India Ratings maintains negative outlook on infra sector for FY18

Hyderabad: Domestic rating agency India Ratings and Research (Ind-Ra) has maintained a negative outlook for the infrastructure sector for FY18, and today said the negative outlook on the three heavyweight sub-sectors – toll roads, thermal and wind – continues to pull the overall sector outlook down. The agency has revised the outlook for airports to positive for FY18 from stable in FY17, based on the solid fundamentals of air passenger volumes, underpinned by moderate fuel prices (although higher than 2016 levels) and favourable policy actions.

It has maintained a stable outlook on solar and seaports due to the reasonably established payment profile of state utilities (barring a few) and growth-led cargo throughput volumes. The rating agency today released the special report on 'FY18 Infrastructure Sector Credit Outlook' here.

According to R Venkataraman, Senior Director and Head – Infrastructure Ratings, India Ratings & Research "the increase in receivables position of wind power plants limited the headroom available to handle low wind patterns; hence, Ind-Ra has revised wind energy’s outlook to negative for FY18 from stable for FY17." With little improvements in the issues facing the toll roads sector (low inflation, slower ramp up, lower toll rate growth) and coal-based thermal power (demand-supply mismatch, increased thrust on renewables), Ind-Ra continues with its negative outlook on these two sectors, he said.

The agency has maintained a negative outlook on toll roads for FY18, on the expectation of sluggish traffic growth compounded by a subdued Wholesale Price Index. "Ind-Ra's analysis reveals the vulnerability of projects, especially the ones with a short operational track record (less than three years), to a 200bp reduction in base case growth rates, which would lead to impairment in debt serviceability," Venkataraman said. The negative outlook on thermal power is mainly due to suboptimal plant load factors, lack of interest for long-term power purchase agreements which has been compounded by low priority in power scheduling, and added uncertainty in awarding compensatory tariffs, he said.