IGI Logo

NHAI project awarding subdued, hurts order inflows

? Project awarding by NHAI stands at 310km and construction stands at 1,990km in FY24YTD. The muted awarding by NHAI has hit FY24 order inflows for several road construction companies. Some companies also reduced their order inflow targets for FY24 due to the slow pace of awarding.

? Toll collections have been improving, with FASTag-based toll collections at INR419b during Apr-Nov’23 and a daily run rate of ~INR1.7b. In Nov’23, daily average toll collections stood at ~INR1.8b.

? NHAI’s primary focus is on asset monetization as a means to generate funds beyond budgetary allocations. NHAI awarded two TOT bundles, 11 and 12, totaling 400km, at a cost of INR 66b in Oct’23. For FY24, NHAI aims to achieve a total monetization target of up to INR450b.

? DFCCIL revised the timelines for Dedicated Freight Corridor (DFC) projects, and these projects are now expected to be completed by Dec’24.

NHAI awarding muted to date in FY24, but road construction gathers pace

As of FY24, NHAI has awarded projects with a length of ~310km. HAM projects continued to dominate project awarding in terms of volume of the awarded projects (137km awarded worth INR45b over Apr-Oct’23).

Road construction activities gained momentum in Oct’23, with NHAI completing ~356km of roads vs. ~150km in Sep’23 and ~340km in Oct’23. During Apr-Nov’23, road construction has reached 1,990km. In FY23, NHAI completed ~4,882km of roads at a rate of 13.4km per day, an improvement from 4,325km constructed in FY22.

FASTag toll collections witnessing consistent improvement

FAStag toll collections improved 14% YoY during Apr’23-Nov’23, while collection value increased 21% YoY. Higher toll collections play a crucial role in expediting the monetization process of road assets by the Ministry. Additionally, toll collections benefit the companies seeking to monetize their existing toll assets.

Asset monetization in focus for NHAI

NHAI has drawn up a list of 46 projects, spanning over 2,612km, for monetization in FY24. NHAI awarded two TOT bundles, 11 and 12, totaling 400 km, at a cost of INR66b in Oct’23. Cube Highways secured bundle 11, covering the 84 km Allahabad Bypass on NH19 in UP, for INR 21.5b. IRB Infrastructure Trust won bundle 12, spanning 316 km across UP and MP, for INR44.3b. In FY24, NHAI aims to achieve a total monetization target of up to INR450b.

Moderating input prices to improve margins for contractors

Steel prices have decreased ~25%, while aluminum prices have dropped ~32% since Apr’22. Conversely, cement prices have increased ~9% from their lows in Jul’22, mainly due to input cost pressures. With higher construction activities and stability in commodity prices, road contractors anticipate some improvement in profitability and margins in 2HFY24.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412