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With the 23-day exemption in the wake of demonetisation expiring Friday midnight, toll plazas across the country are set to start collecting regular toll. However, road operators are likely to see a fall in traffic and, therefore, toll collection on account of low economic activity.
This could also depress the March quarter revenue for road operators but the expected fall in interest rates might cushion the hit. “In the 23 days of exemption, we have not seen a fall in our commercial traffic numbers. But, it is difficult to say if that was due to the free passage. Once we start collecting toll again, we’ll be able to judge if there is an impact,” said Vasistha C Patel, managing director, Sadbhav Infrastructure.
K K Mohanty, managing director of Gammon Infrastructure Projects, expects traffic to be low once the exemption is lifted. “But, demonetisation will, in the long run, help boost economic activity and traffic volumes and make up for the loss,” said Mohanty.
Analysts agree that traffic volumes and toll collection numbers would see a dip as economic activity across the country has taken a hit. “The real challenge lies beyond the exemption period given for toll road projects. Once the exemption period is over, economic activity is expected to take some time to resurrect and thus will impact traffic volumes for toll road operators, which is unlikely to be compensated,” said Shubham Jain, vice-president, ICRA Ratings.
As revenues for the March quarter stand to lose on account of low economic activity, falling interest rates might act as a cushion. “The downward trend in interest rates is expected to offset, to an extent, the impact of moderation in toll collection in the medium term and offer ample opportunities to the entities in the road sector, to replace existing high cost loans with mix of low cost loans and fixed coupon long-term instruments,” said Maulesh Desai, senior manager with Care Ratings. According to analysts, it is difficult to estimate the exact impact on traffic. Multiple rating agencies have estimated a 100-basis point hit on the country’s GDP growth numbers.
Traffic growth for road operators in India was already under stress in the first half of the current financial year owing to various economic reasons including a prolonged monsoon.
“In November 2016, the growth rate of traffic expected for 2016-2017 (prior to demonetisation) was close to 10 per cent. Traffic growth in 2015-2016 was close to 13 per cent,” said Sushmita Majumdar, director, CRISIL Ratings.
The growth rate now stands to be further impacted. “We expect the toll collections to commence immediately once the exemption is lifted. The traffic is expected to be impacted, more on stretches where there is a higher proportion of freight traffic, given the expectation of reduced economic activity in the near term. Stretches with a higher percentage of passenger vehicles aren’t expected to be impacted as much,” Majumdar added. Freight traffic typically contributes to more than 85 per cent of the total revenue collected at toll booths.
