India Road Sector Growth Slows as Project Awards Drop, Costs Jump

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AuthorKavya Nair|Published at:
India Road Sector Growth Slows as Project Awards Drop, Costs Jump
Overview

India's road sector faces slower growth over the next two years. Falling national highway project awards, rising costs, and execution hurdles will curb activity. State governments are set to lead investment, while developers struggle with shrinking margins and rising debt.

Pace of National Highway Projects Slows

The slowdown in project awarding is already impacting the sector. National highway construction is projected to fall to about 25 kilometers per day in FY26, the lowest since FY19, and could dip further to 21-22 kilometers per day in FY27. Setu Gajjar, Associate Director at CareEdge Ratings, noted that delays in land acquisition, slow project awards, and procedural issues continue to delay projects.

States Boost Road Investment

In contrast, state governments are sharply increasing their investment in road infrastructure. State capital spending on roads has grown faster recently and is expected to exceed central spending soon, signaling a shift in investment trends. States like Uttar Pradesh, Maharashtra, Tamil Nadu, Gujarat, Rajasthan, and Odisha are leading this charge, supported by many regional connectivity projects.

Road Developers Face Financial Strain

Road developers are facing financial strain from intense competition and higher costs. A CareEdge Ratings report showed that the overall operating income for major developers fell by about 7% in FY25, with revenue growth expected to be flat in FY26. Profit margins are under pressure, projected to drop from around 13% in FY23 to about 11.5% by FY26. Further declines are expected, driven by rising bitumen prices, a trend made worse by the West Asia crisis.

Rising Debt and Working Capital

Maulesh Desai, Director at CareEdge Ratings, stated that strong competition, project delays, and rising overheads continue to hurt the financial health of road developers. The sector needs more working capital and is taking on more debt. Debt relative to earnings is expected to rise, posing challenges for less diversified or highly leveraged companies.

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