Road projects under HAM face funding, execution challenges: Report

The report which was released on Thursday, highlighted the current state of the Indian Road Sector, the performance of road projects under HAM projects

Road projects in India, particularly those under the Hybrid Annuity Model (HAM) are now facing obstacles in execution and funding, revealed a new report by CareEdge Ratings. 

The report released on Thursday, highlighted the current state of the Indian road sector along with the performance of road projects under HAM, the financing of major road developers, and lastly the outlook for FY24. 

HAM was launched by Union Minister of Road Transport & Highways Nitin Gadkari in 2016. The report analysed 235 HAM projects awarded between FY16 and FY22, totaling 10,000 km with an aggregate bid project cost (BPC) of Rs 2.74 trillion and debt of Rs 75,000 crore. Out of the 235 mentioned projects, 31 per cent are functional, whereas 44 per cent are under construction, and 25 per cent are awaiting an appointed date till December 2022. 

The operational HAM projects with an aggregate debt of Rs 36,000 crore are likely to demonstrate strong cash flow resilience. It further added that projects with weak sponsors' portfolios, which had an aggregate debt of Rs 6,000 crore and were awarded prior to FY20 and can likely experience execution challenges. 

Sponsors with moderate credit profiles are likely to face elevated execution and funding risks for their HAM projects, with equity commitment estimated at 3.7 times cash accruals leading to increased debt levels going forward, it said. 

In the last three years till FY22, road developers focusing on HAM projects have recorded significant growth in their scale of operations. There has also been a moderation of nearly 240 bps in the PBILDT margins to 14 per cent, due to a disproportionate hike in input prices. With a strong order book position, the scale of operations is envisaged to grow by around 15 per cent in FY23, however, due to intensified competition, the PBILDT margins might be further moderated by 70 bps.

Maulesh Desai, Director at CareEdge Ratings said, "Although NHAI's execution pace remained steady at 30 km per day during FY23, it was lower than the Ministry's estimates due to factors such as delayed receipt of the appointed date, prolonged monsoon, and a surge in commodity prices. For FY24, the pace of road construction is expected to pick up to around 32-33 km per day. Despite this uptick, the execution pace is still envisaged to be lower than that of FY21, and the PBILDT margins for road developers are expected to remain moderate at approximately 13.50% due to heightened competitive intensity."