The combined capital outlay¹ on roads and renewables in the current and next fiscals is seen rising to Rs ~13 lakh crore, a whopping ~35% growth compared with the preceding two fiscals, backed by strong execution speed.

The pace of construction of roads and capacity addition in renewables is seen increasing 25% (refer to chart 1 in annexure) and 33% (refer to chart 2 in annexure), respectively, over the current and next fiscals. This bodes well for the economy, given the high multiplier effect of road development and the critical role renewable energy can play in achieving India’s energy transition.

The growth is expected to sustain over the medium term, supported by conducive policies, strong investor interest and healthy financial profiles, leading to stable credit quality of companies in the Crisil Ratings portfolio in both sectors.

Says Gurpreet Chhatwal, Managing Director, Crisil Ratings, “The pace of execution of renewable energy projects is set to increase 33% to ~20 GW per annum over current and next fiscals (~15 GW per annum in the past two fiscals) supported by a healthy executable pipeline of ~50 GW of projects as on March 31, 2023. Similarly, road construction is set to accelerate 25% to 12,500-13,000² km per year over the current and next fiscals on continued healthy awarding of projects and step up in execution by road construction players.”

A supportive policy environment adds its own spurs. For instance, steps such as late payment surcharge has helped keep dues from discoms to renewable generators in check³. In roads, the introduction of the hybrid annuity model (HAM) has speeded up execution and drawn in investments. Further, initiatives such as Atmanirbhar Bharat, forbearance during the pandemic, and emergence of infrastructure investment trusts (InvITs) have afforded a fillip to both sectors.

Says Manish Gupta, Senior Director and Deputy Chief Ratings Officer, “Investor interest has been encouraging, with Rs 75,000-80,000 crore raised through equity and asset monetisation in the past two fiscals in both sectors. Continued focus on asset monetisation and equity raising, along with healthy cash flows will keep the capital structure balanced in both sectors. So, despite higher capital outlays, rated renewables⁴ and road⁵ entities should have a healthy average debt service cushion of 1.2-1.3 times over the tenure of debt on their balance sheets, which supports their credit profiles.”

But challenges remain such as risks of aggressive bidding and execution by new entrants. Rationalisation in bidding strategies will be crucial to sustain profitability and maintaining quality.

In the milieu, timely asset monetisation will remain important in the roads sector as InvITs continue to grow.For renewables, if geopolitical developments affect supply chains, it may impact the internal rate of return and pose a risk to our estimates.

¹ Includes central and state government and private investments
² National highway numbers include those under Ministry of Road Transport & Highways (MoRTH), National Highways Authority of India (NHAI) and National Highways & Infrastructure Development Corporation Ltd (NHIDCL).
³ As per the PRAAPTI (Payment ratification and analysis in power procurement for bringing transparency in invoicing of generators) portal, dues fell over 40% in one year of scheme implementation.
⁴ 14 renewables entities implementing almost half of the capacity being set up in current and next fiscals
⁵ Includes analysis of 44 HAM assets rated by Crisil Ratings