Infrastructure: Key regulatory changes fast tracks the revival in Indian Road sector
The Indian Road sector has seen strong traction and is better placed today than a couple of years ago. There are multiple factors that have driven this improvement, the most important being changes in the regulatory environment. Key policy measures like awarding projects only after majority land acquired, ease of project approval, option to exit BOT projects and compensation for delays are key measures announced recently. Additionally, increased budgetary allocations and introduction of the new developer-friendly Hybrid Annuity model is likely to pave way for strong development. Changes in regulatory environment have been effective since almost a year; results have now started showing, with order awards picking up sharply and construction gaining momentum, especially during the past few quarters. Buoyed by this improvement, the Ministry of Roads and Highways (MoRTH) is pushing the envelope and expects to increase road awards and construction to 25,000 km and 15,000 km respectively in FY17 (whopping 2.5x of FY16). We believe most of the Companies in this space would benefit from the opportunity. However the immediate beneficiary would be the pure play EPC players with strong balance sheets. We prefer EPC focused players like KNR Constructions, PNC Infratech and JKumar Infra in this space.
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