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For FY25, India Ratings and Research (Ind-Ra) has kept a Positive rating outlook for airports and a Stable rating outlook for the infrastructure sector as a whole. The rating outlook for wind and thermal assets has been changed from negative to stable, and from positive to stable, respectively.
The Stable outlook for the infrastructure sector reflects anticipated stable operating performance for most projects, long-term revenue visibility under concession agreements and power purchase agreements (PPAs), and expected improvements in cargo and traffic volumes. Positive factors include growth in electricity demand, leading to higher utilisation of thermal assets, and increasing traffic volumes at airports. Key monitorables include maintaining adequate internal liquidity and receiving timely payments from counterparties. Additionally, the potential impact of rising interest rates due to proposed increases in provisioning norms on borrowing costs remains a concern for projects with thin debt coverage.
Evaluation of the Outlook
Prospects for Energy Infrastructure Remain stable: Based on better economic activity and above-average temperatures predicted for the current summer season, Ind-Ra anticipates that power demand will continue high in FY25. According to the agency, FY25 will see a similar 7% yoy growth. With a significant contribution from solar and thermal energy, the nation installed over 26GW of new capacity in FY24, the most since FY16. Ind-Ra’s portfolio of solar, wind, and thermal facilities has seen a considerable decrease in receivables since the implementation of LPS Rules 2022; most discoms have been paying their current invoices within 90 days. Positives for the energy sector ratings include increased liquidity, evidence of the LPS Rules 2022 being adopted, and consistent timely payment collections. relative to the strength, internal liquidity
Outlook for Solar Power Projects Remains Consistently Stable Updated to Wind-Stable: The operations of solar projects remain solid, with sufficient debt service coverage and comfortable internal cash. In FY24, capacity addition remained robust at roughly 15 GW (FY23: 12.8 GW; FY22: 13.9 GW). Under-construction projects benefit from the FY24 decline in module prices, but they also face implementation and procurement risks due to the re-imposition of the Approved List of Module Manufacturers, which takes effect in April 2024. Although they have done better in FY24, wind farms are still plagued by generation variability. The sector’s net capacity expansion gained momentum as well, adding 3.3GW in FY24 (compared to 2.3GW in FY23 and 1.1GW in FY22). The FY25 Outlook for wind projects has been revised to Stable.
Forecast for Thermal Power Projects Updated to Stable: The updated Outlook is predicated on increased power demand, robust plant load factors (PLFs), better traction in capacity addition, elevated revenue visibility via PPAs, and the inclusion of a coal cost pass-through element in PPAs based on imported coal. PLFs for thermal power plants have risen over the last three years (FY24: 69%; FY23: 64%; FY22: 59%). According to the agency, PLFs should continue to rise, reaching 70% in FY25. Sufficient working capital and liquidity are essential for controlling cost increases and receivables delays.
Stable Prognosis for Gearbox Going Forward (based on availability) Initiatives: Ind-Ra anticipates that in FY25, transmission projects will have comfortable revenue collections, steady operations, and sufficient liquidity. Contractual and regulatory revenue visibility keeps the ratings stable. Key metrics to keep an eye on include the counterparty risk exposure to generation firms or renewable park developers for under-construction assets until such assets are commissioned, as well as the receivable trend of intrastate assets.
Continued Stable Outlook for Toll Roads: Toll roads are backed by the economic growth expectation and adequate coverages. Ind-Ra expects a moderation in toll collection growth in the range of 6%-7% in FY25 compared to double-digit growth seen in FY23 and FY24. Impact of traffic from new roads is a key monitorable.
Prolonged Stable Prognosis for Toll Roads: Toll roads are supported by the assumption of economic expansion and sufficient coverages. In contrast to the double-digit growth observed in FY23 and FY24, Ind-Ra anticipates a decrease in toll collection growth in FY25, in the region of 6%–7%. One important monitorable is the effect of new roads on traffic.
Continued Stable Outlook for Annuity Roads: For FY25, the agency has kept projects utilising the hybrid annuity model under a Stable rating outlook. This is due to ongoing intense competition, a sizable portion of projects won by a new sponsor when they were either in the pre-appointment date stage or under construction, ongoing land-related problems, and decreased awarding activity in FY24 and 1HFY25. Due to all these variables, developers may bid aggressively on projects, which could result in an accumulation of
Positive Outlook for Airports: Stable traffic growth and increasing non-aero revenue are the cornerstones of the airports’ ongoing positive outlook. Following the enactment of a new tariff order, Ind-Ra anticipates that the current high leverage ratio for rated operational airports will begin to decline in the following two to three years. With the implementation of the UDAN scheme, India’s regional connectivity has improved, and metro airports have seen strong passenger growth. As a result, Ind-Ra projects an overall increase in passenger traffic of 10% to 12%. The government’s emphasis on building greenfield airports has become a key factor in expansion, enabling the installation of sizable capacity. Up to now, the government has given its approval in principle for the establishment of 21 greenfield airports, 12 of which have been put into service. The
Sustained Stable Outlook for Sea Ports: Thanks to a moderate demand for exports, Ind-Ra has kept its stable rating outlook for sea ports for FY25. The Red Sea issue had no appreciable effect on Indian trade between November 2023 and March 2024 since other routes, such the Cape of Good Hope, or even land routes, were investigated as alternatives to the affected transit route. Ind-Ra anticipates steady increase in merchandise imports and exports in FY25. The organisation projects that throughput at Indian sea ports will total 1,645 MTPA in FY25, with cargo volume growth (at major and non-major ports) staying close to 7% yoy.
Outlook Stable for Electric Buses: The rating outlook is based on a sufficient track record of on-time deliveries, sponsor assistance, and post-commissioning operations. For firms with an Ind-Ra rating, debtor days are comfortable, albeit there may be occasional temporary delays. The counterparty profile and counterparty payment profile will determine the ratings. One potential problem in the electric bus industry is idiosyncratic risk.
Group Media Publication
Construction, Infrastructure and Mining
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