The combined capital outlay for roads and renewables in the current and next fiscal is seen rising to around ₹13-lakh crore, a 35 per cent growth compared with the preceding two fiscals, backed by strong execution speed, Crisil Ratings said on Tuesday.

The pace of road construction and capacity addition in renewables is seen increasing by 25 per cent and 33 per cent, respectively, over the current and next fiscal years. This bodes well for the economy, given the high multiplier effect of road development and the critical role renewable energy can play in achieving India’s energy transition.

The growth is expected to sustain over the medium term, supported by conducive policies, strong investor interest, and healthy financial profiles. “The pace of execution of renewable energy projects is set to increase 33 per cent to around 20 GW per annum over the current and next fiscals (about 15 GW per annum in the past two fiscals), supported by a healthy executable pipeline of around 50 GW of projects as of March 31, 2023,” Crisil Ratings Managing Director Gurpreet Chhatwal said.

Similarly, road construction is set to accelerate 25 per cent to 12,500–13,000 km per year over the current (FY24) and next fiscals (FY25) on continued healthy awarding of projects and a step up in execution by road construction players, he added.

Supportive policy

A supportive policy environment adds its own spurs. For instance, steps such as late payment surcharges have helped keep dues from discoms to renewable generators in check, Crisil said.

In roads, the introduction of the hybrid annuity model (HAM) has sped up execution and drawn in investments. Further, initiatives such as Atmanirbhar Bharat, forbearance during the pandemic, and the emergence of infrastructure investment trusts (InvITs) have afforded a fillip to both sectors, it added.

“Investor interest has been encouraging, with ₹75,000-80,000 crore raised through equity and asset monetisation in the past two fiscals in both sectors. Continued focus on asset monetisation and equity raising, along with healthy cash flows, will keep the capital structure balanced in both sectors,” Crisil Ratings Senior Director and Deputy Chief Ratings Officer Manish Gupta said.

So, despite higher capital outlays, rated renewables and road entities should have a healthy average debt service cushion of 1.2–1.3 times over the tenure of debt on their balance sheets, which supports their credit profiles, he added.

But challenges remain, such as the risks of aggressive bidding and execution by new entrants. Rationalisation in bidding strategies will be crucial to sustaining profitability and maintaining quality, the ratings agency said.

In the meantime, timely asset monetisation will remain important in the road sector as InvITs continue to grow. For renewables, if geopolitical developments affect supply chains, it may impact the internal rate of return and pose a risk to our estimates, it added.

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