NHAI Bidding Norms Slow Road Project Awards, Spur Diversification

Stringent bidding norms by the Ministry of Road Transport & Highways (MoRTH) have led to a slowdown in the awarding of road construction projects by the National Highways Authority of India (NHAI). A report from HDFC Securities highlights that the shift towards developer models benefits companies with strong balance sheets, amid tightened competition rules.

The introduction of additional performance security requirements aims to filter out aggressive bidders, previously dominant due to relaxed criteria. Despite a project pipeline valued at Rs 3.5 trillion, recent ordering by NHAI has been subdued. Efforts are focused on preventing low-cost bidders from compromising road quality.

Small unlisted players previously bid aggressively, with discounts ranging from 25-40 per cent below NHAI costs, raising quality concerns. While awards in buildings, transmission, and urban infrastructure have recently increased, road project ordering has markedly slowed, affecting growth forecasts and valuations for construction firms.

To counter dwindling orders from roads, the report suggests diversifying into areas like solar energy, battery energy storage systems (BESS), river interlinking, and transmission. Recovery in order flow is expected to stimulate sector valuation improvements, benefiting engineering, procurement, and construction (EPC) companies versatile in non-road ventures.

(With inputs from agencies.)