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Synopsis
In this report, CareEdge Ratings opines on the current state of the Indian Roads & Highways Sector and outlook
on awarding mix and pace of project execution especially in light of heightened competition and increase in project
complexities.

Significant dip in awarding activity during FY24

The government's steadfast commitment to infrastructure development has been highlighted by a significant
increase in project awards following Covid-19, particularly during FY22-FY23. This period accounted for nearly 50%
of the projects awarded in the last five years ending in FY23. However, FY24 witnessed a downturn, with project
awards declining by 31% compared to the previous fiscal year and way below Ministry target of 13,290 km for
FY24. Decline in awards was steeper than expected, primarily due to pending approval of revised cost from cabinet
towards projects under Bharatmala Pariyojana. A decrease of 10-15% in awards was already anticipated due to
legislative elections and the subsequent imposition of the code of conduct. However, these factors combined have
led to a further reduction in the pace of project awards.

Pace of construction to slow down by 7-10% in FY25 due to heightened execution challenges
The pace of construction for National Highways in India during FY24 registered a healthy uptick of 20% to 34
Km/day (PY: 28 Km/day), in line with CareEdge Rating’s earlier estimates (“Indian Road Sector: Navigating a
Smooth Journey?” dated May 11, 2023). Despite the uptick, the pace of construction fared lower than 37 km per
day reported in FY21 due to execution woes and increasing competitive landscape. Furthermore, increasing project
complexities, rising participation of moderate creditworthy sponsors and significant delay in the receipt of appointed
date post award of the project are expected to pull down the execution pace by 7-10% during FY25 to around 31
Km/day. CareEdge Ratings expects National Highways Construction to slow down from 12,350 Km in FY24 to
11,100-11,500 Km in FY25.

Healthy project Execution

Slower award in
Post covid recovery Woes + Slower
awards in FY22-23
+ FY18 strong award awards in FY24
18,000 37 FY19-20 40
34
16,000 31 35
30 29
14,000 28 28
27 30
12,000
25
Km/ day

10,000
17,055
Km

20
8,000
13,435

12,731

12,375

12,349

11,200

15
10,885

10,467

10,457

10,331
10,237

6,000
9,829

8,912

8,581

4,000 10
5,493

2,000 5
-

- 0
FY18 (A) FY19 (A) FY20 (A) FY21 (A) FY22 (A) FY23 (A) FY24 (A) FY25 (P)

Award (Km) Construction (Km) Rate of Construction (Km/day)

Source: CareEdge Ratings

1
 Work in Slow Progress: National Highways Execution to Decline by
7-10% in FY25

BOT-HAM (Hybrid Annuity Model) remained the preferred mode of award constituting around 55% of the total
projects awarded during FY21-FY24. CareEdge Ratings has observed significant delays in the execution of such
HAM projects. Of the overall sample of HAM projects awarded after March 2020 amounting to Rs.1.50 lakh crore,
approximately one-third of the projects with an aggregate Bid Project Cost (BPC) value of Rs. 50,000 crore are
facing delays ranging from 4-6 months beyond the grace period of three months. These projects have applied or
received an extension of time (EOT) of a similar or longer period. Notably, another significant portion of NH-HAM
projects with an aggregate BPC value of ~Rs.40,000 crore as of April 1, 2024 are still awaiting issuance of Appointed
Date for more than a year as compared to Rs.14,500 crore as of June 30, 2023. Of the total awards of ~12,300
Km by National Highways Authority of India (NHAI) in FY22 and FY23, 20% continue to await appointed date for
more than one year. All this, combined with accentuated execution challenges, is estimated to pull down the overall
highway construction pace by 7-10% in FY25. Please refer to CareEdge Ratings study on NH-HAM projects
published vide its earlier report (“Monetisation Potential of NH-HAM Projects Likely Rs 2L cr for FY24-27” dated
September 28, 2023) indicating heightened execution woes.

