India Ratings and Research has forecasted a moderation in toll road revenue growth to 5.5% to 6% in FY25, down from 12% in FY24. This slowdown is attributed to several factors, including a lower year-on-year increase in the Wholesale Price Index (WPI) and changes in traffic patterns across key sectors.
According to the official statement, the toll rate revision for FY25 was around 3.3%, a modest increase compared to previous years. This revision was implemented on June 3, 2024, in line with the lower rise in the WPI. In the first half of FY25, toll revenues grew by 4.3% year-on-year, with growth rates of 3.8% and 4.8% in the first and second quarters, respectively. However, despite this early growth, traffic volumes remain subdued, with a 1.5% year-on-year increase in the second quarter of FY25. India Ratings notes that the correlation between traffic growth and the gross value added (GVA) in sectors like construction, mining, and manufacturing is generally strong. However, with an expected GVA growth of 7.4% in FY25, the muted traffic growth signals the influence of other factors.
The introduction of dedicated freight corridors (DFCs) has played a role in shifting freight traffic away from road transport, impacting overall toll road traffic, particularly for commercial vehicles. Additionally, the development of new expressways and alternate transport modes poses a potential diversion risk, which may dampen future toll growth and private sector investment in toll road projects. The National Highways Authority of India (NHAI) has responded by amending the Build-Operate-Transfer (BOT) model concession agreement to encourage the ramp-up of BOT toll projects. These changes, along with the shift in transport modes, will likely play a key role in shaping the outlook for private investments in the toll road sector. Despite these challenges, India Ratings remains optimistic that traffic growth will improve in the latter half of FY25, typically a stronger period for road transport. However, the continued evolution of transportation trends, including the impact of DFCs and changing freight movement patterns, will remain crucial in determining future toll road revenues.
