The pace of constructing national highways in India witnessed a notable slowdown during the first quarter of the current financial year. According to a recent analysis by the rating agency ICRA, the execution of road construction projects declined by approximately 12% year-on-year (Y-o-Y) in the April-June period of FY2025.
Analyzing the Slowdown in Construction Pace
ICRA's report highlights that the road construction execution was around 2,500 kilometres for Q1 FY2025. This marks a decrease from the roughly 2,850 kilometres built in the same quarter of the previous fiscal year, FY2024. The agency has pointed to the prolonged monsoon season and the timing of the general elections as primary factors contributing to this temporary deceleration. The model code of conduct, which is enforced during elections, often leads to a pause in the awarding of new projects and can slow down ongoing work.
Despite this quarterly dip, the long-term outlook from the National Highways Authority of India (NHAI) remains ambitious. The NHAI has set a target to award projects covering 8,000 to 10,000 kilometres and to construct around 7,000 kilometres of roads during the entirety of FY2025. Achieving these goals would require a significant ramp-up in activity in the remaining three quarters of the year.
Toll Collections Maintain Steady Growth Trajectory
In a contrasting and positive trend, the toll collection sector has shown remarkable resilience and stability. ICRA estimates that toll collections across the country will maintain a healthy growth rate of 6-8% in FY2025. This projection follows a strong performance in FY2024, where toll collections grew by an impressive 13-15%.
This sustained growth is attributed to several key factors. The primary driver is the consistent increase in traffic volume on Indian highways, reflecting broader economic activity and vehicle penetration. Furthermore, annual toll rate hikes, which are contractually linked to inflation indices, provide a built-in revenue escalator. The expansion of the toll-operated road network itself, with new stretches becoming operational, also contributes to the rising collection figures.
Financial Health and Future Projections
The financial metrics for entities operating in the road infrastructure space, particularly those focused on toll collection (toll-operate-transfer or TOT models), are expected to remain robust. ICRA projects that the Interest Coverage Ratio (ICR) for its rated portfolio of toll road operators will stay strong at 2.0-2.2 times in FY2025. This indicates a comfortable ability to service debt obligations from operating earnings.
Looking ahead, the capital expenditure (capex) outlook for the roads sector remains substantial. ICRA anticipates that the outlay for the sector will be in the range of Rs. 2.2-2.4 lakh crore for FY2025. This significant investment pipeline underscores the government's continued focus on infrastructure development as a critical engine for economic growth.
In summary, while the road construction segment experienced a predictable slowdown due to seasonal and electoral factors, the underlying fundamentals of the sector are solid. The toll collection segment acts as a stabilizing force, demonstrating strong growth and financial health. The sector's future hinges on accelerating project execution in the coming quarters to meet annual targets and sustaining the momentum in toll revenue, which funds further expansion.
