ICRA has revised the outlook on the toll roads sector to stable from positive for FY2024, against the backdrop of easing WPI inflation to 4.95 percent in December 2022 and an expected WPI inflation of less than 2 percent in March 2023. 

The inflation-linked toll hike should be relatively modest at 2-5 percent in FY2024, compared to the 8.7-14.6 percent toll rate hike in FY2023. The change in outlook to "stable" primarily reflects the expected moderation in toll collection growth to 6-9 percent in FY2024, compared to a stellar 17-20 percent growth witnessed in FY2023.

The strong growth in toll collections in FY2023 was driven by a healthy toll rate increase on the back of high inflation and improved economic activity. The traffic volumes strongly correlate with the gross value added (GVA) of construction, mining, and manufacturing (CMM), as around 65 percent of the freight traffic is dependent on these sectors. The growth in CMM is estimated at 5-7 percent for FY2024 and is likely to result in 4-5 percent growth in overall traffic volumes, ICRA said in a statement.

Vinay Kumar G, Sector Head, Corporate Ratings, ICRA, said: “Toll rates for projects that are linked to December WPI would witness a 5 percent growth, while the toll rates for projects linked to March WPI will witness a sub-2 percent  growth." Consequently, the toll collection growth in FY2024 is estimated at 6–9 percent , primarily supported by a 4–5 percent growth in traffic. "Despite the moderation in toll collection growth, lower outflows towards O&M and major-maintenance expenses on account of the recent moderation in key commodity prices, especially bitumen and steel, should support the debt coverage metrics for BOT toll road assets.”

Vinay Kumar G said: “Gross budgetary support to the Road Ministry increased significantly by 25 percent to Rs 2.59 trillion in FY2024 BE from Rs. 2.06 trillion in FY2023  to meet the completion targets for the Bharatmala and the National Infrastructure Pipeline (NIP). This should support the increased road execution target of 14,500 km compared to 12,000 km in FY2023. However, the budget remained silent on the awarding target for FY2024, considering the slow pace of awards expected for Q4 FY2024 with the General Elections slotted for May 2024. Further, the monetisation target of Rs 350 billion appears ambitious, despite the strong appetite for operational road assets.