Toll collections witnessed a marked improvement on the back of increased movement of both passenger and commercial vehicles, which have picked up significantly over the last three months, thereby surpassing pre-Covid levels. On an average, the increase in toll collections in September - November 2020 stood at around 13%, implying a growth in traffic of 8-9% in terms of passenger car units (PCUs); one-third of this growth is contributed by the passenger vehicle category and the remaining from commercial vehicles. With this sustained improvement, the overall reduction in toll collections for national highway projects could be in the range of 5-7% in FY2021, narrower than previous forecast of 10% de-growth.
Elaborating further, Shubham Jain, Senior Vice President, Corporate Ratings, ICRA said, "Strong liquidity buffers and quick recovery in traffic has arrested major slippages in the credit profile of toll road assets. Few state annuity projects with weaker counterparty credit profile suffered due to elongation in annuity payment cycle, thereby resulting in a stretched liquidity position. In FY2022, the traffic is expected to increase by 5% and toll rates (WPI linked) by 3-4% resulting in an overall increase in toll collections by 14-15% on a low base in FY2021 (given the impact of toll suspension in first 20 days of April 2020)."
The Ministry of Road Transport and Highways (MORTH) has initiated a slew of relief measures like shift from milestone-based billing (typically ranging between 45-75 days) to monthly billing and release of retention money / performance security in proportion to the work already executed among others, which has immensely supported the road contractors. These initiatives have helped in reducing the cash conversion cycle, while also getting the performance guarantees and associated margin monies released for the executed portion of the projects. The execution during 8M FY2021 stood at 6,207 km, 4% higher than 5,958 km in 8M FY2020.
Adjusting for the first 20 days of April 2020 wherein no construction activity was allowed, the execution per day saw a growth of 13% to 27.7 km/day in 8M FY2021 from 24.4 km/day in 8M FY2021. The execution for FY2021 could surpass the 10,500 km. Project awards also saw a massive jump of 111% to 6,764 km in 8M FY2021 from 3,211 km in 8M FY2020, given the thrust laid on Bharatmala Pariyojana.
ICRA expects the Bharatmala awarding process to get completed by FY2023. The total debt for the NHAI has increased by more than 3 times to Rs.2.49 lakh crore as on March 31, 2020 from Rs. 75,385 crore as on Mar.31, 2017. The borrowings are expected to surpass Rs. 3.5 lakh crore by FY2023 to fund the Bharatmala Pariyojana programme. ICRA, in its earlier observation on this subject, has already highlighted the importance of speeding up the TOT awards and other fund-raising initiatives (viz. InvITs) to meet the large funding requirements of the ambitious programme.
On the airport operators, Jain added, "The path to recovery in case of airports is longer; domestic air travel is expected to recover back to pre-Covid levels by FY2023 and the international sector by FY2024. The air traffic is expected to pick up gradually reaching to almost 80% of the pre-Covid levels in FY2022, resulting in a revenue growth of 106% in FY2022. Slow ramp up in traffic would affect the cash flows available for debt servicing for airport operators adversely. This, along with large bullet repayments, is expected to result in a thin DSCR cover in FY2022. However, the on-balance sheet liquidity for the airports is strong to meet the debt obligations."
Given the significant delays in tariff orders in the past, timely tariff orders from the regulator, which adequately compensates for the ongoing capex and revenue loss due to Covid remains critical from the credit perspective. Deterioration in credit profile of airlines could result in elongation of a receivable cycle for airport operators, thereby exerting pressure on cash flow from operations, the rating agency said.