With the announcement of greenfield expressways and highways, the challenges towards land acquisition have
aggravated, thereby elongating the receipt of the appointed date. Also, the permissible execution span for projects
is uniform at two years, irrespective of the project scope i.e. brownfield/ greenfield expressway/ structurally
complex, which has further contributed to the project delays. All the above factors have increased the project
completion cycle from earlier 2.75-3.25 years to around 3.50-4 years presently, resulting in a higher turnaround
time for project execution and a subdued execution pace in the sector.

Awarding mix to shift to Build-Operate-Transfer (BOT) mode in the medium-term

Project awarding through the Engineering Procurement and Construction (EPC) mode constituted ~44% of awards
for the past four years ended FY24. Nevertheless, aggressive bidding in the roads sector post-March 2020, coupled
with a perceived notion about the inadequacy of the construction quality (under the EPC mode) and elevated debt
levels of the NHAI emerged as the prominent challenges faced by the roads sector.

To address these challenges, the Ministry of Roads Transport and Highways (MoRTH) has revamped BOT Toll
concessions to safeguard stakeholders’ interests. As stated by CareEdge Ratings in its earlier report (“Revised MCA
for BOT-Toll and TOT: A Concrete Move for Highways Sector” dated April 2, 2024), the introduction of the revised
model concession agreement (MCA) under the BOT-Toll model is a welcome move, however, the extent of bidding
aggression and on-ground enforcement of contractual clauses shall remain key monitorable.

CareEdge Ratings expects a (i) shift in awarding preference from EPC to HAM and Toll projects in the medium term,
(ii) a significant reduction in the share of EPC projects to around 25-30% in awards going forward. This shall also
help in reducing the funding requirement for NHAI while focusing on the quality of construction.

CareEdge Rating’s View

“CareEdge Ratings expects a decline in the pace of construction of National Highways by 7-10% in FY25 as
compared to FY24. National Highways construction pace is expected to slow down from 12,350 Km in FY24 to
11,100-11,500 Km in FY25. The rising competitive landscape, escalating execution challenges, increasing project
complexities, rising participation of moderate sponsors and elongation in receipt of appointed date from award are
key challenges faced by the roads sector. NH- Hybrid Annuity Model (HAM) projects with aggregate length of over
2,200 km are yet to commence construction for over one year post award. All the above factors have stretched the
project completion cycle from earlier 2.75-3.25 years to around 3.50-4 years. Notwithstanding the healthy order

2
 Work in Slow Progress: National Highways Execution to Decline by
7-10% in FY25

book of road developers, these factors are likely to result in a subdued pace of road construction for NHAI,” said
Maulesh Desai, Director, CareEdge Ratings.

"As project complexities rise and timelines elongate, it is imperative to swiftly address bottlenecks thus ensuring
seamless infrastructure development. Going forward, CareEdge Ratings estimates a significant reduction in the
share of EPC projects from around 50% to 25-30% due to awarding through revised toll concessions. This shall
also help in reducing the funding requirements of NHAI while focusing on the quality of construction. Under revised
toll concessions funding requirement for NHAI shall reduce to 20%-32.5% of project cost as against 100% for EPC
projects. At the same time, peak debt requirement is likely to be lower by 10% vi-a-vis old BOT-Toll concessions
due to equity support from NHAI,” he added.

3
Work in Slow Progress: National Highways Execution to Decline by
7-10% in FY25

Contact
Rajashree Murkute Senior Director [email protected] +91-22 -6837 4474
Maulesh Desai Director [email protected] +91-79 -4026 5605
Setu Gajjar Assistant Director [email protected] +91-79- 4026 5615
Mradul Mishra Media Relations [email protected] +91-22 -6754 3596

CARE Ratings Limited

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based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CareEdge Ratings is
not responsible for any errors or omissions in analysis / inferences / views or for results obtained from the use of information contained in this report and especially states
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