Asset monetisation in the roads sector will see an acceleration as engineering, procurement and construction (EPC) companies in this space pursue growth and is also aided by various government initiatives, according to domestic rating agency Crisil. Crisil Ratings in a note issued on Monday said that the healthy order book position of the road EPC companies, which stands at over 3 times revenue at present, is expected to improve further supported by new project awarding momentum.
“Asset monetisation will gather pace in the roads sector as road-building engineering, procurement and construction (EPC) companies pursue growth backed by the government’s thrust to the sector,” it said. The rating agency said the asset monetisation potential is supported by healthy investor interest either through investment at asset level, or infrastructure investment trusts (InvITs).
Crisil Ratings director Anand Kulkarni said:” We foresee monetisation potential at Rs 72,000 crore (enterprise value) for the NHAI and private developers, which can be realised through InvITs, private sale and toll-operate-transfer models over the next three years.” “The capital so unlocked will be available to accelerate awarding of projects under the NHAI’s ambitious Bharatmala Pariyojana, and support growth of road EPC companies,” Kulkarni added.
According to its estimate, Crisil Ratings said total awarding of roads by the National Highways Authority of India (NHAI) and the Ministry of Road Transport and Highways this fiscal to be 15 per cent higher on-year, which should help continue the buoyancy from last fiscal, when project awards had increased 23 per cent to 11,000 km. The rating agency noted that road EPC companies are well-placed to tap this opportunity, shows an analysis of 17 large road EPC companies, which account for 65 pe cent of the sector’s revenue.
Crisil Ratings said the expectation of asset monetisation is also supported by the past performance of road EPC companies. “Between fiscals 2016 and 2021, sale of assets to InvITs or to private equity funds helped unlock Rs 80,000 crore of enterprise value for the sector (Rs 50,000 crore for the road EPC companies analysed),” the rating agency said adding that around 60 per cent of this was through four InvITs.
It further said the leverage of these companies is estimated to have improved to 1.25 times as on March 31, 2021, from 1.87 times as on March 31, 2016, largely supported by asset monetisation. Noting that while credit profiles of the road EPC companies will remain comfortable, Crisil Ratings said, “the sustenance in economic activity amid the ferocious second wave of the pandemic will require close monitoring.” “Any prolonged impact on traffic would hinder the timelines of asset monetisation in the near term,”it added.