Too Early To Talk About The Impact Of New Toll Rules On FASTag And Toll Collectors: BNP Paribas

Introduction

In a recent discussion, Priyanka from BNP Paribas delved into the recent proposals by the National Highways Authority of India (NHAI) regarding significant changes to highway toll collection rules. The new regulations are set to allow users to pay toll fees based on the distance they cover, with no toll charges for the first 20 kilometers of travel. This shift poses crucial considerations for both users and road developers.

Priyanka expressed optimism about the implications of these new rules, noting that the introduction of a free movement zone could initially result in a decrease in revenues from underutilized toll roads. However, historical data suggests that previous toll innovations, such as the FASTag system, have considerably reduced revenue leakages. The NHAI reported that toll collections have surged to over 600 billion rupees, effectively doubling since the implementation of FASTag.

Regarding the future of the FASTag system, Priyanka indicated that it might evolve into a hybrid model with specific lanes designated for FASTag-enabled vehicles. This transition has the potential to minimize delays typically experienced at toll points, enhancing traffic flow.

On the longer-term horizon, there appears to be some ambiguity concerning the NHAI's ordering activities, especially in light of the upcoming elections. Previous trends show that ordering has been somewhat muted, likely influenced by these political factors. Insights into recovery timelines for road developers’ equity deposits are also uncertain, with speculation that the government may lean towards the Hybrid Annuity Model (HAM) over the Build-Operate-Transfer (BOT) model.

A notable highlight in the discussion was the ongoing fund-raising efforts by JSW Infra, which is looking at a Qualified Institutional Placement (QIP) to comply with regulatory requirements regarding promoter holdings. According to Priyanka, the QIP route is perceived favorably by investors, especially as JSW Infra prepares to present a solid growth pipeline capable of justifying the new equity raise.

In terms of valuations, JSW Infra is considered somewhat expensive relative to the industry, particularly when looking at EV/EBITDA multiples for FY26 and FY27. Despite current pricing appearing high, the long-term outlook hinges on the timing of their growth projects, which are not expected to contribute significantly until FY28 or later. Nevertheless, the company’s net cash position and planned balance sheet leverage remain essential considerations for investors.

In conclusion, while the proposed changes to toll collection rules and the parallel shifts in infrastructure financing raise several questions, definitive impacts and long-term consequences are still too premature to forecast.

Keywords

• NHAI
• Toll collection
• FASTag
• Revenue leakage
• Hybrid model
• JSW Infra
• Qualified Institutional Placement (QIP)
• Valuations
• Growth pipeline
• Infrastructure financing

FAQ

1. What are the new toll collection rules proposed by NHAI? The new rules will allow users to pay toll based on the distance covered, with no toll charge for the first 20 kilometers.

2. What impact could these changes have on FASTag? FASTag may transition to a hybrid model, maintaining certain lanes for FASTag-enabled vehicles to enhance traffic flow and reduce delays.

3. How is JSW Infra planning to raise funds? JSW Infra is considering a Qualified Institutional Placement (QIP) to comply with regulatory requirements regarding promoter holdings.

4. Are the valuations of JSW Infra considered high right now? Yes, JSW Infra's valuations, particularly its EV/EBITDA multiples for FY26 and FY27, appear high compared to industry standards.

5. What are the long-term implications for road developers with the new toll rules? The long-term effects are still uncertain; it will depend on whether the NHAI continues with its current project models and how quickly developers can recover their equity investments.