Assessing the recovery of India’s toll roads

Like the rest of the world, the Indian economy is being severely impacted by the ongoing Covid-19 pandemic. While the number of cases is relatively low compared to some of the more developed economies, the Indian government implemented a countrywide lockdown on March 25, which continues with certain 'zones' seeing some relaxed restrictions based on the number of active Covid-19 cases.

Nevertheless, the economy has been deeply impacted with all the major industries shut for an elongated period and predominantly only a few essential sectors (such as agriculture, pharmaceuticals and essential groceries). In a country like India, where the freight movement on roads contributes significantly to the toll road revenues, the impacts of the continued lockdown(s) has made toll road operators, authorities, concessionaires, and new investors wary of impacts and recovery of the toll road sector in India.

Steer was commissioned by an international investor to assess possible recovery scenarios on Indian toll roads. The assignment aimed to provide a high-level assessment of the potential scenarios that could unfold after the lockdown has been lifted, and under these scenarios, the outlook of traffic performance in the short-term (6-9 months), medium (9-24 months) and long-term (2-5 years).

Given our wealth of experience and understanding of working on over 100 toll roads across the country, we undertook an assessment of previous macroeconomic and other events (demonetisation, GST, national trucker’s strike, etc.) that disrupted toll road traffic in the past. We based our analysis on a scenario-specific approach considering different commodities and their performance with respect to the evolving situation.

Our experience and knowledge within the Indian toll road market enabled us to get a head-start in identifying the major factors contributing to the traffic volumes and their vulnerability to the various lockdown restrictions. We presented a range of scenarios as a final output of this assignment, providing estimates for recovery and expected performance of traffic, in the short-, medium- and long-term, for Indian toll road categories in these scenarios.

Our key findings from the study were that the recovery of Indian toll road sector will be dependent upon the type of commodities being carried, and in turn, the level of recovery the sectors consuming/producing those commodities will undergo while recovering from the economic impacts under the different scenarios being considered.