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January: Road awarding remains muted

NHAI awarding activity remained subdued in January 2022 with LoA for only project spanning ~15kms issued during the month. YTD FY22 award stands at 2,583km, spanning 92 projects. Post H1FY22, awarding has slowed, only ~600kms were awarded since September 2021. The pace of award needs to pick up substantially over FebruaryMarch 2022 to match FY21’s ~4,800km project awarded figure.

The 2022 Union Budget (refer to, Union Budget – A mixed bag) witnessed a mere 1% YoY increase in outlay for roads space. This has raised concerns about the trajectory of road capex going ahead. Companies with healthy balance sheetslike KNR construction and PNC Infratech remain our top pick for the sector.

Road awarding remains in the slow lane

Road awarding was tepid in January 2022, with only one project spanning ~15kms awarded during the month. YTD FY22 award stands at 2,583km, spanning 92 projects. 416km of road projects were awarded in Q1FY22, increasing to 1,536km in Q2FY22, but then declined to 616km in Q3FY22. By length of projects awarded till date, ~42% have been on the EPC mode, while the rest were HAM projects.

Pace of award needs to pick up substantially

NHAI had awarded ~4,800kms of projects in FY21 worth ~INR1.3tn. With just two months left in the fiscal. The pace of award needs to gather pace substantially if NHAI is to match the FY21 award figure. The fact that road awards have been robust historically in the last quarter of the fiscal gives us some hope on this front.

Union budget was a disappointment

While the Union Budget talked about enhancing the highway network by 25,000kms in FY23, the overall road outlay increased by a meagre 1%. Overall, road construction (NHAI plus MoRTH) in the April-December 2021 period was also down 20% YoY. This has led to concerns about the trajectory of road capex going ahead.

Outlook: Testing times for the road space

The euphoria of robust NHAI project award in FY21 has dissipated due to muted road awards/construction in the current fiscal. Increasing competition due to entry of new players in the road space (refer to, Road awards: Market share musings) has further queered the pitch for listed road developers. Like most road developers, we are pinning our hopes on the increase in awarding, historically witnessed in the last quarter of the fiscal.

We prefer road companies with robust balance sheets such as KNR Constructions (BUY) and PNC Infratech (BUY) and they remain our top pics for the sector. We believe these players will be able to shore up their order books by winning HAM projects.

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