In fiscal 2024, revenue growth will be robust at 9–11%, bolstering credit profiles.
Toll road operators will see a big 16–18% increase in revenue in the fiscal year 2023 as a result of a significant toll rate increase brought on by high inflation and good traffic growth on national highways.
On the back of above-average traffic growth, toll revenue growth will continue to be high in fiscal 2024 as well, but at a lower rate of 9–11%.
A CRISIL Ratings analysis of 49 toll road assets in 14 states revealed that the strong toll collections and ample balance sheet liquidity will continue to support the credit profiles of toll road operators.
Toll road operators will see a big 16–18% increase in revenue in the fiscal year 2023 as a result of a significant toll rate increase brought on by high inflation and good traffic growth on national highways.
On the back of above-average traffic growth, toll revenue growth will continue to be high in fiscal 2024 as well, but at a lower rate of 9–11%.
A CRISIL Ratings analysis of 49 toll road assets in 14 states revealed that the strong toll collections and ample balance sheet liquidity will continue to support the credit profiles of toll road operators.
Although traffic growth is predicted to slow to 4-6% in fiscal 2024, it will still be higher than the 2-3% 4-year CAGR recorded through fiscal 2022. Traffic growth is closely correlated with real GDP growth, which is anticipated to slow from 7%3 in fiscal 2023 to 6%2 in fiscal 2024.
The WPI inflation rate for December 2022 printed lower at 4.95%, which means that the toll rate will increase by 5% in the upcoming fiscal year.
As a result, toll income is anticipated to increase 9–11% in the fiscal year 2024.
Since fiscal 2018, the industry has experienced a number of challenges, including the effects of the goods and services tax (GST) implementation, changes to the axle load standards for commercial vehicles, restrictions brought on by the pandemic, and supply chain disruptions that have a negative impact on traffic flow. Together, these factors kept traffic increase between fiscal years 2018 and 2022 to a maximum of 2-3%.
Investors seeking to aggregate road assets under infrastructure investment trusts (InvITs) in order to achieve healthy returns and gain from inflation hedging favour toll roads. As a result, toll roads make up over 70% of the assets held by road sector InvITs.
As participants’ input costs increased in the recent past, inflation hedging has been successful in the past. For toll road operators, significant revenue growth mitigated the effects of rising maintenance expenses.
The credit profiles of toll road operators have held up well in fiscal 2023 and will continue to do so in fiscal 2024, according to Saina Kathawala, Associate Director, CRISIL Ratings. Debt service coverage ratios on average will be high, at 1.6 to 1.7 times. In addition, liquidity will be adequate thanks to a 3-6 month debt service cushion.
The asset pool represented by the CRISIL Ratings sample set is stronger, and traffic volume is increasing at a healthy rate.
Over the medium run, any unanticipated deterioration in the economic climate and its effects on the performance of commercial traffic will be worth monitoring.
