Infrastructure Sector Seen Robust Demand in H2FY24: CareEdge Ratings

According to CareEdge Ratings, the credit ratio of the infrastructure sector has remained robust at 2.29 in H2FY24, slightly up from 2.21 in H1FY24. The growth was fueled by more upgrades in the transport infrastructure segment, followed by the power sector.


In H2FY24, the infrastructure sector witnessed 17% upgrades and 8% downgrades, compared to 20% upgrades and 9% downgrades in H1FY24. Among the three key segments, the highest contributor remains the transport infrastructure segment with 25% upgrades and 4% downgrades, followed by the power sector with 17% upgrades and 6% downgrades. The construction sector showed mixed performance in H2FY24 with more downgrades (14%) than upgrades (13%).

Rajashree Murkute, Senior Director at CareEdge Ratings (Infrastructure Ratings), said, “The strength of the transportation and power infrastructure segments is reflected in the robust credit ratio for infrastructure sector in H2FY24, despite inconsistent performance of the construction industry. The commissioning of projects, particularly in the field of solar power generation and the road Hybrid Annuity Model (HAM) segment, as well as the deleveraging initiatives that followed the realization of past dues resulting from the Equated Monthly Installment (EMI) scheme, robust power demand pushing thermal PLFs and merchant tariffs, the refinancing of projects at better financing terms, and the utilization of structured financing avenues such as co-obligor arrangements and InvITs, among others, were the main drivers for upgrades. Additionally, the enhanced pace of execution, combined with robust order inflows in Construction & Transport Infrastructure entities, operational HAM assets, and the launch of InvITs enhances the financial flexibility of large EPC developers which aided upgrades”.

Increasing Operational Assets and Healthy Toll Growth driving transport infra upgrades

As per CareEdge Ratings, the transport infrastructure is seeing upgrades based on its increasing operational assets and healthy toll growth. It believes that the amended model concession agreement for Toll and TOT projects will bolster investor confidence and reduce funding requirement for NHAI. It expects Toll collections to grow by 12% in FY24 with favourable movement in Wholesale Price Index (WPI). CareEdge Ratings is positive on the strong asset monetization potential for Hybrid Annuity Model (HAM) projects with aggregate cost of Rs.1.75 lakh crore till FY27. However, CareEdge Ratings expects pace of NHAI highway construction to slow down in FY25 after attaining peak in FY24, owing to execution hurdles in HAM projects and foray of moderate sponsors.

Robust demand, buoyant exchange rates and improved collections keep the momentum going in Power Infra

According to CareEdge Ratings, over the medium future, the power sector's share of investments based on storage is anticipated to increase. It thinks that the drop-in module prices will help the tariff for renewable energy to stay competitive when compared to conventional power. The merchant prices are still significantly higher at Rs.5.4 per unit in FY24 than the long term average of Rs. 3 per unit witnessed in prior years, but they are probably going to marginally moderate in FY25 from the level in FY24. It states that a 5-year high thermal plant load factor (64% in FY23 and 68% in FY24E) will result from persistently rising demand.

Strong infra-led order inflows albeit increasing working capital intensity in Construction Infra

In the foreseeable future, infrastructure-led order books are expected to persist in construction, according to CareEdge assessments. It anticipates solid orders in hand and on the horizon supporting significant revenue growth in the segment. It states that emphasis on transmission, urban infrastructure, water, and roads will benefit varied EPC players. The segment, in its opinion, has a robust pipeline for asset monetization. Due to competitive bidding, it observes increased execution issues in road projects awarded after March 2022.

Outlook for the Infrastructure sector continues to remain upbeat amid strong policy led push, favourable sectoral reforms and increased availability of patient capital. However, the impact of rising competitive intensity on bidding prudence for upcoming projects, adverse geo-political developments disrupting supply chain for key inputs and interest rate movements will influence the credit profile of the players and hence remains to be closely monitored.