Road developers' debt to rise to Rs 30,000 crore by FY25: Crisil Report

Revenue growth also pegged to be high on strong awarding, says study

Driven by strong project awarding and execution, the debt of road and highway contractors in the country is likely to rise to Rs 30,000 crore by the end of 2024-25 from Rs 17,000 crore in FY22, a report by Crisil Ratings said.

“All the same, with the leverage level low at present, developers have headroom to borrow, which would keep their credit risk profiles stable. Asset monetisation will be crucial to rein in debt at comfortable levels,” the report said.

The rising debt will mostly be on account of equity commitments in under-construction projects, along with a rise in working capital requirements.

“Total equity commitment towards under-construction public private partnership (PPP) projects is estimated at over Rs 21,000 crore by fiscal 2025. Further, the working capital requirements are expected to increase with expected strong revenue growth of 10-15 per cent over the next two fiscals and rollback of liquidity support provisions under the Atmanirbhar Bharat package,” Mohit Makhija, senior director at Crisil said.

He added that accruals are likely to fund 45 per cent of these cash outgoes, while the other half will be taken care of through asset monetisation and raising debt. The report took into account 18 engineering, procurement, and construction (EPC) firms that account for over 70 per cent of the sector’s revenue.

The ability of the players to efficiently execute projects and improve profitability as well as incremental asset monetisation will remain key variables to be monitored over the medium term, according to the report.

So far, the sector has been able to keep a healthy balance sheet, as total outside liabilities have been almost the same as the tangible net worth of road contractors. These liabilities were 1.6 times the tangible net worth in the pre-pandemic period.

According to industry estimates, the current pipeline of road and highway projects stands close to Rs 1.5 trillion rupees, with a majority of projects being awarded under the EPC mode or the Hybrid Annuity Model (HAM). The last few years have seen a completely muted response to the build-operate-transfer (BoT) model, with awarding of such PPP projects dropping from 733 kilometres (km) in FY16 to 67 km in FY22.

The Centre is currently working on reworking the norms to attract more private investment in the deserted PPP mode.

Meanwhile, a report by research firm DAM Capital earlier said that order books of EPC road contractors had declined in the past nine months owing to high competitive intensity and lukewarm bidding.

Due to pandemic relief measures of the Centre for infrastructure companies, the past two years had seen aggressively competitive biddings from even non-serious players, which was partially offset by the rollback of some of the relief measures. However, many of these measures were recently extended till April 2023.