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MOSL: INDIA ROADS-Financial closure concerns for HAM projects receding

India Roads: Financial closure concerns for HAM projects receding; Focus now shifts to execution and fresh awarding

 

Of late, infrastructure (Roads) sector stocks have witnessed a sharp correction. Concerns regarding (a) financial closure of recently awarded projects, (b) delays in receiving appointed date impacting timely execution of projects awarded, and (c) sluggishness in FY19 NHAI awarding given upcoming general elections and financing constraints for HAM projects are weighing down the sector. However, our recent channel checks with developers, lenders and Road sector awarding authority indicate that financial closure concerns for HAM projects are waning and focus is now on execution and fresh awarding. Key takeaways: 

FY19 to see a dip in awarding

Awarding activity in the road sector has remained lackluster recently given (a) multiple HAM projects awarded in FY18 are yet to receive an appointed date, (b) changes at NHAI’s top brass, which has further delayed the awarding process, and (c) difficulty in acquisition of land for new projects to be awarded. Financial closure of awarded projects has been delayed due to liquidity tightness. Additionally, non-availability of land is a road-block for the appointed date of most projects. FY19 being an election year, we believe project awarding from NHAI should see a YoY decline and EPC should remain the preferred mode of awarding. As against INR1.2t awarding witnessed in FY18, we expect a decline in awarding to INR700-800b in FY19. Our channel checks suggest meaningful ordering should begin from Jan’19 as NHAI starts fresh awarding after prior awarded projects are in execution phase. Tender pipeline from NHAI remains encouraging with live projects worth INR900b; however, there has been considerable delay in invitation of bids for tenders floated.