India's Toll collection growth likely to moderate 5-7% amid West Asia conflict: Crisil

New Delhi: India's toll collection growth is likely to moderate to 5-7 percent in the current fiscal as the West Asia conflict and geopolitical uncertainties are weighing on freight movement and industrial activity, rating agency Crisil said on Wednesday.

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According to Crisil, the percolating economic impact of the West Asia conflict and a consequent deceleration in commercial traffic is likely to result in an on-year moderation in toll collection by 150-200 basis points (bps) this fiscal.

Crisil noted that the marginal underperformance is temporary and is likely to be recouped next fiscal, due to relatively higher toll rate hikes compelled by inflationary pressures.

To be sure, the rating agency said the toll rate hike in a fiscal year is based on the Wholesale Price Index (WPI) inflation of the previous year.

This underscores the resilience of toll road assets through economic cycles. Healthy operating performance and controlled leverage should keep the credit profiles of toll road operators stable, it said.

Crisil Ratings deputy chief ratings officer Manish Gupta said, "traffic growth, a function of economic expansion, is estimated at 2-4 percent in the near term. The modest WPI inflation of last year will limit toll rate hikes this fiscal year, and consequently, toll collection will grow 5-7 percent."

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However, next fiscal toll rates may see a steeper increase due to higher WPI inflation, expected this fiscal amid the West Asia conflict. This will drive toll collection growth to 8-10 percent next fiscal, Gupta added.

According to the rating agency, commercial traffic remains the backbone of toll collection, typically contributing 75 percent. Freight movement is closely linked to industrial output, construction activity and mining, which may be impacted amid the West Asia conflict, as reflected in sequential degrowth in fastag toll collections in March and April.

Crisil said that significant weakening in the macroeconomic environment amid the West Asia conflict, particularly affecting commercial traffic, will warrant close monitoring.

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