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Executive Summary

National Highway award and construction activity moderated in FY25, hope alive for a better FY26

Awarding and construction pace for National Highways moderated on year in FY25 due to excellent monsoons and elections. Despite a rainy Q1 which likely suppressed construction activity, large greenfield alignments are expected to conclude in FY26 which will add to the construction pace. Awarding activity is set to see a fillip with Rs. 5 trn tenders likely in FY26, which is twice is usual amount. With Bharatmala Phase-1 awards likely concluding this fiscal, the scheme would reach its conclusion by FY28

Fastag collections continue their ascent, however a deeper analysis reveals a nuanced national reality

Amounts collected through Fastag soared 12% y/y in FY25, outpacing nominal GDP growth for yet another year. Curiously, despite >99% of Fastag collections being attributable to tolling, toll growth on NH toll plazas is a modest 8%. Decomposing this further yields that organic toll growth on NH is just 6.7%, and traffic growth lingers below 4%, slower than real GDP growth. Clearly, the wearing away of the COVID-19 and other one-time base effects (farmer protest etc.) and Kumbh mela have taken their toll. FY26 is also expected to see only a moderate growth in NH collections owing to easing nominal GDP growth

Legacy bank of National Highway stretches to sustain monetisation even as tolling metrics weaken

Even after significant monetisation over the years, we believe residual monetisation potential on existing bank of PF/OMT assets exceeds Rs. 2.2 trn. Much of this is expected to come from industrial powerhouses and Madhya Pradesh which is at a crossroads. After indulging in multiple modes, MoRTH is likely to prefer InvITs in the future given their ability to access a wider investor base (including retail investors), large size, and return profile.

State tolling the dark horse behind sustained growth in Fastag collections

The rift between healthy growth in Fastag collections and middling tollable traffic growth on National Highways is largely attributable to rapid growth of 33% y/y in collections from state toll plazas in FY25. This includes both toll plazas on State Highways as well as others on which collection is done by State agencies. Aided by rapid additions of plazas to the Fastag programme, this component has nearly doubled in the past 3 years. With their share approaching 20% in overall Fastag collections, this will be the new avenue of growth along with services such as parking, fuel etc. which are also in early stages.

State toll monetisation to open up a fresh source of revenue for States subject to improved governance and asset quality

Given a decent base of ~Rs. 130 bn of collections on state tolls in FY25, there is an obvious impetus to monetise the same. We believe a Rs. 1 trn kitty from monetisation of existing state assets on the NETC network could unravel, opening up a fresh source of revenue for States. For this to be realised, States will need to standardise their concession agreements and tolling policies, strictly enforcing competing road and plaza length clauses. Predictability in practices, with fewer arbitrary changes in law, and careful selection of high-density tolling lengths will also assume importance for effective monetisation of State stretches.

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