India's Toll Collection Growth to Moderate at 5-7% Amid West Asia Conflict, Crisil Warns

Toll Collection Growth to Moderate in Current Fiscal Due to West Asia Conflict

India's toll collection growth is likely to moderate to 5-7 per cent in the current fiscal as the West Asia conflict and geopolitical uncertainties weigh on freight movement and industrial activity, rating agency Crisil said on Wednesday.

According to Crisil, the percolating economic impact of the West Asia conflict and a consequent deceleration in commercial traffic is likely to result in an on-year moderation in toll collection by 150-200 basis points (bps) this fiscal. This moderation is a temporary phenomenon, and the rating agency expects toll collection growth to recoup next fiscal due to relatively higher toll rate hikes compelled by inflationary pressures.

The toll rate hike in a fiscal year is based on the Wholesale Price Index (WPI) inflation of the previous year. This underscores the resilience of toll road assets through economic cycles. Healthy operating performance and controlled leverage should keep the credit profiles of toll road operators stable, according to Crisil.

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Crisil Ratings deputy chief ratings officer Manish Gupta noted that traffic growth, a function of economic expansion, is estimated at 2-4 per cent in the near term. The modest WPI inflation of last year will limit toll rate hikes this fiscal year, and consequently, toll collection will grow 5-7 per cent. However, next fiscal toll rates may see a steeper increase due to higher WPI inflation, expected this fiscal amid the West Asia conflict. This will drive toll collection growth to 8-10 per cent next fiscal.

Commercial traffic remains the backbone of toll collection, typically contributing 75 per cent. Freight movement is closely linked to industrial output, construction activity, and mining, which may be impacted amid the West Asia conflict. The sequential degrowth in fastag toll collections in March and April reflects this trend. Crisil said that significant weakening in the macroeconomic environment amid the West Asia conflict, particularly affecting commercial traffic, will warrant close monitoring.

Key Statistics

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• Traffic growth: 2-4 per cent (near term)
• Commercial traffic contribution to toll collection: 75 per cent
• Basis points moderation in toll collection: 150-200 (current fiscal)