The Ministry of Road Transport and Highways (MoRTH) is set to award 8,000 km of road projects in FY25, a notable decrease from previous years. Between FY22 and FY23, MoRTH awarded an average of 12,500 km of projects annually, but this dropped to 8,581 km last fiscal and is expected to remain modest at 8,000 km this fiscal, according to a Crisil report.

The slowdown in project awards is attributed to several factors, including procedural delays in approving project cost estimates, restrictions under the model code of conduct before elections, and a shift as the government explores the build-operate-transfer (BOT) toll model alongside the existing EPC (Engineering, Procurement, and Construction) and hybrid annuity models (HAM).

This decline is impacting road construction firms, whose order books are expected to shrink to two times their annual revenue by the end of this fiscal, down from 2.3 times at the end of the last fiscal and 2.6 times in FY23. Consequently, revenue growth for these companies is expected to slow to 5-7% next fiscal, a drop from the 13% compound annual growth rate (CAGR) seen over the past five years.

However, some relief is anticipated due to the decline in prices of key raw materials like steel and bitumen, which are down 5-17% from their peaks in FY22. Since most projects are awarded on a fixed-price basis, this will help maintain operating profitability at a steady 13-14%, even as competition intensifies during project awards.

Looking ahead, while the Cabinet Committee on Economic Affairs recently approved highway projects totalling 936 km, timely approval and awarding of additional projects will be crucial for sustaining the sector's momentum. (Deccan Chronicle)