The Narendra Modi government has been aggressively pushing for the infrastructural development in the country, which had led to the doubling of the pace of road construction in the last four years. Moreover, the government’s spending on road construction is expected to push the annual growth in revenue of road construction companies to 20% till 2020, rating agency CRISIL said in a report.
“We expect topline growth for these companies to sustain at 20% in this fiscal and the next two, backed by strong order-books,” said Sachin Gupta, Senior Director, CRISIL. The report studied 66 companies that that account for huge debt in the sector. “Together, these companies are estimated to have an order book of Rs 1.3 lakh crore last fiscal, which, at over 3 times the revenues of these companies in fiscal 2018, provides high revenue visibility.”
FY18 witnessed highest road construction pace of 27 km per day, almost twice than that in the FY14. Moreover, Prime Minister Narendra Modi’s flagship road construction programme, Bharatmala, is expected to push the pace further. “Construction is expected to accelerate to 32 km per day by 2020 given NHAI’s sharp focus on the award of projects under the Bharatmala programme,” the report added.
In 2016, the Union Cabinet approved the hybrid annuity model (HAM) for building roads, a brain-child of Road Transport & Highways Minister Nitin Gadkari. HAM aims to fast-track highway projects, revive the Public-Private-Partnership (PPP) mode and attract more investments in the sector.
HAM projects being awarded over the next two years will need about Rs 70,000 crore of funding through an optimal mix of debt and equity, CRISIL said, adding that raise an additional Rs 12,000 to 15,000 crore of equity to invest in new projects should not pose problems as the market sentiment is positive.
Under the HAM, the government will provide 40% of the cost to private players to start the project and rest will be an investment by the developer itself. In Budget 2018, the government allocated Rs 5.97 lakh crore to the infrastructure sector, raising it from Rs 3.96 lakh crore spent in FY18.