India's second Covid wave to impact infra sectors, says Moody's

India's second coronavirus wave will affect its infrastructure sectors to varying degrees with power companies and ports better able to weather the impact of pandemic-induced disruptions compared with airports and toll roads, according to a new report by Moody's Investors Service.

Any further regional lockdowns will increase uncertainty over India's economic recovery, said the report. While infection rates are declining, vaccination rates remain low, leaving open the risk of subsequent infection waves that can bring further lockdowns.

The report said that the government's ability to limit the virus spread and materially increase its vaccination drive will have a direct impact on the economic recovery.

"Many states in India have reimposed regional lockdowns as daily new cases increased sharply in May. The lockdowns along with public behavioural changes are curbing economic activity and mobility, which will have a varied impact on infrastructure companies," said Abhishek Tyagi, Moody's Vice President and Senior Credit Officer. Among the sectors most severely affected by movement restrictions are airports and toll roads whose liquidity buffers will be key for their credit quality.

"Lower cash revenue can pressure debt-funded expansion projects of rated airports which can need additional debt to complete their projects. Nevertheless, recent capital raisings by airports have provided some liquidity buffers," said Spencer Ng, Moody's Vice President and Senior Analyst. In contrast, Moody's-rated power companies can manage the current demand contraction and elongated cash conversion cycle, given their good access to liquidity and sponsors that can provide financial support.

Likewise, rated ports are well-positioned to handle any medium-term slowdown in cargo volumes, given their dominant market share and material buffer in their financial profiles to absorb temporary disruptions.