Government’s relief measures to boost roads companies

ET Intelligence Group: Dig up roads and pave them back: That was apparently the prescription to get the economy going after the US had gone into a big freeze during the Great Depression.

As India begins to unshackle itself after an unprecedented lockdown, roads are set to top the list of money-makers — yet again.

So, which are the surest bets? Analysts expect 7-20 per cent in improvement in estimated EPS of construction and roads companies such as KNR Constructions, PNC Infratech, Larsen & Toubro (L&T), Ashoka Buildcon and IRB Infrastructure.

Their confidence isn’t unfounded. Construction activities have resumed and reached about 60 per cent of pre-Covid levels. Even toll collections have reached about 80 per cent of what’s considered normal, select developers said.

Besides this, the relief measures announced by the government are expected to provide reasonably good liquidity. The Centre will release payments every month. Reducing the milestone limit (construction of roads in kilometres), the National Highway Authority of India (NHAI) will release 75 per cent of the monthly invoice amount within three days after the invoice is raised and the remaining 25 per cent would be paid in 10 days.


Also, the NHAI that deducted retention money (5 per cent of the contract value) for any construction project will not keep the money with itself. Instead, it will give to the construction company. The government has given extension of time (EOT) for at least three months for under-construction projects without any penalty or cost. And the NHAI will compensate for the loss of toll collection by increasing the concession period proportionately.

So, the Street’s interest in key road stocks isn’t unexpected. Since the government announced Covid-19 relief measures on June 6, ET Construction Index has climbed 3.8 per cent, compared with a meagre gain of 0.66 per cent in the Nifty.

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