Praxis Global Alliance
Freight Revenue Expected to Recover Within 4-5 Months to Pre-COVID Levels: Praxis Global Alliance Study
09 Sep 2020
The Indian economy largely consists of the roads and railways sector. Investments in the sector have gradually increased over the years to improve inter-state connectivity. However, due to the recent unprecedented conditions posed by COVID-19, daily transportation and freight movement came close to a halt during the lockdowns, shaking up the industry. To re-accelerate, over the coming 5 years, the Indian Government is set to boost investments to INR 30T in the transport sector. And by expanding the requirement for faster movement of goods, the sector is poised for long-term growth.
A recent study by Praxis Global Alliance, a leading management consulting and advisory firm, and Zetwerk, an Indian B2B marketplace for manufacturing products and services, highlights the impact of COVID-19 on the overall roads and railways sector. The report also shares key trends arising from the COVID-19 impact and the future outlook of the sector in India.Key insights from the report include:
Roads and Bridges- Highway accounts for only ~3% of India’s total road length, lower than the value for developed countries; there is a high potential for long-term growth- National Highways length has grown at 9% CAGR over FY12-19; Conversion of State Highways to National Highways responsible for the increase in NH length- Increase in project cost and slower revenue realization in recent times- Working capital requirement for EPC firms in the sector has increased from 1-2 months over FY08-19- Toll revenue is expected to recover to pre-COVID level within 9 months; commercial traffic will rebound faster than passenger- Uncertainty due to COVID-19 and the consequent impact on valuation can delay NHAI’s asset monetization plan as construction will be impacted resulting in project delays and increased project costRailways
- Indian Railways has one of the biggest railway networks in the world- Railways planning to increase its share in freight movement from 33% to 50% by 2030, resulting in new infrastructure projects such as dedicated freight corridor- Station redevelopment, passenger and freight operations are emerging privatization opportunities in railways- EPC firms in the sector have seen a healthy working capital trend supported by Indian Railways financial health and stable supplier partnerships- More than 50% track length electrified; track route length CAGR has increased to 7.8% in FY12-19 as against 0.6% in FY06-12- Budgetary allocation for CapEx projects has grown at 13% CAGR in FY12-19. However, some new projects might get delayed due to budgetary constraints because of COVID; existing projects will also be pushed back due to labor unavailability- Freight revenue is expected to recover within 4-5 months, but passenger revenue may take more than 9 months to recover completely- COVID-19 will impact RM and equipment, labor availability, and working capital in the short term; an Increase in AR for EPC companies as the government’s finances were stretchedAryaman Tandon, Director, Praxis Global Alliance commenting on the report findings said, “We have analyzed that the Government is focussing more on EPC projects witnessing a healthy working capital trend in railways. We have also reckoned that the expected annual growth rate for railways will be 10-12% between FY19-24.”“To ensure smooth recovery of the sector, the Government should ensure continuity of capex plans and availability of working capital with contractors,” he added.Madhur Singhal, Managing Director, Praxis Global Alliance added, “India’s roads and railways network is among the world’s largest networks. The sector is still growing at a robust rate to meet increasing capacity demand. Demand has been nil for the first few months of lockdown which is expected to recover to pre-COVID levels by mid next year.”Commenting on the report launch, Amrit Acharya, Co-Founder and CEO, Zetwerk said, “With India rapidly investing to upgrade its road and railways network, along with exploring opportunities to increase private sector investment in the sectors, we expect a tremendous growth potential post COVID. We have partnered with EPC firms and suppliers, utilizing our tech-enabled platform, to quickly lap up the rising demand post-lockdown period thereby cementing our position as a key marketplace in the construction industry.”The report analyzes the impact of COVID-19 on key parameters like raw material and equipment supply, manpower availability, payment terms and cost, availability of finance, payment terms and pricing, and consumer demand, which gives the report a broader view of the sector and trends at play in the current scenario.
For further information contact:
Parul Singhh
Head – Marketing and Communications
Praxis Global Alliance
M: +91 782 794 4925
E: pr@praxisga.com