The current economic slowdown has shaken lose yet another domino as credit rating agencies downgrade their outlook on the sector. The biggest loser here, however, will be the government and its ambitious road construction programme under Bharatmala Pariyojana, which is expected to suffer 55% cost overruns and at least a two-year delay in its timeline for awarding new projects.

On Monday, India Ratings and Research revised its roads sector outlook to stable-to-negative from stable, while ICRA warned that traffic growth would turn negative in the second half of this fiscal, dragging down toll revenues with it.

The subdued funding climate and the fall in traffic volumes have hamstrung private developers, who are unable to participate in bids for new projects. The first phase of the Bharatmala project of 34,800 km of highways, the bulk of which was supposed to be bid out by the National Highways Authority of India, at a cost of ₹5.35 trillion will now see project costs balloon to at least ₹8.3 trillion.

“The weakening of financing sentiments and a sharp rise in land acquisition costs exert stress on the central budget and could compel the government to rethink the bidding model," India Ratings forecast in its report.

The average annual road awarding track record so far has been about 4500 km, Vishal Kotecha, associate director, India Ratings and Research, said “after this, developers take time to get their projects fully financed. The Bharatmala programme was supposed to complete awarding activity by FY22; now this won’t be complete till at least FY24."

Simultaneously, developers’ order book-to-revenue multiple slipped to a four-year low due to absence of new bidding, leading to lower revenue visibility.

The ratio has fallen from a high of 3.8 times in Q1FY19, to 2.6 times in QIFY20. The rating agency predicted that construction activities will plateau in FY20 due to dismal project awards in 2019 and delayed appointed date due to the land acquisition issues.

The economic slowdown, which has reduced commercial vehicle traffic on India’s highways, and the negative impact from the revision in axle-load norms (which allows commercial vehicles to carry higher freight by 15-20% with the same fleet size) has resulted in weak traffic performance across toll road stretches, resulting in lower toll revenues, according to another credit rating report by ICRA.

Rajeshwar Burla, vice-president and associate head, corporate ratings, ICRA, said “The second half of FY19 saw negative year-on-year traffic growth of -0.1% and overall traffic growth remained subdued at 2.4% in the full year. Toll rates being linked to wholesale price index is the only reason for toll revenue growth in FY20, which will see toll collections to grow in the mid-single digits."

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