Workers level a newly constructed stretch of road on the outskirts of New Delhi. (Photographer: Amit Bhargava/Bloomberg News)  

Pace Of Road Construction Fastest In Four Years

India built roads at the fastest pace in at least four years in the first nine months of this fiscal even as analysts expect it to miss the scaled-down full-year target.

The nation constructed 5,759 kilometres of roads, or 21-km a day, from April to December 2018, according to data by the Ministry of Road Transport and Highways. That’s the most since nine months ended December 2016. Quarterly data was not available on the ministry’s website for prior years.

The ministry has achieved 48 percent of the full-year target of 12,000-km and 36 percent of the original 16,000-km target in the nine months ended December. It has never been able to achieve the full target, the best being 90 percent in 2012-13. In the last three financial year, actual construction remained below 70 percent of the target.

The road construction targets, according to brokerage Motilal Oswal, have been revised as a large numbers of projects which were awarded in FY18 are yet to receive appointed date—the day when a contract is handed over to a developer to start work—due to land acquisition problems faced by the National Highways Authority of India.

Decade-High Execution Pace For NHAI

The authority builds bulk of the roads and highways in India. While CRISIL lowered the execution forecast for NHAI from 4,300 km to 3,600-3,800 km in FY19, it will still be the highest in a decade.

Credit rating agency ICRA, which expects the NHAI to miss the 6,000-km target, estimates full-year execution to about 3,800-4,000 km.

The general election may impact the launch of new projects in January-March and April-June quarters, according to ICRA.

Rohit Natrajan from Antique Stock Broking, however, told BloombergQuint that road construction and awarding will pick up from January onwards. Elara Capital too expects fresh orders to pick up in the second half of FY19 led by a surge in pre-election government orders.

The fresh activity, the brokerage said, would now focus on expressways and EPC (engineering, procurement and construction) projects whereas awarding under the hybrid annuity model—where the government pays part of the payment upfront—is likely to be muted on liquidity constraints.

Stock Outlook

Shares of infrastructure companies involved in highway projects fell 20-60 percent over the last one year on concerns over project financing.

The recent correction, however, provides a good opportunity to buy companies which have successfully tied up financing for new projects, said Elara Capital, adding that the emerging signs of capex revival suggest execution momentum to continue at a reasonable pace.

Most of the stocks offer an upside potential of 25-75 percent, according to the average of estimates tracked by Bloomberg. KNR Construction offers the lowest return potential and Simplex Infrastructure the highest.