According to ICRA Ratings, the toll road projects will benefit from the high wholesale price index (WPI) inflation as it will lead to an increase in toll rates and thereby collections. Toll rates and traffic volumes are the two variables which determines 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, 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).
Vinay Kumar G, Sector Head, Corporate Ratings, ICRA, says, “The WPI for December 2021 is expected to be around 13.0% (as against 2.0% in December 2020) translating into toll rate increase of ~8.2% during FY2023 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 around 9.3%. In both the cases, decadal high toll rate revision is expected to result in 14-15% growth in toll collections for FY2023 on the back of 5%-6% traffic growth. The healthy growth in toll collections far outweigh the increase in maintenance costs resulting in a good improvement in cumulative DSCR numbers for BOT toll road assets which otherwise got moderated to an extent due to Covid impact. This is factoring in the assumption that impact of future Covid waves (if any) to be low.”