Ind-Ra Maintains Neutral Outlook for Road Sector FY26 Amid Softened WPI, Traffic Shifts, and Land Challenges

India Ratings and Research

India Ratings and Research (Ind-Ra) has maintained a neutral outlook for the road sector for FY26, due to the softened Wholesale Price Index level and intermodal shift in traffic and in view of the likely modest toll collections, shifting of preference from the highly preferred hybrid annuity mode (HAM) to the build-operate-transfer (BOT) model wherein bidding trends and award quantum need to be seen, and land availability issues.

Ind-Ra opines the roads sector continues to be a focus area for the government with 22% of the capex allocation towards the Ministry of Road Transport and Highways (MoRTH). Growth in capex during FY26 is likely to be slower than that seen during FY18-FY24. Project awards are likely to improve in FY26 across BOT, HAM, toll-operate-transfer (TOT). Resolving land-related issues in HAM projects, completing the planned BOT awards and a road map for road connectivity are required to increase the construction momentum compared to the lull witnessed during FY25, majorly due to the elections and unseasonal/excess rains. Furthermore, the government’s aim to increase the focus on the quality of construction and maintenance, including the introduction of performance assessment rating system, evaluated bi-annually and monitored digitally, augurs well for the sector.

“Ind-Ra expects the moderate toll growth trend to continue at 7%-7.5% yoy in FY26, given the expected Wholesale Price Index level and intermodal shift in traffic. The aggregate toll income growth was 4.3% yoy in 1HFY25 in Ind-Ra analysed portfolio and the overall growth is estimated to be 5.5%-6% yoy in FY25. Traffic growth for specific projects could moderate due to an improvement in alternate routes, start of greenfield expressways, a volume pick-up in dedicated freight corridors as the extent of operations improve with completion, among others. These considerations are critical in BOT and TOT bids as well”, says M Dhamodharan, Senior Analyst, Infrastructure & Project Finance Group, Ind-Ra.

"We continue to monitor potential delays in project execution. The efforts undertaken by the government to streamline approvals and expedite land acquisition are likely to improve the execution pace. The monitoring of quality and maintenance of highways through the implementation of concessionaire rating by the government is expected to augur well for the sector in the medium to long term, given the backdrop of aggressive bidding witnessed during FY22-FY24", says S Suryanarayanan, Analyst, Infrastructure & Project Finance Group, Ind-Ra.

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