Project Awarding Activity On Slow Lane; Competition To Remain Elevated: Icra

As the status of road awards stood at just 563 kilometre (km) in the first four months of the current financial year (4M FY25), the forecast of road awards by the Ministry of Road Transport and Highways (MoRTH) in FY2025 has been revised to 8,500 to 9,000 km by the rating agency Icra. This is similar to last year’s awarding of 8,581 km (from its earlier estimate of 10,000 to 10,500 km).

The status of road awards in 4M FY25 is 50 per cent lower than the 1125 km awarded in 4M FY2024. The awards declined by 31 per cent to 8,551 km in FY2024 from 12,375 km in FY2023 amid a delay in pending cabinet approval for the revised cost of Bharatmala Pariyojana (BMP) and restrictions on project awards imposed by the model code of conduct, ahead of the general elections, as per the report.

“The recent ministry circular has directed the National Highways Authority of India (NHAI) to focus on upgrading the existing national highways, along with the development of new highways with a total expenditure of Rs 1.44 lakh crore. In addition, the Ministry also identified a state-wise list of projects planned to be awarded in the current fiscal totalling approximately 7,500 km,” stated Vinay Kumar G, Sector Head, Corporate Ratings – Corporate Ratings, Icra.

While the Hybrid Annuity Model (HAM) and engineering, Procurement and Construction (EPC) will continue to dominate project awards; share of build, operate and transfer (BOT) - Toll is expected to improve in FY2025, as per the report. The expectations of a material shift in overall project awards towards BOT (toll) in the near to medium term remain challenging. Icra has expected these awards’ share to increase to around 5 per cent in FY2025 compared to less than 1 per cent of the orders in the last five years.

“With improved clarity regarding order-awarding activity from the MORTH in August 2024, project awarding is expected to gain momentum from September 2024 onwards; however, the overall project award will remain substantially lower than that of FY2021-FY2023 levels,” Vinay Kumar G further added.

Icra expects the competition to increase as developers are expected to bid aggressively to build the shrinking order book. The EPC and HAM project bidding process in FY2024 witnessed intense competition, as reflected in the consistently discounted bids (with respect to the authority’s base price) since FY2021. The maximum and median discounts in FY2024 stood at 46 per cent and 21 per cent, respectively, against 31 per cent and 15 per cent respectively, in FY2021.