India Ratings maintains negative outlook on transport, energy infra for second half of FY21

The agency has also maintained a negative outlook on the roads and airport sectors. It said toll collections rebound was strong at around 90 per cent of pre-COVID-19 levels in the first 15 days of September 2020, exceeding Ind-Ra's April 2020 expectations.

India Ratings and Research (Ind-Ra) on Friday said it has maintained a negative outlook on transport and energy infrastructure for second half of the current financial year. It said the negative outlook stems from likely low demand in the sectors.

"India Ratings and Research (Ind-Ra) has maintained a negative outlook on energy and transport infrastructure for 2HFY21, stemming from a likely low demand, driven by low thermal plant load factor and subdued wind generations, and the resultant impact on coverage metrics," the ragting agency said in a statement. The agency has also maintained a negative outlook on the roads and airport sectors.

It said toll collections rebound was strong at around 90 per cent of pre-COVID-19 levels in the first 15 days of September 2020, exceeding Ind-Ra's April 2020 expectations. "Nevertheless, possible regional lockdowns, a surge in COVID-19 infections, travel restrictions, people behavioural changes and a weaker economic recovery are threats to further growth," Ind-Ra said. The airport sector was impaired by almost nil operations in the first quarter of 2020-21 and restrained passenger movements, it said. The agency added that the short-term risks to traffic recovery cloud the sector prospects but the long-term potential is intact, given the protected returns for airports and a long concession framework for others. Liquidity would be an important rating consideration for airports, the agency said. About energy infrastructure projects, it said it expects the effect of liquidity enhancement on distribution companies (discoms) to be temporary, and payables from discoms are likely to increase slightly by the end of 2020-21 year-on-year. It added that the weak operating profiles of most discoms continue to be drag on the sector. On toll road projects, it maintained a negative outlook and said India's toll roads' V-shaped recovery was comparable to geographies such as China. In the first 15 days of September 2020, toll collections touched 90 per cent of the average in the previous financial year. "The recovery in toll roads has been swifter than Ind-Ra's original expectation. However, projects have displayed a varied trend of revenue recovery due to individual corridor-specific dynamics." it added.

The agency also said commercial traffic contributes 75-80 per cent to the toll collections and the balance is from passenger vehicles. While the six-month moratorium provided relief until August 2020, the in-built liquidity available for projects in conjunction with the recovery in toll collections would be critical to determine the ability of projects to withstand stress, the agency said.

Under-construction HAM (hybrid annuity mode) projects face execution challenges with nearly 50 per cent of the projects behind schedule, the statement said. It also added that of the impacted projects, nearly 30 per cent are facing sponsor-related issues, 30 per cent force majeure events such as excessive rains and floods, and the balance 40 per cent are grappling with authority-related issues such as right of way, utility shifting, pending approvals. While the HAM model provides cushion towards cost escalations linked to price indices, overruns due to an increase in soft costs and interest during construction could lead to cost overruns and lower margins and returns for project developers, it said.

Revising the airports oulook to negative from stable, it said the tariffs could soar significantly to offset the dual impact of increased annual revenue requirement (due to capital expenditure) and lower passenger growth. With travel-related issues lingering, return to normalcy is unlikely before 2022-23, it said.

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