Toll collections hit roadblock as traffic tapers due to auto slowdown

Experts say while traffic and toll collection will take a hit in FY2020, toll rates may also not rise much in FY2021 due to a lower WPI

As sales for automobiles dip, the number of vehicles crossing India’s highway toll gates is also slowing down. Industry officials and experts suggest traffic and toll collection growth seen in the last few years has now hit a block.

While traffic and toll collection will take a hit in FY20, toll rates may also not rise much in FY21 owing to a lower wholesale price index (WPI).

“The secular growth in traffic witnessed in the last few years has been impacted due to the economic slowdown to some extent,” said KP Maheshwari, chief executive officer, Adani Transport.

According to ICRA research, toll collections may witness mid-single digit growth in FY2020. This would be a modest one compared to an implied 12.10 per cent toll collection growth in the second half of FY18, which fell to 3.8 per cent in the second half of FY19.

Icra sees a decline in traffic volumes for the sample of 34 build, operate and transfer (BOT) toll road projects in India for the last three quarters. India Ratings research stated traffic growth rate may slow down by 200 basis points in FY20 from a 4-4.5 per cent growth seen in FY19.

Industry experts suggest what is holding up the growth trend for toll and traffic is the passenger vehicle category. “If one was to consider only the commercial vehicles segment, it will show negative growth, passenger vehicles in some segments are still showing a double digit growth rate,” said a top official from a fund which invests in road projects.  

For India’s national highways, commercial vehicles like trucks contribute more than 70 per cent of the total toll collected. Icra attributed the slowdown in traffic to the change in axle-load norms for such trucks. “The revision in axle-load norms in July 2018 allowed medium and heavy commercial vehicles  to carry higher freight by 15-20 per cent with the same fleet size,” the report last week said.  

However, industry officials suggest reasons beyond the change in norms. “The decision had some impact but that has stabilized now,” said Maheshwari. He added,” We expect the impact due to economic slowdown to be a temporary phenomenon and expect traffic to pick up after a couple of quarters.”

Not everyone is sure how long will the slump continue. “Traffic has been slow since elections, when we typically see lower number of vehicles moving for commercial purposes. The slump continued with a longer monsoon setting in. We did see some uptick in the last one and half month but not much,” the fund official quoted earlier stated. Vishal Kotecha, Associate Director, India Ratings and Research, expects the trend will mirror the economic situation in the country.

In addition to National Highways Authority of India (NHAI), companies like IRB Infrastructure Developers, Sadbhav Infraprojects, MEP Infrastructure Developers, L&T Infrastructure Development Projects and Ashoka Buildcon have a direct exposure to toll collection. Under the build operate toll (BOT) model, the developer collects toll to make up for the investment made in building the road. “Agreements signed post 2010 have a clause to cover up for lower-than-estimated traffic to some extent,” the fund official added.

These companies will also have to brace up for slow growth in toll rates in FY21. “The increase in toll charges will be lower than FY19 due to moderating WPI,” said Kotecha from India Ratings. WPI is a component used to fixing toll rates each year. In some agreements signed prior to 2010, toll rates are entirely linked to WPI.

India Ratings expects the slowdown in toll collection to have a minimal impact on NHAI. “Toll income for NHAI is in the excess of Rs 10,000 crore. However, most of their toll revenue projection is based on starting toll on new stretches,” said.