Business Bureau :
Road developers are looking at a massive plunge in their revenue growth to the tune of 50 percent during the current and next fiscals mainly due to the delays in awarding new projects, says a report. The report by Crisil also notes that the delay in issuing the 'appointed date'--the starting date of the project-by the NHAI will also impact revenue growth which is likely to halve in fiscals 2020 and 2021 to 15 percent, compared to 30 percent in FY2019.
The report is based on an analysis of 75 companies it rates in this sector. The NHAI awarded 7,400 km of road projects in the EPC model in FY18, which slowed down in FY19 to about 2,200 km. In the current fiscal and the next, awarding is expected to be 4,000 km a year. “The delay in declaring the appointed dates is primarily due to issues delays in land acquisition,” says the report. Crisil’s analysis of 119 hybrid annuity model projects shows almost 30 percent of them haven't received the appointed dates even after a year. However, the report notes that slowdown is unlikely to impact the credit profiles of these EPC players primarily because they have a healthy order book of Rs 2 lakh crore, which is at over three times their revenue in FY19, thereby providing high revenue visibility for the next two years. “Besides this, these companies have kept a check on their debt levels while pursuing growth.
Also, while a delay in receipt of appointed date may lead to a delay in recognising revenue for some projects, there is an assurance that a project once started will not be stalled,” it notes. NHAI notifies the appointed date only when nearly 80 percent of the land for HAM projects is procured. Thus, once a project is under construction, there is limited risk of delays thus minimal impact on credit profiles, Crisil says. However, the agency notes that there is a risk that any further delay in declaring appointed dates can result in termination of some of the awarded HAM projects.
The report opines that since the concession agreement for HAM allows for mutual termination of a project in case the appointed date is not received within a year, it will further impact revenue growth of the awardees. "Overall, we believe while there is a visible slowdown in revenue growth of most road EPC players, their credit profiles will sustain. NHAI's focus on land acquisition and clearances will be key to execution and sustained momentum," it said.