Project pipeline with NHAI at ~42k km remains strong; ~13k km planned on HAM model. NHAI’s B/S too has improved, with D/E falling to 0.7x in December 2022 versus a peak of 1.2x in FY21. Meanwhile amid intense competition from local players for highway projects, companies continue to diversify into railways, metros, water supply etc.
Road awards picking up; large listed players winning more
Analysts at IIFL Securities had seen an uptick in highway awards in December-January, with 8,400km awards in 10MFY23 growing 22% YoY. While February 2023 award data is awaited, announcements of order wins by listed players indicates that the momentum has strengthened in March 2023. Listed contractors have announced wins of 244km in Q4 for an amount of Rs88 billion with Ashoka, KNR and PNC announcing highway wins of ~Rs20 billion each. Given the announced OI targets, trend should continue through March.
Still large award pipeline; NHAI balance sheet has improved
Overall highway award pipeline under NHAI remains strong at 42,379km; ~20,000km identified in terms of mode of development. Understandably, HAM constitutes 13,000km of this. Importantly, NHAI has seen its D/E ratio dropping from a peak of 1.2x in FY21 to 0.7x as at 9MFY23, supported by strong allocation in the last two budgets and growing toll revenue collection.
Companies focus on diversification amid growing competition
A key issue for large listed players has been the intense competition for highway projects. Hence, players have incrementally diversified into other sectors like Water Supply, Railways, Metro Rail and Ropeways. While this aids revenue growth visibility, margin impact needs to be seen as the execution ramps up for new projects.
