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India's highway sector is undergoing a structural shift as central government road project awards have remained subdued over the last two years. According to India Ratings and Research, this slowdown has moved the focus toward state governments, which are now driving most new project awards. While this has helped maintain construction activity, it has also brought execution, funding, and working capital challenges for developers. The rating agency expects limited growth in central awards, a higher share of BOT projects, and continued pressure on sector margins.
India's highway construction sector is at a critical juncture as central government project awards have stayed muted over the past two years, altering the balance of activity across the industry. India Ratings and Research (Ind-Ra) highlighted that the slowdown in central awards has shifted the responsibility of sustaining highway development largely to state governments. Advertisement
The agency observed that state-led project awards have helped prevent a sharp decline in overall construction activity. However, this transition has also changed the risk profile for developers, as state projects often involve varied execution timelines, differing payment mechanisms, and tighter working capital cycles compared to centrally awarded projects.
Ind-Ra noted that highway project awards by the central government are likely to remain limited in the near term. As a result, states are expected to continue playing a larger role in awarding road projects, effectively placing them in the driver's seat of sector growth. This change has intensified competition among construction companies and influenced bidding behaviour.
The report also pointed to a rising share of build-operate-transfer (BOT) projects at both the central and state levels. These projects require higher upfront capital from developers and greater exposure to traffic and revenue risks. While BOT projects can support long-term asset creation, they also place pressure on balance sheets, especially in an environment of slower award activity.
From a financial perspective, Ind-Ra expects revenue growth in the engineering, procurement, and construction segment to remain modest. The highways segment is likely to see flat to negative growth following a sharp revenue contraction in the previous year. Margins in the highway sector are projected to remain under pressure, with limited scope for improvement due to the increasing share of state projects and elongated cash flow cycles.
Source PTI
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