Sizeable equity commitments in under-construction projects and rising working capital needs will increase the debt burden of road developers but revenue growth is set to remain high, driven by strong contract awards and execution in the next fiscal, according to a report.

Besides, a high budgetary allocation to the sector will also help road developers, it added.

With the prevailing low leverage levels, developers have the headroom to borrow more to fund new projects, which will keep their credit risk profiles stable, said a Crisil report, which also notes that asset monetisation will be crucial to rein in debt.


The report is based on the analysis of 18 engineering, procurement and construction (EPC) players, constituting 70 per cent of the sectoral revenue.

According to Mohit Makhija, a senior director at the agency, total equity commitment towards the under-construction public-private partnership (PPP) projects is estimated at over Rs 21,000 crore by fiscal 2025.

The working capital requirements are expected to increase with expected strong revenue growth of 10-15 per cent over the next two fiscals. Accruals will fund around 45 per cent of these incremental outflows, while the balance is expected to be funded through asset monetisation and debt.

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Consequently, debt is expected to inch up to Rs 30,000 crore by March 2025 from Rs 17,000 crore in March 2022.

Projects awarded through the hybrid annuity model (HAM) route typically form a large share of the National Highways Authority’s total awards and these projects require 12-15 per cent of the project cost to be funded through equity.

Additionally, working capital needs are expected to rise with strong revenue growth expected over the medium term, as is reflected in the healthy order book-to-revenue ratio of 3x.

On the other hand, the execution of aggressively bid contracts awarded during the last two-three years will keep operating profitability constrained at 12-13 per cent over the next two fiscals, down from 14-15 per cent in the past. As a result, profitability is estimated to fall 150 bps this fiscal, impacted by high input prices.

According to Anand Kulkarni, a director with the agency, besides internal accruals, the road contractors will have to rely on other funding sources, such as asset monetisation, equity raise or incremental debt to bridge the funding requirement. But the low leverage gives them headroom to borrow without any material impact on the credit risk profiles. PTI BEN BAL BAL

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