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NHAI project awarding subdued after robust 4QFY23

* As of Aug’23, project awarding by NHAI stood at 170km and construction stood at 1,215km. Project awarding activity picked up pace in 4QFY23, with NHAI awarding total projects of 6,003km in FY23. NHAI’s highway construction pace increased ~13% YoY to 4,882km in FY23.

* Toll collections have been improving, with FASTag-based toll collections of INR208b during Apr-Jul’23 with a daily run rate of ~INR1.7b. In Jul’23, daily average toll collections stood at INR1.6b.

* NHAI's primary focus is on asset monetization to raise funds outside of budget resources. In FY24, NHAI plans to monetize 2,612km of highways through ToT/InvIT/toll securitization modes and has identified 46 national highway sections for the same.

* DFCCIL has revised the timeline for Dedicated Freight Corridor projects, and they are now expected to be completed by Mar’24.

NHAI awards 170km of projects as of Aug’23 driven by HAM projects

* During Apr-Jul’23, total eight projects were awarded by NHAI vs. 12 projects awarded in the corresponding period of FY23. During Apr-Jul’23, the total length of awarded projects stood at ~160km (250km in Apr-Jul’22) with a value of ~INR 25b. As of Aug’23, project awarding by NHAI stood at of 170km and construction stood at 1,215km.

* HAM projects continued to dominate project awarding in terms of value and volume of the awarded projects (73km awarded worth INR19b over Apr-Jul’23).

FASTag toll collections continue to improve

FAStag toll collections improved 14.4% YoY during Apr’23 to Jul’23, while collection value increased by 21.7% YoY. Higher toll collections play a crucial role in expediting the monetization of road assets by the Ministry. Additionally, it benefits companies seeking to monetize their existing toll assets

Asset monetization in focus for NHAI

NHAI has drawn up a list of 46 projects of over 2,612km for monetization in FY24. During FY24, NHAI aims to raise INR 100-150b through asset monetization under the ToT strategy. In total, NHAI aims to generate up to INR450b through monetization in FY24 via ToT and additional funding models such as Infrastructure Investment Trust and the securitization of road assets constructed by NHAI's SPVs.

Softening input prices to improve margins for contractors

Steel prices have decreased by ~25%, while aluminum prices have declined by ~33% since Apr’22. On the other hand, cement prices have increased by ~5% from their lows in Jul’22, mainly due to input cost pressure. With stability in commodity prices, road contractors anticipate some improvement in profitability and margins in FY24.

Players with strong order book, balance sheet and diversified operations are well placed

Despite sluggishness in project awarding till Aug’23, there is a robust pipeline of tenders in place. Entities boasting substantial order backlogs, strong financial standings, and engagement across various sectors are well positioned to capitalize on NHAI's proactive approach to project allocation in FY24. Our top pick in this sector is KNR Constructions Ltd.

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