INDIAN ROAD SECTOR

INDIAN ROAD SECTOR
QUARTERLY REVIEW | FEBRUARY 2012 ICRA RATING FEATURE

Performance review for Q3, FY2012
The Indian road sector continued to face multiple challenges in the third quarter (Q3) of the fiscal year 2011-12 (FY2012) in the form of high interest rates, reduced availability of funds, execution slowdown, and increased competitive intensity. The award of new projects picked up during the last two quarters with the National Highways Authority of India (NHAI) awarding some mega projects. However, execution on many of the projects awarded over the last one year remained slow primarily because of delays in land acquisition, clearances, and financial closure. Projects that had the requisite approvals and funding reported healthy execution. While both developers and contractors are going through a rough phase over the last one and a half years, the challenges were higher in the case of companies that had recently entered the project development space. While developers with a portfolio of operational toll road projects were partly hedged from high interest rates due to inflation-linked toll rates, those with projects in the developmental phase faced challenges in achieving financial closure due to weakened project viability owing to high interest rates besides delays in land acquisition and approvals. Road construction companies continued to face long working capital cycles, which put a strain on their liquidity position and increased their indebtedness. The operating margins of several road contractors also witnessed pressure because of rising commodity prices (for fixed-price contracts) and idling of capacities as execution could not begin in many new projects. With NHAI increasingly awarding projects under the public-private partnership (PPP) model, engineering, procurement and construction (EPC) contractors have struggled to maintain their order-book growth and many have chosen to enter the PPP space by undertaking projects on build-operate-transfer (BOT) basis. The equity requirement for BOT projects, along with the weak capital markets that have made raising capital difficult, has increased their dependence on external borrowings. Further, many of these companies have raised debt at the parent or holding company level to meet the equity requirement in BOT projects thus significantly increasing the indebtedness at the group level. The slowdown in a few segments of the construction industry like irrigation and power, and the entry of new players has had the effect of raising the competitive intensity in the road sector. Consequently, despite the pickup in order inflow, many projects saw aggressive bidding during the first half (H1) of FY2012. However, with many developers facing difficulty in raising funds, some moderation in bidding activity was witnessed in Q3, FY2012. ICRA believes that with the pipeline of road projects to be awarded by NHAI and State governments remaining strong, there will be ample growth opportunities for both developers and contractors in the next 2-3 years. Also, key policy initiatives such as creation of Infrastructure Debt Funds and the catalysing role played by India Infrastructure Finance Company Limited (IIFCL) will assume greater importance in channelising the much needed long-term debt funds into this sector.
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Corporate Ratings
Anjan Deb Ghosh +91 22 3047 0006 aghosh@icraindia.com Contacts: Rohit Inamdar +91 124 4545 847 rohit.inamdar@icraindia.com Shubham Jain +91 124 4545 306 shubhamj@icraindia.com Abhishek Gupta +91 124 4545 863 abhishek.gupta@icraindia.com

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Private players in the road sector can be broadly classified into developers (who build-operate-maintain road stretches under public-private partnerships) and contractors (who do the construction for government agencies or other private players on a contractual basis).

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INDIAN ROAD SECTOR
Emerging Trends in Road Sector
Surge in projects awarded by NHAI; projects to be offered make a strong pipeline
There has been a surge in project awards by NHAI during the last few years. About 4,375 km has been awarded in first 9-months of FY2012, as against 4,553 km during FY2011, 3,338 km during FY2010 and 643 km in FY2009. There has been a period of slowdown in between, but the award activity has picked up in recent months with about 1,898 km of projects awarded in Q3, FY2012. Project award is expected to remain robust over the next few years, given the number of projects in the pipeline. Under the National Highway Development Project (NHDP) itself, NHAI plans to award about 24,000 km of highway projects over the next few years. Further, many State governments have now started looking at the PPP route for awarding road projects. Recently, NHAI awarded some large road projects, including mega highway projects (over 400 km in length). Over the years, the size of projects awarded by the authority has increased, both in terms of length and project cost.
Projects Awarded by NHAI

