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India Ratings Maintains Negative Outlook On Infra Sector

India Ratings has maintained a 'negative' outlook on toll roads for FY18, on the expectation of sluggish traffic growth compounded by a subdued Wholesale Price Index.
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India Ratings has revised its outlook for airports to 'positive' for FY18 from 'stable' in FY17.
India Ratings has revised its outlook for airports to 'positive' for FY18 from 'stable' in FY17.
Hyderabad: Domestic rating agency India Ratings and Research has maintained a negative outlook for the infrastructure sector for financial year 2017-18, and on Tuesday said the negative outlook on the three heavyweight sub-sectors - toll roads, thermal and wind - continues to pull the overall sector outlook down.

The agency has revised the outlook for airports to 'positive' for FY18 from 'stable' in FY17, based on the solid fundamentals of air passenger volumes, underpinned by moderate fuel prices (although higher than 2016 levels) and favourable policy actions.

It has maintained a stable outlook on solar and seaports due to the reasonably established payment profile of state utilities (barring a few) and growth-led cargo throughput volumes.

The rating agency on Tuesday released its special report on 'FY18 Infrastructure Sector Credit Outlook' here.

"The increase in receivables position of wind power plants limited the headroom available to handle low wind patterns; hence, Ind-Ra has revised wind energy's outlook to negative for FY18 from stable for FY17," according to R Venkataraman, senior director and head-infrastructure ratings, India Ratings & Research.

With little improvements in the issues facing the toll roads sector (low inflation, slower ramp up, lower toll rate growth) and coal-based thermal power (demand-supply mismatch, increased thrust on renewables), Ind-Ra continues with its negative outlook on these two sectors, he said.

The agency has maintained a 'negative' outlook on toll roads for FY18, on the expectation of sluggish traffic growth compounded by a subdued Wholesale Price Index.

"Ind-Ra's analysis reveals the vulnerability of projects, especially the ones with a short operational track record (less than three years), to a 200bp reduction in base case growth rates, which would lead to impairment in debt serviceability," Mr Venkataraman said.

The negative outlook on thermal power is mainly due to suboptimal plant load factors, lack of interest for long-term power purchase agreements which has been compounded by low priority in power scheduling, and added uncertainty in awarding compensatory tariffs, he said.

Favourable policy actions and strong passenger growth drive the outlook revision to 'positive' for airports for FY18 from 'stable', while other sub-sectors (solar, ports, transmission) have been maintained on a stable outlook on the back of performances largely in line with India Ratings' expectations.

The credit rating agency maintained a stable outlook for the solar power sector on the back of a stable performance, predictable nature of cash flows based on long-term power purchase agreements, decreasing panel prices, favourable debtor days, albeit with a limited operational track record.

It also maintained a stable outlook on availability-based assets, both annuity and transmission projects, primarily on the back of strong counter-party credit profiles and demonstrated records of timely receipts of availability payments.

The agency further said a reduction in interest rates and the stability of the Indian rupee can help ease the overall pressure on projects' cash flow while a pick-up in economic activity will have a salutary effect on traffic volumes and energy demand, leading to portfolio-wide increases in coverage metrics.

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