The Roads Sector – Is it a Revival?

Thought for the Day:

Roads a very important sector for modern India. But India’s road sector had been stagnating since 2012, hit by both an economic slowdown and private sector disinterest. The famed PPP model had yielded poor results. A number of projects were delayed or in financial distress.

Cut to 2015, and the story may have changed. Of about 77 road projects that were languishing with the roads ministry, 34 have been shut down and rebid; 18 have been revived using govt. money, and the remaining 25 are under revival discussions. A number of decisions were taken:

  1. The govt. will award 10,000 kms of roads for construction this year by Mar 2016. That’s a far cry from 2013 when the central government could only award 1,300 kms.
  2. The govt. has also gone back to the basics and instead of a complex Public Private Partner-ship (PPP) model, has reverted to the simpler EPC model. Here the construction of the road is executed by the private firm, but funded by the govt.
  3. The govt is infusing Rs 4,000 crore to complete projects stalled due to lack of funds. In Feb this year, the govt. had decided to invest Rs 80,000 cr. in the road sector in the annual budget.
  4. The govt. will allow private developers to exit projects two years after tolling starts. After exiting, they can also apply for 80 public private partnership (PPP) projects.
Roads (JainMatrix Investments)

Roads (JainMatrix Investments)

These decisions are expected to rapidly stimulate this sector. Road transport and highways minister Nitin Gadkari is upbeat about the “transformation” of India’s road network. The NHAI too is undergoing reforms, for faster approvals and project revivals.

Watch out for shares of infrastructure companies into the roads and construction space like KNR Constructions, RPP Infra, Sadbhav Engineering, IRB Infrastructure, Ashoka Buildcon, Jaypee Infra, IL&FS Transportation, GMR Infra, Lanco Infra, IVRCL, Ashoka Buildcon, etc. which are likely to benefit due to these new initiatives.

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