Inflation-linked road toll rate hike to be modest in FY24: ICRA

CHENNAI: Credit rating agency ICRA on Monday said the inflation-linked toll hike should be relatively modest at 2-5 per cent in FY24 as compared to 8.7-14.6 per cent last fiscal.

ICRA has revised the outlook on the toll road sector to stable from positive for FY24.

"In the backdrop of easing WPI inflation to 4.95 per cent in December 2022 and an expected WPI inflation of sub-2 per cent in March 2023, the inflation-linked toll hike should be relatively modest at 2-5 per cent in FY2024 compared to the 8.7-14.6 per cent toll rate hike in FY2023," ICRA said.

According to ICRA, the change in outlook to stable primarily reflects the expected moderation in toll collection growth to 6-9 per cent in FY2024, compared to a stellar 17-20 per cent growth witnessed in FY2023.

The strong growth in toll collections in FY2023 was driven by a healthy toll rate increase on the back of high inflation as well as improved economic activity.

"Toll rates for projects which are linked to December WPI would witness a 5 per cent growth while the toll rates for projects linked to March WPI will witness a sub-2 per cent growth. Consequently, the toll collection growth in FY2024 is estimated at 6-9 per cent, primarily supported by 4 per cent-5 per cent growth in traffic," Vinay Kumar G, Sector Head, Corporate Ratings said.

Despite the moderation in toll collection growth, lower outflow towards O&M and major-maintenance expense on account of the recent moderation in key commodity prices, especially bitumen and steel, should support the debt coverage metrics for BOT toll road assets, he added.

As regards the allocations announced in the Union Budget FY24, he said: "Gross budgetary support to the Road Ministry increased significantly by 25 per cent to Rs 2.59 trillion in FY2024 BE from Rs 2.06 trillion in FY2023 RE to meet the completion targets for the Bharatmala and the National Infrastructure Pipeline (NIP)."

This should support the increased road execution target of 14,500 km against 12,000 km in FY2023. However, the budget remained silent on the awarding target for FY2024, considering the slow pace of awards expected for Q4 FY2024 with the General Elections slotted for May 2024. Further, the monetisation target of Rs 350 billion appears ambitious, despite the strong appetite for operational road assets, he added.