Rise in highway traffic, toll collections raise investor sentiment


Mumbai: The steady rise in traffic and toll collections recorded by many highway operators in the March quarter has improved investment sentiment in the sector where many companies are looking to monetize operational assets, analysts said.

Traffic growth in build, operate and transfer (BOT) projects has been strong in the past two quarters due to an uptick in the Indian economy and the trend is likely to continue for the next few quarters, said Nitin Arora, an analyst at Emkay Global.

“Every road project has a different nature, but overall passenger car units on roads have increased,” he said.

Large road companies such as Sadbhav Infrastructure Projects Ltd, Ashoka Buildcon Ltd, IRB Infrastructure Developers Ltd, IL&FS Transportation Networks Ltd (ITNL) and Larsen and Toubro Ltd (L&T) have reported like-for-like traffic growth of about 8-9% in the quarter ended 31 March. Company managements, too, have been positive on the traffic growth in the first two months (April and May) of the June quarter.

At Ashoka Buildcon, a 7-8% rise in traffic in the quarter ended 31 March led to an 11.7% year-on-year increase in toll collections to Rs.265 crore.

The lifting of the mining ban and the subsequent pick-up in mining activity in states such as Odisha is also likely to have helped the rise in road traffic from commercial vehicles, said another brokerage analyst, asking not to be named as he is not allowed to be quoted by the media. “Even non-mining belts such as Mumbai-Delhi have seen healthy traffic growth in recent months,” he said.

Toll rates are linked to the Wholesale Price Index (WPI), which is moving in the positive direction with food and manufactured goods prices showing an increase. “The WPI inflation number will remain positive and move upwards as the base effect comes in and micro price increases will translate into higher inflation numbers. Higher prices is partly good news for the corporate sector, which can expect profit margins to improve marginally in the first two quarters of the year,” CARE Ratings said in a report on Tuesday.

Various factors that hinder stability in the infrastructure sector include negative WPI and traffic underperformance, sizeable cost overruns and potential higher gearing to meet scheduled life-cycle costs.

“Q2FY16 saw a sharp deceleration in toll-collection growth across companies due to excessive rainfall. However, the last two quarters have seen growth coming back to earlier levels (of last six quarters). There was strong growth in projects across states and companies,” Phillip Capital India analyst Vibhor Singhal wrote in a 3 June report.

Phillip Capital’s sample consisted of 47 projects across 10 states and six companies, which have shown an improvement in toll collections. The rise was led by states such as Gujarat, Rajasthan and Maharashtra.

IRB and Ashoka reported like-for-like toll collection growth of 16% and 14% in this period, Singhal wrote. Sadbhav saw toll collection growth of 8%, while ITNL reported an 18% rise.

Recent months have seen an increase in the sale of operational road assets to long-term financial buyers. “With interest rates coming down and traffic growth picking up, we expect a surge in demand from developers/investors looking to acquire ‘operational BOT’ projects with ‘healthy financials’,” Phillip Capital’s Singhal wrote.

Analysts expect the trend to continue for the next two quarters, with growth stabilizing at 5-6%.

In the past two years, the government has made attempts to revive stalled projects either by way of clearing stuck proposals or offering one-time capital infusion to revive those with funds constraints. India has set itself the target of awarding 25,000km of road projects in 2016-17 under the ministry of road transport and highways and the National Highways Authority of India, compared to the 10,000km awarded in 2015-16.