National Highways Construction to Drop 7-10% in FY25: CareEdge Ratings

10 Feb 2025 CW Team

The pace of National Highway construction in India is expected to slow by 7-10 per cent in FY25, with the estimated completion dropping from 12,350 km in FY24 to around 11,100-11,500 km in FY25, averaging nearly 31 km per day. This decline is primarily due to challenges in execution, increased competition, and significant delays in receiving appointed dates after project awards.

Approximately 55 per cent of the under-construction projects, valued at Rs 0.1 million with a combined bid project cost (BPC) of Rs 1 trillion, have been delayed by over six months. This is mainly attributed to escalating execution hurdles, a more competitive environment, and delays in project scheduling after award announcements.

CareEdge Ratings also conducted an extensive financial analysis of 17 sponsors and EPC contractors involved in Hybrid Annuity Model (HAM) projects. Despite a 14% compound annual growth rate (CAGR) in total operating income (TOI) between FY21 and FY24, reduced project awards in FY24 and H1FY25 have significantly decreased revenue prospects.

The order book-to-TOI ratio has dropped from 2.78x in FY22 to 2.15x in FY24, reflecting a much smaller executable order book, with many projects still awaiting appointed dates. Operating profitability is expected to decrease by 200 basis points in FY25, due to heightened competition and rising overhead costs.

Additionally, the discontinuation of the Atma Nirbhar Bharat scheme for monthly payments is likely to extend the working capital cycle by 15-20 days in FY25, placing further strain on developers. The Hybrid Annuity Model continues to dominate, accounting for nearly 55 per cent of the total projects awarded between FY21 and FY24, with a combined BPC of over Rs 4.03 trillion across 374 HAM projects.

News source: The Free Press Journal

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