Bumpy ride ahead for road companies with order likely to enter slow lane

Higher interest rates and stiff competition could further weigh on their share prices

The dynamics of road-building in 2022-23 may be affected by fund-raising constraints placed on National Highways Authority of India (NHAI). NHAI will avoid borrowing in 2022-23 and will therefore depend on cess funds for 75 per cent of its capex.

This implies that the roads sector will absorb a very large share of the entire fuel cess raised and there could be a cash crunch unless tolls (which currently funds around 10 per cent of NHAI’s capex) grow substantially. In effect, there is likely to be a funding gap, which could be met to some extent by asset monetisation.

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