Road Projects To See 2-5% Hike In Inflation-Linked Toll Rates In FY24: Report
The wholesale price index based inflation is expected to fall further and is likely to settle at sub-2% in March 2023.
Inflation-linked toll rates of various road projects will see a moderate hike of 2-5% in the next fiscal year due to falling wholesale price index, a report said on Monday.
Rating agency ICRA has revised down the outlook on the toll road sector to stable from positive for FY24, citing the easing wholesale price inflation which fell to 4.95% in December 2022.
The wholesale price index based inflation is expected to fall further and is likely to settle at sub-2% in March 2023.
Accordingly, the inflation-linked hike in toll rate will be relatively modest at 2-5% in FY24 compared to the 8.7-14.6% hike in FY23, the agency said in its latest note.
On the change in the outlook to stable from positive, it said the revision primarily reflects the expected moderation in toll collection growth to 6-9% in FY24, compared to a stellar 17-20% growth in FY23, which was driven by a healthy toll rate increase on the back of high inflation as well as improved economic activity.
Number of road users or traffic volume and toll rates are the major factors that affect toll collection in the country.
Traffic volume has a strong correlation with the gross value added of construction, mining and manufacturing, as around 65%of the freight traffic is dependent on these sectors. Growth in these sectors is estimated to be 5-7% in FY24 and is likely to result in 4-5% growth in the overall traffic volume, the agency said.
Vinay Kumar G, sector head of corporate ratings at ICRA, said toll rates linked to the December WPI will see a 5% growth while those linked to March WPI will see only sub-2% growth. Consequently, toll collection growth in FY24 is estimated at 6-9%, primarily supported by 4-5% growth in traffic.
Despite a moderation in toll collection growth, lower outflow towards operation & management and major maintenance expense on account of the recent moderation in key commodity prices, especially bitumen and steel, should support debt coverage metrics of toll road assets, he added.
There is a 25% jump in gross budgetary support for the road ministry at Rs 2.59 lakh crore in FY24 from Rs 2.06 lakh crore in FY23, which should support the increased road project execution target of 14,500 kilometres against 12,000 km in FY23.
