India’s road sector has seen its share of twists and turns over the past decade. It has meandered from a high of build-operate-transfer (BOT) awards in 2010, to a low of land acquisition hurdles and abysmal private sector participation in 2014, only to be uplifted by the introduction of newer modes such as the hybrid annuity model (HAM) in 2016, and the highest-ever award of 7,400 km by the National Highways Authority of India (NHAI) in 2018.

Cut to now, and the sector seems to once again be facing many roadblocks - slowdown in awards, delays in execution owing to postponement of appointed dates, slow pace of land acquisition, and elusive financial closures. Seems like déjà vu. The key questions to be addressed is whether history is repeating itself and could we see distress in the sector similar to that observed in the 2013 and 2015 period.

Methodology

To answer these questions, Crisil has analysed the financials of dominant road developers between the two time periods (2010 - 2015 and 2015 – 2020) and studied their performance trend through key financial indicators as mentioned below

• Revenue – an indicator of scale of operations, represented by size of bubble
• Investments in project SPVs as a percentage of their networth -- an indicator of proportion of capital locked in project SPVs represented on X axis
  
• Total outside liabilities to tangible networth (TOL/TNW) – an indicator of leverage represented on Y axis

Bubbles of the same colour in both the graphs represent the performance of same developer in the two time periods mentioned above.