Severe delays in Rs 1 trillion national highway projects: CareEdge Ratings

Delayed HAM projects rose from 33% of total projects to 55%, says agency

Adding to the government’s woes with delays in infrastructure projects, more than Rs 1 trillion worth of national highway projects awarded under the Hybrid Annuity Model (HAM) have been experiencing severe delays, rating agency CareEdge Ratings said on Friday.

 

“CareEdge Ratings forecasts a nearly 7-10 per cent decline in the pace of national highway construction in FY25 compared to FY24. The construction rate is expected to slow from 12,350 km in FY24 to 11,100-11,500 km in FY25, closer to nearly 31 km per day,” it said.

 

In the report, the agency conducted an extensive analysis of 374 HAM projects awarded by the National Highways Authority of India (NHAI) between 2015 and 2024.

 

“These projects span an aggregate length of approximately 16,000 km and have a total bid project cost (BPC) exceeding Rs 4.03 lakh crore. As of the end of September 2024, 42 per cent of the sample BPC, aggregating over Rs 1.65 lakh crore, had been commissioned, while around 45 per cent of the projects, aggregating over Rs 1.80 lakh crore, are in the construction phase, and the remaining 13 per cent are awaiting the appointed date to commence construction,” it said.

 

According to the agency, 55 per cent of the analysed projects have been delayed beyond six months. In June 2023, this proportion was only 33 per cent, signalling a rise in delays in highway construction. While the grant of an extension of time (EOT) mitigates project-specific risks to an extent, it impacts the overall construction pace and the profitability of road developers, CareEdge said.

 

“Revenue visibility of major road developers has been impacted by the diminished pace of NHAI project awards and pending construction commencement for a large chunk of projects. Operating profitability is estimated to steadily decline by 200 basis points in FY25 from FY23 levels, led by increased competition and high overheads. Furthermore, with the discontinuation of the Atma Nirbhar Bharat scheme for releasing monthly payments, the working capital cycle is expected to increase by around 15-20 days. Nevertheless, comfortable leverage and a strong capital structure impart resilience to the credit profile of major road developers. Players with a pool of operational assets shall be better positioned to manage their leverage and liquidity,” said Setu Gajjar, assistant director at the rating agency.

 

The primary reasons behind these delays are a standard construction period of two years regardless of project complexities, heightened competitive intensity, non-availability of hindrance-free right of way, and excessive rainfall.