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NHAI awarding picks up in 3Q; expectations shift to 4QFY25 now

* NHAI’s awarding activity was limited to 227km during 1HFY25, primarily due to the general elections in 1QFY25. The awarding activity has picked up since Sep’24, with ~970km awarded in 9MFY25, and it is anticipated to gain further momentum in 4Q. Despite a pickup in awarding activity, NHAI’s target of 5,000km of projects will be a challenge to achieve in FY25 (in FY24, NHAI awarded ~2,500km of projects). Muted awarding by NHAI has hit order inflows for several road construction companies.

* FASTag toll collections grew ~10% YoY in terms of volume and ~13% YoY in terms of value in 3QFY25, supporting asset monetization plans.

* NHAI has set a monetization target of INR540b at the beginning of FY25 with a new asset monetization cell. It plans to offer a dozen bundles over FY25 and FY26, aiming for a higher target than the INR400b achieved in FY24 (including four ToT bundles worth INR159b).

* The Dedicated Freight Corridor Corporation of India (DFCCIL) has commissioned 2,741km of the planned 2,843km for both the Eastern and Western Dedicated Freight Corridors (DFCs). The completion deadline is extended to Dec’25 due to delays in land acquisition.

NHAI awarding disappoints in FY25YTD; pickup likely in the coming months

NHAI's awarding activity has gained momentum in recent months, with ~970km awarded in 9MFY25 vs. only 227km of projects awarded in 1HFY25, primarily due to the general elections in 1Q. However, project awarding still falls significantly short of the desired target of 5,000km in FY25 and the 2,500km awarded in FY24. Further, construction progress remains subpar, with ~3,190km completed as of FY25YTD, compared to 6,644km completed in FY24. This subdued awarding activity has adversely affected order inflows for road construction companies.

FASTag toll collections showing consistent improvement

The FASTag toll collection volume improved ~10% YoY during 3QFY25, while the collection value increased ~13% YoY. Higher toll collections play a crucial role in expediting the monetization process of road assets by the Ministry. Additionally, toll collections benefit companies that aim to monetize their existing toll assets.

Declining input prices to expand margins for contractors

Steel and aluminum prices have decreased ~25% each from their highs in Apr’22. Cement prices have dipped ~10% from their highs in Oct’23. With higher construction activities and stability in commodity prices, road contractors anticipate some improvement in profitability and margins in 2HFY25.

Players with robust order books, strong balance sheets, and diversified operations well placed

Although there has been a slowdown in project awarding in 9MFY25, the tender pipeline is currently robust. Entities with significant order backlogs, strong financial standings, and involvement across diverse sectors are well-positioned to benefit. Our top pick in this sector is KNR Constructions (KNRC)

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