the northern India are some of the watchful developments which shall influence the investor appetite for acquisition.

The Government of India-led initiatives has smoothened roadblocks in projects awarded and execution has witnessed a steady increase. Asset monetisation through InVIT and TOT has also gained momentum, said Maulesh Desai, Associate Director, CARE Ratings, at a webinar organised on “Indian Roads Sector – Bridging gaps & paving the way for growth.” HAM projects with BPC of Rs 68,000 crore are expected to be achieved by March 2022, and hence offer a robust refianancing of potential Rs 28,000 crore in FY2022 and FY2023. “Languishing HAM projects of a weak sponsor is still a concern for the sector. Road developers with focus on HAM projects is expected to post strong revenue growth close to 13% during FY2022; however the operating margins to drop by 210 bps from FY2020 level and mid-size EPC players heighten competitive intensity since Q3FY2021, with the relaxation of the building criteria.” The toll projects outperform expectations for FY2021 as estimated toll growth of 10.50% despite Covid-II for FY2022.

BM Rao, CGM (Finance), NHAI, shared his views regarding conflicts and arbitration claims. “NHAI has constituted various committees of independent experts to solve the disputes and conflicts. And in order to help those committees we have three CGM Committees consisting of two technical and one non-technical CGM. The committees work it out after hearing the claims of the contractors and counter claims of NHAI and find an amicable solution. The committee meetings take place on a regular basis to solve the disputes. We are also advising them to go for substitution in case of stuck projects and weak sponsors, so that the delay in project execution can be avoided.”

“In order to increase the competition we have made some relaxation and changed some laws of bids as well. NHAI has issued guidelines so that there is no lapse of quality in road construction. Wherever we get low bids we ensure even stricter supervision,” added Rao.

“Conciliation has helped in solving disputes and issues much better than the legal way. It is a timebound process which helps in giving clarity to the developers and NHAI. It helps to solve old disputes in a faster way,” shared Paresh Mehta, Group CFO, Ashok Buildcon.

Ashok Kumar Sharma, GM-Project Finance & Structuring Strategic Business Unit, State Bank of India, said, “As of now, the NHAI has been proactive and have now given the exit options. We have also seen a lot of investors developing a good relationship with the developers regarding the execution of the project and agreeing to terms. We as a lender keep pushing the developers to tie up with an entity or sponsor. With the support of NHAI we have been able to convince the weak sponsors to either hand over the project or tie up with key investors who are ready to put in some money and derive good money out of that. There are challenges, but we need to take the timely call. The small and medium size players should always bid as per their best ability and not think about going beyond the limit unless they have a tie up.”