Icra revises outlook on toll road businesses to positive for 2023

Rating agency ICRA Limited has revised its outlook on toll road businesses to positive from stable for 2023 as toll collections are likely to witness a healthy increase on the back of improved economic activity.

Around 65% of the freight traffic is dependent on sectors like mining, construction, and manufacturing which have witnessed a strong rebound, the ICRA told the media.

The growth in construction, mining, and manufacturing is estimated to be 6%-8% for 2023 and is likely to result in a 5%-6% increase in overall traffic volumes. This correspondence brings growth in toll rates and should support strong growth in collections.

Toll rates for projects linked to December wholesale price index (WPI) to see 8.4% growth, while the toll rates for projects connected to March WPI will witness a growth of 14.5%.

Icra Vinay Kumar G told the media that as regards toll collections, they are likely to grow by 17-20% during 2023 owing to a sharp increase in toll rates, traffic growth, and adjustment of 3%-4% revenues which was lost due to the second wave of Covid in Q1 FY22.

Further, a growth in toll collection is likely to far outweigh the expected growth in Operation and Maintenance (O&M) costs due to high WPI and is likely to result in better coverage metrics. ICRA anticipates cumulative debt-service coverage ratio (DSCR) to rise by at least 10 bps for most road projects.

The road sector is witnessing maximum action as the economy pushes ahead on an accelerated recovery path post the pandemic disruptions, among different infrastructure sectors. It remained above the 10,000 km mark and is likely to reach 12,000 km this year though road construction was delayed last year. The traffic on roads is also back to pre-Covid levels providing a healthy return to investors.

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