High WPI a blessing in disguise for toll road projects: Icra
NEW DELHI: Toll road projects are expected to benefit from the high wholesale price index (WPI)-based inflation as it will lead to an increase in toll rates and thereby collections, ratings agency Icra has said.
Typically, toll rates and traffic volumes determine collections. Toll rate increase is linked to inflation, while traffic volumes are linked to underlying economic activity, primarily manufacturing, construction, and mining.
For projects that were bid for after 2008, toll rate is revised annually in April at 3% fixed rate, plus 40% of change in WPI for December. Hike in toll rates for projects bid prior to 2008 is linked to March WPI. Toll rate revision is carried out in July or September each year.
"The WPI for December 2021 is expected to be around 13.0% (as against 2.0% in December 2020) translating into toll rate increase of 8.2% during FY2023 for the projects which are linked to 3% fixed rate plus 40% of the change in WPI. For projects awarded prior to 2008, ICRA expects March WPI to be around 9.3%. In both the cases, decadal high toll rate revision is expected to result in 14-15% growth in toll collections for FY2023 on the back of 5%-6% traffic growth," Vinay Kumar G, Sector Head, Corporate Ratings, ICRA said.
“The healthy growth in toll collections far outweigh the increase in maintenance costs resulting in good improvement in cumulative DSCR numbers for BOT toll road assets which otherwise got moderated to an extent due to Covid impact. This is factoring in the assumption that impact of future Covid waves (if any) to be low," he said.