India's Highway Construction Faces 10% Slowdown Amid Rising Competition

India's highway construction is anticipated to face a slowdown, with an estimated reduction of 7-10% in FY25, as stated by CareEdge Ratings. Challenges like delayed project dates and increased competition are major contributors. The declining order-to-income ratio and profitability further emphasize these constraints.

The construction of national highways in India is poised for a notable reduction, decreasing by 7-10% in FY25. This slowdown is evidenced by a decline from 12,350 km in FY24 to an estimated 11,100-11,500 km in FY25, translating to roughly 31 kilometers daily, as reported by CareEdge Ratings.

The primary factors behind this deceleration include execution obstacles, increased competition, and significant delays in the receipt of appointed dates following project allocations. Maulesh Desai, Director at CareEdge Ratings, highlighted that among projects worth Rs 1.83 lakh crore, approximately 55% valued at Rs 1 lakh crore face delays beyond six months due to these challenges.

Furthermore, CareEdge's analysis of 17 sponsors and EPC contractors engaged in Hybrid Annuity Model (HAM) projects reveals that timely execution led to a 14% CAGR in total operating income from FY21 to FY24. However, fewer project awards in FY24 and H1FY25 have marred revenue visibility.

The order book-to-TOI ratio has decreased from 2.78x in FY22 to 2.15x in FY24, with many awaiting dates, resulting in a lower executable order book. CareEdge forecasts a 200 basis point drop in operating profitability by FY25 due to competitive pressures and increased costs.

The discontinuation of the Atma Nirbhar Bharat scheme for monthly payments may extend the working capital cycle by 15-20 days in FY25, imposing additional strain on developers. Nonetheless, the HAM remains predominant in highway awards, constituting nearly 55% of projects allotted between FY21 and FY24.