Building roads quickly is vital

The announcements in infrastructure and increased capex spending in the Budget have enthused the construction equipment industry but much of what is finally attained will depend on how they are implemented. The last fiscal saw muted activity in  due to the pandemic but as the situation becomes normal, things could look up.

To put things in perspective, the National Highway Authority of India (NHAI) which is responsible for development of national highways network issued just a single letter of acceptance (LoA) in January for a road project which is just 15 kms in length. Last month was not an aberration as even on a YTD basis, the total awards could  not cross  2600 km with just about 600 km of it coming up in the second half of FY2022. In contrast, in FY2021, about 4,800 km of road projects were awarded. 

At project execution levels, just about 7,000 kilometers of roads could get constructed until December with average construction per day  coming down to 22-23 km as against 35 km in FY2021.  Though companies are trying to stretch their efforts to touch 10,000-12,000 km before the end of year, the headwinds remain strong.

The original plan envisaged construction of 14,600 km in FY2022 even as  13,298 km  of road construction could get completed FY2021  primarily  on back of the massive infrastructure spending by the Government. 

Sandeep Singh, managing director, Tata Hitachi said, "Even if  the execution levels reach 15,000 km in FY2023, it should be considered satisfactory.”  Delays in land acquisitions and  environmental clearances , successive waves of pandemic,  liquidity issues due to tighter lending norms by NBFCs beginning January 2022 coupled with  increase in equipment costs on account of transitioning to BS IV emission norms and commodity inflation prices have contributed to the slowdown in road construction activities, experts say.

A closer look at the data suggests an  upstick of capex between  FY 2015-2018 culminating into over Rs 1,20,000 crore which  was followed by a slack period in fiscal 2019-2020. Further, while FY2021 registered an all-time high awarding at Rs 1,30,000 crore , it went down again  in FY2022 (YTD) at Rs 80,000 crore, data sourced from Ministry of Road & Highways and Edelweiss Research suggests. Singh who was past President of Indian Construction Equipment Manufacturers' Association (ICEMA), says, “If they really execute well , it will be good for us."

The budget for 2022-2023 proposes an addition of 25,000 km and for which Rs 20,000 crore of financing will be mobilised. The  roads sector alone is likely to account for 18 percent  capital expenditure over FY 2019-25 with projects  worth $200 billion to be built in the next couple of years. Additionally, the Centre has also allocated  Rs 19,130 crore in the Budget for metro projects in the country apart from development of city roads, bridges, flyovers, elevated road corridors, water sewerage, transmission lines amongst others.  Also, about Rs 60,000 crore has been allocated to provide tap water to 3.8 crore households.

Sorab Agarwal, Executive Director of  Action Construction Equipment (ACE) says the capex increase will result in further increase in orders for all types of projects, not just roads but also Metro, Bullet train, irrigation projects, amongst others.” Agarwal expects the industry to grow by 15-25 percent in comparison to FY2022.

Virendra D. Mhaiskar, Chairman & Managing Director, IRB Infrastructure Developers which has a 20 percent  market share in  Golden Quadrilateral projects, says his order book is about Rs.18,500 crore as against Rs.13,200 crore at end Q2FY2022

R Shankar Raman, whole-time director and CFO, L&T  said, “Allocation to the manufacturing sector and preferences to domestic manufacturers in procurement will enthuse capacity augmentation in the sector leading to a more broad-based growth of the economy. However, though the tendering pipeline of  close to  Rs 3,92,000 crore for Q4FY2022 remains strong for the company, the  order finalization is something which is witnessing some delays. L&T's  tendering to awarding ratio came down to 48 percent in 9MFY2022 from close to 61 percent in 9MFY2021.