Road, renewables capex likely to rise by 35% in FY'24 & FY'25: Crisil

New Delhi: The total capital outlay for roads and renewables in FY 2023-24 and FY 2024-25 is likely to jump by 35 percent to Rs 13 lakh crore compared to that in the last two fiscal years, according to a report.

Conducive policies, rising investor interest and strong execution speed are expected to drive the capital outlay in the sectors, the report by Crisil Ratings said on Tuesday.

The pace of road construction and capacity addition in renewables is seen growing by 25 percent and 33 percent, respectively, in the current and next fiscal, and the capex growth is expected to sustain over the medium term, the report said.

Crisil Ratings Managing Director Gurpreet Chhatwal said the pace of execution of renewable energy projects is set to increase 33 percent to 20 GW per annum over the current and next fiscal as compared to 15 GW per annum in the past two fiscal years, supported by a healthy executable pipeline of 50 GW of projects as of March 2023.

Similarly, road construction is set to improve 25 percent to 12,500-13,000 km annually over the current and next fiscal, driven by healthy awarding of projects and step-up in execution, it said.

Chhatwal said the levels at which companies are bidding for projects is a key monitorable going forward.

The agency's Senior Director Manish Gupta said while the last two years have seen aggressive bidding, there are no challenges on the implementation side.

Gupta said investor interest has been encouraging, with Rs 75,000-80,000 crore raised through equity and asset monetisation in the past two fiscals in both these sectors.

Continued focus on asset monetisation and equity raising, along with healthy cash flows, will keep the capital structure balanced in both sectors, the report said.

According to the report, despite higher capital outlays, rated renewables and road entities should have a healthy average debt service cushion of 1.2x-1.3x over the tenure of debt on their balance sheets, which supports their credit profiles.

About the upcoming general elections, Gupta said the government is aware of it and is trying to finish as many projects as possible before the polls.

Replying to a question on the recent slowdown in the pace of road construction, Chhatwal said every year, the pace of work is higher in the second half of the fiscal and the agency expects the same to continue this fiscal as well.

The pace of road construction will increase to 34 km per day by the end of 2024-25, a 25 percent jump over the current pace, its Chief Rating Officer Krishnan Sitaraman said.

Timely asset monetisation will remain important in the roads sector as InvITs continue to grow, the report said, adding that for renewables, if geopolitical developments affect supply chains, it may impact the internal rate of return and pose a risk to estimates.

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