Whalesbook
### Awards Slow Down
Fresh project awards in India's roads and highways sector have slowed considerably, after record highs in fiscal years 2022 and 2023. Bidding activity dropped sharply from late 2023, as many previously awarded projects are nearing completion. This slowdown is blamed on stricter developer eligibility rules, ongoing land acquisition problems in some states, and fewer new tender issuances. As a result, construction activity has been affected through fiscal years 2025 and 2026, making competition tougher and lowering bid premiums for infrastructure companies. This has led to a projected construction pace in FY27 that could be the lowest in a decade, around 25 kilometers daily.
### Tolls and Traffic Hold Strong
Despite slower new project awards, the sector's operational side remains strong. Government spending by the Ministry of Road Transport and Highways has stayed steady through the first ten months of FY26. Demand for materials like bitumen, cement, and steel shows ongoing work on the ground, with bitumen use near a five-year peak. Toll collections are rising, driven by more traffic and widespread use of digital payments like FASTag. Although annual toll rate increases, tied to inflation, are expected to slow in FY27 (around 2.5-3.3%), traffic growth should help collections grow. ICRA predicts toll collections will grow 6-8% in FY27.
### FY27 Drivers: Project Finish and Private Cash
Two main factors are expected to boost activity by fiscal year 2027. First, over 650 kilometers of expressways opening in the next year should speed up construction, boost traffic, and greatly improve logistics on major freight routes. Second, a new government push to attract private money offers a big chance. A new plan for projects worth about ₹1 trillion is expected to be awarded to private developers in FY27, possibly reawakening interest in bidding and improving future work prospects for infrastructure firms. The Build-Operate-Transfer (BOT) toll model, where developers fund, build, and run highways for 20-30 years, recovering costs through tolls, is making a strong comeback. Private investors are set to invest nearly ₹1 lakh crore in highway building in FY27, with projects worth about ₹35,000 crore planned for bidding early in the year.
### Mixed Performance: Operations vs. New Projects
The sector's results are mixed, with strong performance in managing existing assets but challenges in new project building. While IRB Infrastructure Developers saw a big drop in net profit for Q3 FY26 (mainly due to a large one-off gain the previous year), its operations remained strong with better margins despite falling revenue year-over-year. Other major toll-road operators, however, are seeing robust double-digit growth in toll revenue (15-23%), even as construction revenues have weakened. This shows a trend towards managing and profiting from existing assets, which require less direct oversight as debts are paid off.
### Risks Remain: Order Books and Delays
Several significant risks remain for the sector. The drop in project awards has depleted order books for many Engineering, Procurement, and Construction (EPC) companies, increasing competition and leading to aggressive bidding that cuts into profits. Delays in construction, worsened by heavy monsoons, land acquisition hold-ups, and payment problems, continue to stretch project timelines. Higher interest rates also pose a risk, as they can increase borrowing costs, affecting project funding and profits. Uncertainties from regulators, such as disputes over toll rates or policy changes by the National Highways Authority of India (NHAI), add further risk. While infrastructure financing is broadening beyond bank loans, with Infrastructure Investment Trusts (InvITs) becoming more important, some developers still carry high debt, creating refinancing difficulties.
### Analyst View: Cautious Optimism for FY27
Analysts are cautiously optimistic about the sector, seeing the current slowdown as a temporary pause, not a long-term decline. India Ratings and Research (Ind-Ra) keeps a neutral outlook for the transport infrastructure sector in FY27, expecting moderate toll revenue growth of 7%-7.5% from traffic increases and ongoing project awards via models like HAM, BOT, and TOT. The government's ongoing focus on capital spending, reinforced by the FY27 budget, should provide steady backing. Long-term sector growth looks set to continue, supported by government policy, asset monetization efforts, and the expanding expressway network.