Revamping BOT model to attract investment in road sector: India Ratings

India Ratings and Research (Ind-Ra) opines that the revamping of the built-operate-transfer (BOT) model is a tactical move to attract private capex, which is estimated to surpass INR 1 trillion by 2030, as per the government. The road sector in India has been at the forefront of performance and innovation and has played a crucial role in shaping the country’s economic growth trajectory, with a CAGR of about 14% over the past decade.


During the past seven years, the government has successfully rolled out about 400 hybrid annuity model (HAM) road projects in India, worth over INR 4 trillion, thereby balancing risk appropriately between private and public partners and has boosted the public-private partnership activity in the sector. Also, the government’s enhanced focus on monetisation via the National Monetisation Pipeline (NMP) has attracted foreign investors, including various sovereign wealth funds and pension funds. The government’s continued focus on infrastructure development, stable regulations, setting up an infrastructure financing bank NaBFID - the National Bank for Financing Infrastructure and Development, promoting adoption of surety bonds, and introduction of FASTags, have all worked positively for the sector.

While the revamping of the BOT model is a welcome change, the impact of the evolving infrastructure landscape such as competing roads and alternate modes of transportation (dedicated freight corridor and inland waterways) in bolstering the BOT model remains to be seen. Ind-Ra asserts that developers need to be mindful of aggressive bidding, taking projects beyond the appetite of their balance sheet, and overestimating toll revenue for greenfield projects, to protect them from volatilities in the longer run.

“The introduction of the revamped BOT model is a positive change for the sector. However, developer participation and lender comfort to take exposure would remain key monitorables in the near term. While the HAM model continues to garner a lot of traction, the sector continues to face critical challenges in the form of highly competitive bidding, stretched project execution timeline due to right of way challenges, increased participation from smaller/new sponsors, and the increasing gap between letter of award and appointed dates,” says Vishal Kotecha, Director, Global Infrastructure Group, Ind-Ra.

BoT Model of Road Development to Drive Investments worth INR 0.4 trillion-0.5 trillion in FY25

The revival of the BoT model, with features that provide significant risk mitigation compared to the earlier model, is likely to increase the share of these projects from FY25. While the initial grants could be similar to HAM projects, the higher equity contribution and exposure to toll risks for repaying debt would necessitate a greater focus on establishing viability. Ind-Ra estimates capex requirement under this model to range between INR0.4 trillion-0.5 trillion in FY25, and the agency believes it would rise steadily to INR 1 trillion by 2030.

Competitive Intensity in HAM continues; Over 110 projects worth more than INR 1 trillion await appointed date

In lieu of banks tightening the capital requirements, the small developers that had transitioned from engineering procurement and construction (EPC) to HAM for the first time post the relaxation in the technical and financial norms, are struggling to secure financial closure after bidding aggressively, and thereby meet the project timelines. The number of projects awaiting the receipt of the appointed date has increased to more than 110 projects, of which 55 projects were awarded in 2021 and 2022, signalling a delay of 18-30 months in starting construction. Projects with financially strong and medium sponsors have mainly been impacted by delays in land acquisition.

Toll Revenue growth to sustain at 6-8% over Medium Term, FY25 Toll collection through FASTag estimated at INR 700 billion

Toll collection growth is likely to moderate to 6-7% in FY25 (FY24: growth of 9-11% yoy), offset by subdued wholesale price index. Increased adoption of FASTag, supported by healthy traffic growth and increase in tolling roads, aided in healthy revenue growth to INR 648 billion in FY24 (FY23: INR 480 billion), surpassing the government target of INR 550 billion; the revenue is estimated to reach INR 700 billion in FY25. Post the declaration of election results, Ind-Ra expects the annual toll rates to be revised by 2.5-3%, which would contribute to an increase in FY25 revenues.

Acquisition Opportunities of over INR 1 trillion in HAM and under NMP over next two years

Ind-Ra expects acquisition opportunity of over INR 600 billion in HAM over the next two years and another INR 400 billion-450 billion under NMP. Mergers and acquisitions in the road sector are driven by the developers’ need to unlock equity to bid for new projects and to improve liquidity, with infrastructure investment trusts and toll operate transfer being the popular monetisation routes. The growing interest of financial and strategic investors in the sector is being driven by several factors such as availability of several stable and predictable cash-generating assets, which allow large institutional investors such as pension and sovereign wealth funds to acquire long-term yield generating assets.

Strong Government push to continue

The road sector in India has been at the forefront of performance and innovation and has played a crucial role in shaping the country’s economic growth trajectory, with a CAGR of about 14% over the past decade. Government push, through setting up an infrastructure financing bank NaBFID, promoting the adoption of surety bonds, revamped BOT model, and other investment opportunities such as multi modal logistics parks, ropeways and wayside amenities, have worked positively for the sector.