The Ministry of Road Transport and Highways (MORTH) has initiated a slew of relief measures like the shift from milestone-based billing (typically ranging between 45-75 days) to monthly billing and release of retention money/performance security in proportion to the work already executed among others which have immensely supported the road contractors. As per an ICRA note, these initiatives have helped in reducing the cash conversion cycle while also getting the performance guarantees and associated margin monies released for the executed portion of the projects. In addition, MORTH and NHAI have also been making payments within 7-15 days post the bill certification by the independent engineer. Execution which was 73% down (on YoY basis) in April 2020 due to lockdown picked up pace in subsequent months; in July 2020 it stood at 787 km which is 8% lower when compared to 860 km in July 2019. On a cumulative basis, the execution during 4M FY2021 stood at 2,610 km, 13% lower than 3,015 km in 4M FY2020. However, adjusting for the first 20 days of April 2020 wherein no construction activity was allowed, the execution per day has shown marginal growth of 3.5% from 24.7 km/day in 4M FY2020 to 25.6 km/day in 4M FY2021.
Elaborating further, Mr. Shubham Jain, SVP & Group Head, Corporate Ratings, ICRA says, “It is heartening to see positive and proactive steps taken by NHAI with an objective to strengthen the liquidity position of the road contractors and developers. This is also reflecting in the way in which road contractors have ramped up the execution efforts despite facing multiple headwinds post lockdown including reverse migration of labour. Notwithstanding the high cost of re-mobilising the labour, many contractors made special arrangements to facilitate the return of labour due to improved cash conversion cycle from the NHAI / MORTH projects.”
According to ICRA, typically the fourth quarter (January-March) is the key working season for road contractors; a good part of March 2020 (accounts for 10-15% of the annual billing) was lost on account of lockdown and restricted movement of goods and personnel in the run up to the lockdown. As a result, the execution is down by 24% to 1,452 km in March 2020 (1,911 km in March 2019). Given that part of the billing for March 2020 got deferred, it would be appropriate to look at execution between March – July which stood at 4,052 km in 2020 which is 18% lower when compared to 4,926 km in 2019. The execution for FY2021 could be in the range of 9,000-9,200 km (10,237 km in FY2020).
The execution reached a peak of 33 km/day in June 2020 before falling to 25 km/day in July 2020. The unabated rise in Covid-19 infections in the unlock phase, localised re-imposition of lockdowns in several states, and heavy monsoons in many parts of the country had interrupted this recovery in July, 2020. The execution in June, 2019 suffered on account of delay in work certification and payments due to general elections.
“As far as project awards are concerned, 4M FY2021 saw awards of 2,611 km significantly higher (by 166%) when compared to 980 km in 4M FY2020. This may not be comparable because of the muted awarding activity last year in the same period on account of general elections,” Mr. Jain added.
