Ind-Ra maintains a stable outlook for the Indian infrastructure sector for FY25

India Ratings and Research (Ind-Ra) has maintained a stable ratings outlook on the entire infrastructure sector for FY25.

Maintaining the outlook on the airport rating at ‘Positive’, Ind-Ra has revised the rating outlook on thermal assets to ‘Stable’ from ‘Positive’ and wind assets to ‘Stable’ from ‘Negative’ for FY25.

The Stable Rating Outlook for the infrastructure sector takes into account the likelihood of stable operating performance for most projects, long-term revenue visibility under concessions and power purchase agreements (PPAs), and expected improvements in cargo and traffic volumes.

The rating agency noted that an increase in electricity demand leading to increased use of thermal assets and improved airport traffic congestion is positive. The key issues to monitor remain adequate internal liquidity and timely payments from contractors.

• To read: The government says 448 infrastructure projects were hit by cost overruns of Rs 5.55 lakh cr during October-December.

Furthermore, the impact of a potential increase in interest rates due to the proposed increase in provisioning norms on the cost of borrowing for infrastructure projects remains monitorable for projects with low debt coverage.

Energy Infrastructure

Ind-Ra expects power demand to remain high in FY25 with improving economic activity and above-normal temperatures expected in the ongoing summer season. The agency expects the same level to be around 7% year-over-year in FY25.

In FY24, the country added a total capacity of around 26 GW, the highest since FY16, mainly driven by solar and thermal power.

Post the implementation of the LPS (Late Payment Surcharge) Regulations, 2022, solar, wind and thermal receivables in Ind-Ra’s portfolio have reduced significantly and payments for current bills are being received from most discoms within 90 days.

Ind-Ra highlighted that improved liquidity has demonstrated the adoption of LPS Rules 2022 and sustained on-time payment inflows positively impacting the ratings of the power sector. Compared to counterparty strength and diversification, internal liquidity is a key rating factor for all generation assets.

Toll roads

The agency noted expectations for economic growth and adequate coverage of toll roads.

It expects toll collection growth in FY25 to be moderate at 6-7 per cent, compared to the double-digit growth recorded in FY23 and FY24, even though the impact of traffic caused by new roads is a key monitorable item.

Pension roads

Ind-Ra has maintained a stable rating outlook for projects based on the hybrid annuity model for FY25. This is due to the continued high competition, a significant proportion of projects won by the new sponsor both at the stage of construction and pre-tendering, the continued land-related issues and fewer contract awards in FY2024 and 1HFY25.

All these factors may cause developers to aggressively bid for projects, leading to increasing tensions in the industry.

Airports

Ind-Ra said the continued positive outlook for airports is underpinned by continued traffic growth and improved non-aeronautical revenues.

The agency expects the persistently high leverage ratio for rated serving airports to decline over the next two to three years following the introduction of the new tariff order. is implemented

It also expects overall passenger traffic growth to be 10-12 per cent, driven by improved regional connectivity in India post-UDAN and a significant increase in passenger numbers at metro airports.

The agency noted that the government’s focus on greenfield airport development has become a growth driver, facilitating significant capacity additions.

So far, the government has given in-principle approval for the creation of 21 greenfield airports, of which 12 have been put into operation.

Ind-Ra opined that the greenfield development of these airports is expected to meet the increased demand for air travel in many cities.

Seaports

Ind-Ra maintained a stable outlook on its seaport ratings for FY25, supported by moderate foreign trade demand.

She added that the Red Sea crisis had no significant impact on Indian trade between November 2023 and March 2024 as alternative routes such as the Cape of Good Hope and even overland routes were explored to bypass the affected transit route – she added.

The agency expects the growth of exports and imports of goods to remain stable in FY25.

It expects cargo volume growth (core and non-core ports) to remain close to 7% year-on-year, with Indian seaport throughput expected to reach a total of 1,645 MTPA (million tonnes per annum) in FY25.

Electric buses

The ‘stable’ rating outlook for electric buses follows adequate delivery, sponsor support and operational performance once placed in service.

Debtor days are convenient for Ind-Ra rated entities, although there are some instances of temporary delays.

The counterparty profile and payment profile of the counterparties will impact the ratings. The agency said specific risks in the electric bus sector may be an issue.