Assets under management (AUM) of infrastructure investment trusts (InvITs) in the road sector are poised to surge ~68% to ~Rs 3.2 lakh crore by March 2026, from ~Rs 1.9 lakh crore as of September 2024. The growth will be fueled by the expansion of existing InvITs’ asset pool and the emergence of new InvITs. The AUM growth will be accompanied by diversification in terms of geography and concession type, which will help build resilience. This, along with leverage levels being under control will keep credit profiles of road InvITs strong.

An analysis of 11 existing road InvITs, comprising 145 assets with total length of more than 12,500 km, indicates as much.

Over the last three fiscals, road InvITs experienced remarkable growth, a trend expected to persist in the medium term as well.

Says Manish Gupta, Deputy Chief Ratings Officer, Crisil Ratings Ltd, “Growth in AUM of road InvITs will have two key drivers. One, existing InvITs adding new assets. These InvITs already have an acquisition pipeline of Rs 55,000-60,000 crore of assets over the next one year. Additionally, monetisation of assets by the National Highways Authority of India and road developers is expected to add another Rs 50,000-55,000 crore to AUM. And two, new InvITs floated, with estimated AUM of Rs 20,000-25,000 crore.”

The AUM growth (refer Annexure) will also bring diversification in terms of both geographies as well as concession type.

Geographical diversification is an important characteristic of road InvITs as it enables them to tap into demand from a wide range of sources including diverse industries, urban conglomerates, tourist destinations, ports, etc. The expected asset addition will further diversify existing portfolios, thereby reducing volatility associated with local disruptions, particularly for toll assets, which currently account for over 85% of AUM of road InvITs.

That said, the share of toll roads is expected to decline to ~75% as road InvITs acquire hybrid annuity model (HAM) assets from engineering, procurement and construction (EPC) companies to further diversify their portfolios.

Says Anand Kulkarni, Director, Crisil Ratings Ltd, “Road EPC companies have completed many HAM assets over the last few fiscals, translating into an estimated value of monetisable assets at Rs 1.3 lakh crore. Moreover, this asset class has built a track record of generating stable and timely cash flows over the years. Addition of HAM assets can offer stability to InvIT cash flows as they are unaffected by traffic volatility and there are inherent inflation and interest-rate hedges in these assets.”

Diversified asset pools, comprising toll projects that offer growth opportunities and HAM projects that provide cash flow stability, are better equipped to withstand comparatively high levels of leverage¹.

The average leverage of road InvITs is expected to remain under control at below 49%² by March 2026, keeping credit profiles strong. The modest increase from ~44% as of September 2024 can be attributed to certain debt-funded acquisitions by road InvITs.

That said, the quality of assets being acquired, the commensurate enhancement in operating capabilities of road InvIT managers as well as debt funding for these acquisitions and its impact on leverage will bear watching.

¹ Leverage is measured as the gross debt-to-enterprise value ratio.
² This is a Crisil Ratings estimate of average leverage for all road InvITs. Individual values of InvITs will vary depending on the asset mix between toll, HAM and annuity projects