Transportation Infrastructure likely to witness gradual recovery mirroring the GDP forecasts: ICRA


                                     
Transportation Infrastructure likely to witness gradual recovery mirroring the GDP forecasts: ICRA

Transportation infrastructure has a strong correlation with the health of the economy and thereby with the movement in GDP. Therefore, the detrimental impact of Covid-2019 on the overall economy would in turn affect the movement of freight on the road stretches and the air traffic. As per ICRA estimates, the GDP growth is estimated at 2% for FY2021. As far as toll road projects are concerned, the assumption is that entire April, 2020 will be under toll suspension with gradual ramp up over a three month period between May and July, 2020. Subsequently, the traffic growth rates are aligned to rating agency’s quarterly growth estimates of GDP as depicted in the chart below. Further, revision in toll rates in alignment with WPI rates is expected to be in the range of 1-4% based on the applicable toll rate revision formulas, which will also aid toll revenues in FY2021.

Rajeshwar Burla, Vice President, Corporate Ratings, ICRA says, “Another assumption that was made while drawing toll collection estimates is that NHAI would compensate O&M and interest costs by June, 2020 for the entire lockdown period. After factoring in this compensation, the toll collections for FY2021 are estimated to decline in the range of 6.5% to 8% in FY2021.”

On the air traffic movement, even prior to Covid, the growth in air craft movement as well as passenger traffic had slowed down considerably during 9MFY2020. This was driven by increase in fares due to lower number of flights owing to grounding of Jet airways followed by overall sluggishness in demand for travel amid weak business sentiments. Overall, adjusted for the closure of airport operations (excluding cargo), the passenger traffic witnessed de-growth in the range of 3-5% for FY2020. ICRA rates four major private airports – Bangalore, Cochin, Delhi and Hyderabad which together account for around 40% of total air passenger traffic in the country. Airports being regulated assets, the tariff framework allows efficient cost recovery. The shortfall in aeronautical revenues is completely trued-up while the true up in case of non-aero is limited to 30%. Because of this true-up, any shortfall in aggregate revenue requirements or traffic de-growth-related impact would get trued up in next control period.

On the performance of airport operators, Mr. Burla added, “The impact on airport operators can be viewed in two parts. One, majority of the revenue loss gets trued-up and hence the impact is short-term in nature. ICRA rated airport operators have robust on-balance sheet liquidity which helps them tide over short term cashflow mismatches. Two, the portion of revenues which does not get trued up (70% of non-aero revenues) has to be borne by the operator which would impact their return on capital employed. From the debt serviceability point of view, no issues are being envisaged.”

Three of the four ICRA rated airports are also in the midst of large capex programme almost entire equity margin (through internal accruals) for ongoing capex is adequately funded for these airports. And for the balance portion, the debt has been tied up thus reducing the funding risks. In terms of capex implementation, it will be impacted due to labour and raw material unavailability along with delay in shipments of certain imported machinery. However, adequate cushion between the delivery timelines stipulated to the construction contractors employed to undertake capex and the target commercial operations date set by airport operators would be able to absorb these temporary disruptions in execution.

On the metro projects, ICRA note says that farebox revenues are directly linked to the ridership which is likely to remain under pressure even post lockdown as social distancing norms are likely to continue which discourages usage of mass transit systems. For metros where sizeable contribution is also from non-fare box – transit oriented development, wherein lease rentals would be a prime contributor. With majority of the tenants started asking for lease rental waiver/ deferment this could impact the overall cash flow position of metros.




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