• Wed. Feb 28th, 2024

Rising cost of road projects: Modi govt’s road dreams may be set back by cash flow and debt woes

Rising cost of road projects: Modi govt’s road dreams may be set back by cash flow and debt woes
If recent trends of cash flow challenges and weak orders are anything to go by, the PM Narendra ModiThe government’s emphasis on road and highway projects will continue in a quiet quarter till the 2024 general elections.

A report by Nomura Research on Monday showed that the pace of highway delivery by state and central governments has been weak in the last financial year and in April this calendar year. This may continue to be the case in the current financial year as well, foreign brokerages said.

Tenders issued Ministry of Transport (MoRTH) decreased to 12,376 km in FY23 from 12,731 km in FY22, which was higher than FY20 and FY21.

That is, in April 2023, tenders were issued for only 114 km, which is a decline of 43 per cent on year-on-year basis and the lowest since 2020-20.

We note that regularization of roads and highways slowed down in FY 2009, FY 2014 and FY 2019 ahead of Parliamentary elections. In our view FY24 is likely to witness a similar trend,” Nomura said.

National Highway (NH) constructions India It reached a record high of 37 km per day in FY21, but declined to 30.11 km per day in FY23. Construction of national highways in 2022-23 was 10,993 km, which is 13.70 per cent short of the government’s target of 12,500 km. The ministry approved 12,375 km of highways in the last financial year. Ahead of the general elections, the central government intends to speed up the construction of roads by 16-21 per cent in FY24, focusing on the implementation of projects in various phases. of execution, ICRA It was said in a report earlier in May.

However, as the pattern of behavior is deployed in Q4FY24 due to elections, the awarding activities are expected to be successful in FY24. ICRA expects the total to decrease from 12,375 km to 9,000-9,500 km in FY23.

High inflation, high debt, low orders

Nomura says road projects have witnessed significant price hikes as land acquisition costs have risen sharply. As prices of all key raw materials have risen compared to pre-Covid levels, manufacturing costs have also risen sharply.

The data shows that prices of steel, cement, diesel and bitumen are 50 percent, 14 percent, 36 percent and 46 percent higher than the pre-Covid average.

Nomura estimates that the cost of the Bharatmala project is now more than double the original estimate. NHAI.

NHAI’s high debt burden and rising project costs may further contribute to the project slowdown, the report said.

Major road EPC companies have also seen rising net debt levels and a decline in operations cash flow.

“In the event of a potential slowdown in ordering, which could limit growth in income, debt levels may remain high, creating further risks for the sector,” Nomura said.

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