CRISIL: Despite hiccups, Roads & Highways sector to rebound; Aviation flies towards ₹25,000 crore revenue loss

The extended lockdown to contain the Covid-19 pandemic has stalled traffic on the ground as well as in the air; this is likely to lead to huge losses in the infrastructure industries in both the sectors. A CRISIL report estimates that the Roads & Highways sector will see developers/toll operators incurring toll revenue losses to the tune of ₹3,450-3,700 crore during March-June and the National Highways Authority of India (NHAI) will lose ₹2,100-2,200 crore in tolls during this period.

In addition to the loss in toll revenue, stakeholders will suffer losses on account of accrued interest, increase in costs of under-construction projects, time overruns, and a rise in disputes between the private sector and government authorities. Moreover, NHAI had planned to raise ₹80,000-85,000 crore through fiscal 2025 by monetizing ~6,000 km of operational public-funded toll roads. This asset monetization program through toll-operate-transfer and infrastructure investment trusts is likely to take a hit.

Director, Transport & Logistics, CRISIL Infrastructure Advisory, Akshay Purkayastha, says, “Tolling operations resumed on April 20 and construction on select projects has also restarted. Going forward, the ramp-up in traffic, availability of labour and raw materials for construction, and expeditious dispute resolution will be the key monitorables. In addition, road authorities such as the NHAI will have to step up initiatives beyond conventional avenues such as development of way-side amenities and formation of special purpose vehicles / joint ventures for both, financing and revenues.”

It may be recalled that under Bharatmala Phase-I, ~9,700 km road projects with a total capital cost of ~₹2.40 lakh crore were awarded or were under construction till February 2020. In March 2020, an additional ~800 km road projects were awarded. This takes the total capital cost of awarded/under-construction projects to ~₹2.65 lakh crore. NHAI and private road developers/contractors have over ₹2 lakh crore of debt each. Based on cost of awarded projects, NHAI requires ~₹6.5 lakh crore during FY 2021 - FY2025 to successfully complete the remaining Bharatmala Phase-I projects.

In fact, the pandemic could lead to financial stress and lesser budgetary support to the infrastructure sector, as more resources would be diverted towards vulnerable sections of the society and industry. The pandemic is a force majeure event, and interpretation issues should not delay relief. Remedial suggestions include the following:

Ease financial burden of NHAI by initiating measures like leveraging long-term land bonds (10-15 years) to pay for land acquisition. These should be trade-able, ensuring cash to landholders.
Land pooling as a mode of land acquisition to reduce the expenditure involved in asset development.
Scale up initiatives beyond conventional modes of finance and revenue generation.
Take measures to initiate estimation of toll loss on various projects immediately; regional/project offices should be empowered to make immediate payments up to a threshold.
There should be adjustment/extension of the remaining concession period for Build-Operate-Transfer.
Toll and Design-Build-Finance-Operate and Transfer (DBFOT) projects should be carried out with immediate effect.

As regards the Aviation sector, the CRISIL report estimates that the industry will crash-land this fiscal with a revenue loss of ₹24,000–25,000 crore. The airlines will be the worst-affected, contributing more than 70% of the losses, or ₹17,000 crore, followed by airport operators incurring losses of ₹5,000-5,500 crore, and those of the airport retailers running into ₹1,700-1,800 crore. The huge losses would reverse the growth of 11% per annum that the industry has logged over the past ten years, making it one of the most adversely affected sectors of the economy. What's worse, the losses will climb if travel restrictions continue in aviation hubs such as Mumbai, Delhi, Chennai and Kolkata. As per the report, the Aviation sector will take at least 6-8 quarters to reach pre-pandemic levels.

Director and Practice Leader, Transport & Logistics, CRISIL Infrastructure Advisory, Jagannarayan Padmanabhan, says, “These are preliminary estimates, and aggregate losses could increase if the lockdown is extended beyond the first quarter. As and when operations resume, the overall operational capacity will hover at 50-60% for the rest of the fiscal. Consequently, mergers and acquisitions of airlines, and a relook at expansion plans of private and upcoming greenfield airports would be some possibilities.”

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