Sachin Gupta, Senior Director, CRISIL Ratings, says, ?The NHAI awarded a whopping 7,400 km in fiscal 2018, which slowed down the following year to about 2,200 km. In the current fiscal and the next, awarding is expected to be ~4,000 km a year. The delay in declaring appointed dates for the projects awarded, on the other hand, is primarily due to issues in land acquisition. CRISIL?s analysis of 119 hybrid annuity model (HAM) projects shows almost 30 per cent of these have not received appointed dates more than a year after these were awarded.?

The slowdown, however, is unlikely to impact the credit profiles of the EPC players primarily because of three reasons. First, as of last fiscal, these companies had a healthy order book of ~Rs 2 trillion, which is at over three times their revenue in fiscal 2019 and provides high revenue visibility for the next two years.

Second, these companies have kept a check on their debt levels while pursuing growth. At the consolidated level, the capital structure was robust as on March 31, 2019, with a gearing of 0.55 time, compared with 0.80 time as on March 31, 2015.

The improvement was largely due to focus on awarding through EPC and HAM routes, which entail lower equity requirement. Additionally, renewed interest from global funds has given a fillip to the sector, and divestment of project special purpose vehicles through infrastructure investment trusts or asset level sale has supported the improvement in capital structure.

Third, while a delay in receipt of appointed date may lead to a delay in recognising revenue for some of the projects, there is an assurance that a project, once started, would not be stalled. This is because the NHAI notifies the appointed date only when majority of the land (80 per cent for HAM projects) is procured. Thus, once a project is under construction, there is limited risk of delays due to non-availability of land and thereby minimal impact on credit profile of the EPC companies. That said, there is a risk that any further delay in declaring appointed dates could result in termination of some of the awarded projects.

Sushmita Majumdar, Director-CRISIL Ratings, said, ?The concession agreement for HAM allows for mutual termination of a project in case the appointed date is not received within a year of signing of this agreement, and a few projects have indeed been terminated on this ground recently. An increase in project terminations would further impact the revenue growth of these companies.?

Overall, CRISIL believes that while there is a visible slowdown in revenue growth of most road EPC players, their credit profiles would sustain. And NHAI?s focus on land acquisition and clearances would be key to execution and sustained momentum.