Record pace of national highway project awards to continue in FY19, says BofAML

According to BofA Merrill Lynch (BofAML), 2018-19 is likely to be another robust year for the highway sector, even as some disruption is likely in the fourth quarter of this fiscal owing to 2019 general elections.

 Construction of national highways has increased to record levels and the momentum is expected to continue this financial year too, as funding is not an issue and the pace of land acquisition has improved, says a report.

According to BofA Merrill Lynch (BofAML), 2018-19 is likely to be another robust year for the highway sector, even as some disruption is likely in the fourth quarter of this fiscal owing to 2019 general elections.

“Funding is not an issue in the near-term; and the pace/ process of land acquisition has improved. Large number of open tenders gives us comfort on the ordering outlook,” BofAML said in a research note.

Ordering/construction of national highways has increased to all-time highs of 17,055kms/9,829kms, respectively in FY18.

Meanwhile, the government has fixed the national highways project award target at 20,000 km for the current fiscal, up 25% over the previous year.

After reporting a significant jump in highway awards to 7,397 kms in FY18, the National Highways Authority of India (NHAI) is targeting 8,000-10,000 kms of project awards in FY19.

“We reckon that these targets are achievable,” the report said.

The report further noted that the pace of land acquisition – one of the key bottlenecks for the sector historically – has improved to around 9,500 hectares in 2017-18 as against an average of about 7,700 hectares over the preceding five years.

Besides, several NHAI officials highlighted higher compensation to land-owners, better coordination with state governments and higher autonomy to NHAI in the process as the key reasons for the uptick.

According to the report, capacity constraints on contractors’ side are likely to delay execution. Many new players have won road awards – may find it difficult to ramp-up their equipment/manpower to execute elevated order books in time.