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NHAI sets a strong roadmap till 2024

During our recent interactions with National Highways Authority of India (NHAI), senior officials highlighted the organisation’s overall capex target of ~INR 7trn on development of roads, multi modal logistic parks, ropeways, inter modal stations, etc. during FY22-24. This includes highway projects (to be awarded by FY24/completion by FY26) worth ~INR 6trn (~INR 4trn of HAM, ~INR 200bn of BOT projects, and the balance being EPC projects). This implies an annual awarding target of 5,000-6,000km over FY22-24 (vs. 4,788km in FY21). Till 3QFY22, ~2,000km worth ~INR 1trn have already been awarded (media article), signifying strong order pickup (>2500 km) in 2HFY22.

All these projects fall under the Road Ministry’s 34,800km Bharatmala Pariyojna with a total capital outlay of INR 10trn (of which ~INR 6trn is in FY22-24) and target completion by FY26. Of these 34,800km, projects comprising ~19,625km have already been awarded till Sep’21 (link) and detailed project reports (DPR) are under process for the rest with awarding / completion target of FY23 / FY26. This includes plans for 22 Greenfield corridors with length 8,400 km and capital cost INR 3.6 trn. On the funding side, NHAI aims to raise a) ~INR 400bn by monetising 5,500km through ToT (~1,400km worth INR 170bn already monetised) and b) ~INR 200bn through Invit (raised ~INR 80bn in 1st tranche). NHAI also plans to raise ~INR 850bn through SPV borrowings (outside NHAI’s parent balance sheet) of which ~INR 250bn has already been raised for the Delhi-Mumbai Corridor SPV, adding more cushion for its future capex funding.

The 2QFY22 results for road sector players was a mixed bag with the likes of KNR Const. (KNR) and PNC Infra (PNC) delivering strong execution pickup (average +39% YoY) as labour strength reverted to pre-Covid levels while players like GR Infra / ABL faltered with execution missing JMFe by 27%/11%. PNC has maintained its FY22 EBITDA margin guidance at 13.5-14%, while ABL and GR Infra have cut their margin guidance to 11.5% / 17% given the rise in input costs / competitive intensity; on the other hand, KNR has upped its margin guidance to 19-20% (vs. 17-18%) led by execution of high-margin irrigation orders. We remain positive on the entire Road EPC space given imminent macro triggers of NHAI ordering pickup, coupled with strong balance sheets and OB position of key players. We reiterate BUY on PNC and KNR; positive on ABL on inexpensive valuations; Maintain HOLD on GR Infra.

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