Investments in renewables, roads and real estate to touch ₹17.5 trillion over this and next fiscal: Crisil

New Delhi: Investments in renewable energy, roads and real estate are likely to grow to ₹17.5 trillion in FY26 and FY27, ratings agency Crisil said.

The three sectors are seeing are seeing different areas of focus, Crisil said on Monday in the 3rd edition of its annual infrastructure summit.  

“What remains constant across these three sectors is the strong investment growth. Over this fiscal and next, investments may rise at 15% annually, reaching ₹17.5 trillion compared with ₹13.3 trillion in the preceding two fiscals.

"While adapting to the new business dynamics will pose some challenges, credit profiles of Crisil-rated developers and projects would remain resilient,” said Krishan Sitaraman, Chief Ratings Officer, Crisil Ratings.

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In renewable energy, to address the intermittency of power supply, there is a transition towards hybrid or storage-backed capacities, which facilitates scheduling of power round-the-clock with greater confidence. Of the 75 GW capacity to be added in this and next fiscal, hybrids will account for 37%. 

This is a massive jump, considering hybrids accounted for 14% of capacity additions over the preceding two fiscals, the agency said in its assessment of key infrastructure sectors.

In roads, which have a significant multiplier effect on the economy, a pick-up in project awards will be important to revitalize the sector’s growth, the ratings agency said. For the National Highways Authority of India (NHAI) to reach its previous highs of 6,000 km per year of awards and execution, a substantial rise in private capital through acceleration in asset monetization will be essential, it said. 

“We expect the share of monetization in NHAI’s sources of funds to grow to 18% in this fiscal and next, compared with 14% in the preceding two fiscals,” the ratings agency added in a report.

“What lends confidence here is a monetizable asset base worth ₹3.5-4 trillion,” it added.

In real estate, the residential segment is seeing demand normalize after rapid recovery following the pandemic.

Revenue growth for property developers is expected to remain steady at 10-12% this fiscal and next, Crisil said. With volume growth slated to rationalize, realizations will be supported by continuing demand for premium projects. Commercial real estate, too, will see steady net leasing growth of 7-9% this fiscal and next. 

As India continues to remain a cost-efficient market for global capability centres (GCCs), and domestic sectors grow at a steady pace, annual net leasing demand is poised to cross 50 million square feet by fiscal 2027, the report said.

Risks across sectors

As these sectors transition to a new normal, they face an evolving set of challenges.

In renewables, timely availability of evacuation infrastructure is critical. To be sure, a significant ramp-up in transmission capacity is underway with a total capital expenditure (capex) of ₹1 trillion in this fiscal and next, twice of what was seen in the preceding two fiscals. 

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These projects may face delays on account of right-of-way issues, delayed approvals or short supply of equipment such as transformers and high-voltage direct current components.

Further, as renewable capacities typically take much less time to be set up, transmission capacity may fall short temporarily.

In roads, monetization has been a mixed bag in the past with 35% of the total toll-operate-transfer bundles floated not being awarded. Possible delays in monetization on account of approvals or mismatches in valuations, can lead to slowdown in sectoral growth, the agency said.

In residential real estate, new launches outpacing demand could ratchet up inventory levels. Inventory is expected to inch up to 2.9-3.1 years this fiscal after achieving a low of 2.7 years in fiscal 2024. This may increase the debt of some developers.

For all these sectors, geopolitical risks and their impact on investments in India will bear watching.

While such risks can pose growth challenges, the interesting part is that credit risk profiles are likely to be resilient across the renewables, roads and real estate sectors.

According to Manish Gupta, deputy chief ratings officer, Crisil Ratings: “Robust operating performance over the past few fiscals and the consequent strong cash flows, have kept debt levels under control. Further, healthy investor interest, as evident from equity raise as well as asset monetization, has enabled significant deleveraging of balance-sheets. Cumulatively ₹2.1 trillion of equity capital has been deployed in these sectors over the past two fiscals driven by strong investor participation, supporting the credit profiles of developers and projects.”

For operating toll road assets, steady cash flows have kept credit profiles strong and encouraged monetization., Crisil said. That, along with prudent capital structure of these assets, will result in a healthy DSCR (debt service coverage ratio) of 1.5-1.6 times over this fiscal and next.

Road developers, too, have achieved significant deleveraging resulting in healthy expected total outside liabilities to tangible net worth ratio of 0.6-0.7 time this fiscal and next, the agency said.

All in all, while investment growth in these three sectors may see some moderation if the risks play out materially, steady cash flows and healthy balance sheets should keep credit profiles resilient, Crisil said.