ICRA expects March 2024 WPI to remain low at 1%-1.5%

After witnessing a healthy double-digit toll collection growth in FY2023 followed by 6-9% in FY2024, ICRA Ratings expects the toll collection growth to moderate to 5-8% in FY2025 on account of the low Wholesale Price Index (WPI) inflation-linked toll-rate hike from Apr-2024.

Nevertheless, ICRA maintains a Stable outlook on toll road assets, as the steady traffic growth will support the coverage metrics for BOT toll road assets.

Toll rates and traffic volumes are the two variables that determine toll collections. The toll rate increase is linked to the WPI, while traffic volume is connected to the underlying economic activity, primarily manufacturing, construction, and mining. For the projects that were bid post-2008, the toll rate is revised annually in April at a 3% fixed rate plus 40% of the change in WPI for the preceding December. The hike in toll rates for the projects bid before 2008 is 100% linked to the March WPI (toll rate revision happens in July or September each year).

Vinay Kumar G, Sector Head, Corporate Ratings, ICRA, said: “The WPI inflation for December 2023 stood at a marginal 0.73% (against 5.02% in December 2022) translating into a mild toll rate increase of ~3.29% during FY2025 for the projects, which are linked to 3% fixed rate plus 40% of the change in WPI. For projects awarded prior to 2008 (March WPI-linked toll rate revision), ICRA expects an even lower toll rate hike of 1-1.5%. A modest toll rate revision is expected to result in 5-8% growth in toll collections for FY2025, primarily supported by 4%-5% growth in traffic.”