India Ratings and Research (Ind-Ra) maintains a stable outlook across the infrastructure sector with the exception of coal-based thermal power, which continues with its negative outlook for the remaining part of FY19.
The agency has maintained a stable outlook on the overall transport infrastructure sector including toll roads, annuity roads, hybrid annuity model (HAM) projects and airports. An increase in traffic volumes and inflation-led toll, driven by steady economic growth, could elevate revenue growth by about 9% yoy for toll road projects. The outlook on airports reflects limited upward rating movements; although the agency expects continued growth in passenger volumes despite capacity constraints.
While HAM projects have enabled revival of private participation, there is some pressure on the financial closure front, as lenders, especially public sector banks are going slow on financing these projects on account of lack of appetite and lending freeze on many of these lenders. For toll roads, Ind-Ra expects revenue to grow at around 9% yoy in FY19, supported by toll rate growth of about 4.2%. The agency believes there would be sufficient flexibility for mature roads to manoeuvre moderate downturns in traffic growth, while speculative-grade assets’ coverages hinge on double-digit traffic growth.
Regarding annuity roads, National Highways Authority of India (‘IND AAA’/Stable) has demonstrated its stable payment track record across the Ind-Ra rated projects over the years. The impact of implementation of Ind-AS will be a key monitorable, because the incidence of tax could be advanced and may squeeze the coverages during the initial years. Ind-Ra expects the second toll-operate-transfer project, which aims at generating INR5.4 billion, to go to bid in 3QFY19; however, the aggression will be limited, given learnings from the first project.
The stable outlook on airports reflects sustained passenger growth and increasing non-aeronautical revenue. Ind-Ra expects about 16% yoy growth in passengers for FY19.
For coal-based thermal power, non-pit head plants are facing irregular coal supply, leading to a high risk of declaring availability lower-than-required/normative level. Also, competition in short-term market is likely to intensify if there are delays in addressing these issues and absence of long-term power purchase agreements. Ind-Ra maintains a negative outlook on coal-based thermal power sector because of twin issues of power demand from distribution companies and coal availability.
Ind-Ra maintains a stable outlook on the wind power sector due to diversified portfolio of at least the bigger developers, sufficient buffer in the form of debt service coverage ratios, and stabilising receivable days and grid availability in some of the windy states. However, weighted average generation lower than P90 level in FY18 for wind power projects across Ind-Ra rated projects remain a point of concern. The agency maintains a stable outlook on the solar power sector backed by stable operations, regular payments from most counterparties and manageable construction risk, especially for the capacity coming up in solar parks.
