The Wholesale Price Index (WPI) increasing to a 20-month high of 1.6 per cent in June from 0.8 per cent in May will augur well for the toll road projects revenues for financial year 2017-18, according to Icra Research.
“We expect the toll rates to increase in the range of 3.0-3.7 per cent during FY2018 – the highest growth after FY2015, following significant de-growth in toll rates for two consecutive years,” it said.
It estimates the average increase in WPI for 2017 to be around 3 per cent.
The report also said the toll fees are revised annually to adjust for inflation, as determined by the movement in the WPI, which links the revenues of toll road special purpose vehicles (SPVs) to movements in the WPI.
“For FY2018, the toll rate hike is estimated to be in the range of 3-3.7 per cent. While traffic is expected to increase by about 5-6 per cent in terms of annual average daily traffic. Overall, the growth in toll collections is expected to remain healthy at more than 10-11 per cent levels.
With rising inflation, the operations, maintenance and interest costs will also witness an increase; however growth in revenues will be higher, resulting in improved profitability,” Icra Senior Vice-President Rohit Inamdar said.
Icra noted that the impact of negative WPI is seen during FY2016 and FY2017.
“Projects for which toll rates are linked fully with WPI, the toll rates were revised downwards whereas for the other projects, the increase has been 2.7 per cent in FY2016 and 1.9 per cent in FY 2017,” the rating agency said.
However, the traffic growth has been robust during FY2016 which is likely to continue during current fiscal, it added.
As per the report, in a low inflation scenario, when there is no commensurate fall in interest rates, the profitability of the toll road projects gets adversely affected.