FY21 NH construction pace to improve EPC players’ performance: Report

Construction of houses. Construction site

The record construction pace of national highways in FY21 coupled with the recent government measures is expected to improve the operational performance of engineering, procurement and construction companies in the road sector, India Ratings and Research (Ind-Ra) said in a report.

Lately, the Ministry of Road Transport & Highways (MoRTH) executed highway projects at a rate of 28.16km per day during April 2020 to 15 January 2021, which is around 8 per cent higher on YoY basis.

“It could have been around 36 per cent YoY if around 60 days of construction activities were not lost due to the Covid-19 led lockdown during this period,” the report said.

“Nevertheless, Ind-Ra believes that the targeted construction of 11,000km for FY21 could be achieved, considering that the environment is conducive for construction activities in 4QFY21 and if the execution rate is maintained at 37.7km per day for the remaining period.”

According to Ind-Ra, this target would be surpassed, considering that an execution rate of 35.5km per day demonstrated for the same period in the previous fiscal, despite the last 10-15 days in March 2020 were under lockdown.

“Also, MoRTH demonstrated an execution rate of 76.3km per day between 8 January 2021 to 15 January 2021. Furthermore, this pace is in line with MoRTH’s directions of achieving the overall target of constructing 60,000km of NHs by FYE24, which would require a minimum execution pace of 33km per day.”

Besides, till 15 January 2021, the government had awarded 7,597km of NHs as against the target award of 4,500km for FY21 with the award speed of 26.2 km per day.

“The award speed was 24.5km per day in FY20 (FY19: 15.0km per day) and the total length of roads awarded is 8,948km (FY19: 5,493km).”

As per the report, a steady pace of road projects being awarded ensured that road and road infrastructure will remain a key focus area for EPC players.

These projects have been contributing to the largest chunk of the overall sector’s order book of EPC players.

Moreover, in FY21, the government’s increased focus on road and road infrastructure not only benefitted construction companies but also acted as a good medium for economic recovery in terms of employment generation and improved demand in allied sectors such as cement, steel, and logistics.

“Ind-Ra believes that the slew of measures undertaken by the central government to increase the participation of EPC players in road construction contracts would further strengthen the latter’s order book in the medium term in the road sector.”

“These measures include a reduction of the performance guarantee requirement, relaxation of eligibility criteria and norms for projects bid both on the EPC and hybrid annuity model or build-operate transfer modes.”