WPI for December 2022 is significantly lower at 5.0% against WPI of 14.27% in December 2021. ICRA Ratings expects the toll road projects growth to moderate to high single digit in FY2024 after a 17-20% growth witnessed in FY2023 with moderation in the Wholesale Price Index (WPI) inflation. Toll rates and traffic volumes are the two variables which determine toll collections. The toll rate increase is linked to the WPI while the traffic volume is linked to underlying economic activity, primarily manufacturing, construction, and mining. For the projects that were bid post-2008, the toll rate is revised annually in April at 3% fixed rate plus 40% of the change in WPI for December. Hike in toll rates for the projects bid prior to 2008 is 100% linked to the March WPI (toll rate revision happens in July or September each year).
Giving more insights, Vinay Kumar G, Sector Head, Corporate Ratings, ICRA, said, “The WPI for December 2022 is 5.0% (against 14.27% in December 2021) translating into a toll rate increase of ~5.0% during FY2024 for the projects which are linked to 3% fixed rate plus 40% of the change in WPI. For projects awarded prior to 2008, ICRA expects March WPI to be sub-2%. In both the cases, a modest toll rate revision is expected to result in 6-9% growth in toll collections for FY2024, primarily supported by 4-5% growth in traffic. Despite the moderation in toll rate growth, the bump-up witnessed in toll rates in FY2023 along with steady traffic growth should support the cumulative DSCR for BOT toll road assets.”