Crisil Ratings in its latest report has said that sizeable equity commitments in under-construction projects and rising working capital needs will increase the debt burden of road developers but revenue growth is set to remain high, driven by strong contract awards and execution in the next fiscal (FY24). Besides, a high budgetary allocation to the sector will also help road developers.
According to the report, with the prevailing low leverage levels, developers have the headroom to borrow more to fund new projects, which will keep their credit risk profiles stable, and noted that asset monetisation will be crucial to rein in debt. It further stated that total equity commitment towards the under-construction public-private partnership (PPP) projects is estimated at over Rs 21,000 crore by fiscal 2025. The working capital requirements are expected to increase with expected strong revenue growth of 10-15 per cent over the next two fiscals. Accruals will fund around 45 per cent of these incremental outflows, while the balance is expected to be funded through asset monetisation and debt.
The report further said consequently, debt is expected to inch up to Rs 30,000 crore by March 2025 from Rs 17,000 crore in March 2022. Projects awarded through the hybrid annuity model (HAM) route typically form a large share of the National Highways Authority's total awards and these projects require 12-15 per cent of the project cost to be funded through equity. Additionally, working capital needs are expected to rise with strong revenue growth expected over the medium term, as is reflected in the healthy order book-to-revenue ratio of 3x.
