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The revenue from toll road operations is expected to rise by 16-18 percent in the current financial year owing to higher inflation and traffic growth, a report released by CRISIL Ratings on Tuesday stated.
Moreover, in the next fiscal (2024), the revenue will increase but at 9-11 per cent, mainly again from traffic growth, the CRISIL Ratings report, which studied as many as 49 toll road assets across 14 states, said.
“The revenue of toll road operators will soar in fiscal 2023, driven by a high toll rate hike of 10.5 per cent, which is linked to inflation based on the Wholesale Price Index (WPI). The traffic growth at 5-7 per cent will also remain healthy, albeit on a low base of fiscal 2022. This resilience in traffic growth will be on the back of economic activity-led commercial traffic, and strong personal mobility, supported by leisure and business travel,” Anand Kulkarni, Director, CRISIL Ratings, said.
In fiscal year 2024, traffic growth is expected to taper to 4-6 per cent, but will remain higher than the four-year compound annual growth rate of 2-3 per cent seen through fiscal 2022.
Further, with WPI inflation printing lower at 4.95 per cent for December 2022, the next fiscal will see a toll rate hike of 5 per cent. Consequently, toll revenue is expected to grow 9-11 per cent for fiscal 2024, the report said.
The toll road sector has faced multiple headwinds since fiscal 2018, such as the impact of goods and services tax (GST) implementation, change in axle load norms for commercial vehicles, restrictions due to the pandemic, and supply chain disruptions, affecting the movement of traffic. These factors combined, limited traffic growth to 2-3% between fiscals 2018 and 2022.
However, the toll roads are preferred by investors looking to pool road assets together under infrastructure investment trusts (InvITs) to generate healthy returns and benefit from inflation hedging. As a result, the toll roads account for 70 per cent assets held under road sector InvITs.
“The credit profiles of toll road players have remained strong in fiscal 2023 and will sustain in fiscal 2024, helped by healthy toll revenue growth,” said Saina Kathawala, Associate Director, CRISIL Ratings.
Any unforeseen weakening of the economic environment and its impact on commercial traffic performance will bear watching over the medium term, the report stated.
