ICRA Forecasts Lower Road Project Awards for FY2025
ICRA has revised its FY2025 road award forecast by the Ministry of Road Transport and Highways (MoRTH) to 8,500-9,000 km, aligning with FY2024’s 8,581 km. The revision comes after a 31% decline in road awards from FY2023 to FY2024, due to delays in Cabinet approval for Bharatmala Pariyojana's (BMP) revised cost and the Model Code of Conduct.
Vinay Kumar G, Sector Head, Corporate Ratings – Corporate Ratings, ICRA, said, “The recent ministry circular has directed the National Highways Authority of India (NHAI) to focus on upgrading the existing national highways, along with the development of new highways with a total expenditure of Rs. 1.44 lakh crore. In addition, the Ministry also identified a state-wise list of projects planned to be awarded in the current fiscal totalling ~7,500 km. With improved clarity regarding order-awarding activity from the MORTH in August 2024, project awarding is expected to gain momentum from September 2024 onwards; however, the overall project award will remain substantially lower than that of FY2021-FY2023 levels. Consequently, the growth momentum witnessed by road developers in recent years will moderate in the next 12-18 months.”
While the EPC is likely to remain the preferred route for road awards for the Ministry, it is gradually shifting its focus to BOT (toll) projects. Given the higher equity commitment and the inherent traffic and execution risks in such projects, the expectations of a material shift in overall project awards towards BOT (toll) in the near to medium term remain challenging. ICRA expects these awards’ share to increase to around 5% in FY2025 compared to less than 1% of the orders in the last five years.
Competition is likely as developers are expected to bid aggressively to build the shrinking order book. The EPC and HAM project bidding process in FY2024 witnessed intense competition, as reflected in the consistently discounted bids (with respect to the authority’s base price) since FY2021. The maximum and median discounts in FY2024 stood at 46% and 21%, respectively, against 31% and 15%, respectively, in FY2021. Recently, in August 2024, the MORTH has directed that the single bids, received in open bidding, would be accepted, provided it meets certain conditions. Although the number of instances where a single bid is received has come down significantly due to the competition, this directive will alleviate the cost of re-tendering, any likely delay in execution, and the risk of higher bids in cases of re-bidding.