Source: NHAI, ICRA research

Trend in Projects Awarded by NHAI

Contractors evolving into developers
Given the large number of projects being awarded on PPP basis, EPC contractors are increasingly assuming the role of developers by taking up BOT projects through the special purpose vehicle (SPV) route. While an EPC contractor is exposed to execution risk, the risks involved in a BOT project also include funding and operational/market risks. Further, the upfront equity investment required for a BOT project is higher, which along with the longer gestation, increases the funding requirement for these players. In the case of a BOT-toll project, developers are also exposed to uncertainty associated with traffic projections. On the positive side, returns in a successful BOT project are also generally higher. BOT projects are usually developed through an SPV, which derisks the parent company from any major project risk. Nevertheless, proper risk assessment and management are critical for these companies as they take up more BOT projects. In some cases, developers have raised debt at the parent or holding company level to infuse equity into the project SPV, which has led to multiple leveraging.
Source: NHAI, ICRA research

Share of BOT Projects in NHDP

Source: NHAI, ICRA research

ICRA LIMITED

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The variation in bids is likely to be because of differences in traffic estimates and traffic growth projections for various players. Over 90 players have pre-qualified for the NHAI projects indicating highly competitive scenario prevailing in the sector. between NPV Expected and Bid Received 5529% 113% 946% 286% 1827% 72% 149% 169% 63% 143% 493% 282% -21% 101% 20% 29% No.INDIAN ROAD SECTOR Intense competition leads to aggressive bidding The competitive intensity in the road sector has increased during the past one year following the entry of many new players. many of these players have now started participating in road sector projects because of the slow order inflows in other segments. Bidding Pattern in Some Projects Awarded since April 2011 Name of Project Month of Award Net Present Value (NPV) of Projected Premium or Grant* Rs. road construction was the least preferred among the larger construction players because of the low margins involved. of Bidders Variation between L1 and L2 62% 3% 12% 60% 56% 83% 119% 44% 10% 23% 65% 24% 1% 101% 0% 6% Ahmedabad-Vadodra Kota-Jhalawar Beawar-Pali-Pindwara Nagpur-Wainganga Barwa Adda-Panagarh Jabalpur-Lakhnadon Hospet-Bellary-AP/KNT Border Aurang-Orissa Border Jabalpur-Katni-Rewa Kishangarh-Udaipur-Ahmedabad Shivpuri-Dewas Gwalior-Shivpuri Vijayawada-Machilipatnam Rohtak-Jind Patna-Buxar Angul-Sambalpur *Negative figures represent grant Apr 2011 Apr 2011 May 2011 May 2011 May 2011 July 2011 Aug 2011 Aug 2011 Aug 2011 Sep 2011 Sep 2011 Sep 2011 Oct 2011 Nov 2011 Nov 2011 Dec 2011 13 9 16 19 9 6 10 10 4 7 14 15 3 5 1 7 Source: NHAI. recently there has been some moderation in the practice of aggressive bidding. Traditionally. crore 3542 30 2032 191 1098 -37 165 265 -341 7389 1658 602 -209 1 -316 -339 Diff. also. Ministry of Road Transport ICRA LIMITED PAGE 3 . Many of the projects awarded in past few months have received more than 10 bids with large variations in the top bids. However. However. crore 63 -228 194 -102 57 134 -337 -382 -917 3035 -422 -331 -173 -113 -395 -476 NPV of L1’s Premium/(Grant) Rs. probably because of the prevailing macroeconomic scenario that has made raising funds difficult. majority of these bids were significantly higher than NHAI’s expectation.

Given that road projects are highly leveraged. the cost of funding becomes a concern if interest rates remain at higher levels for a longer duration. this limit was increased to 50% by way of a memorandum of understanding (MoU) between IIFCL. which they can use to lend to new projects and also avoid asset-liability mismatches. a developer would want longer tenure debt funds so as to match the duration of the concession period. However. The Central Government has taken several initiatives to improve the availability of financing for the infrastructure sector by creating the infrastructure debt fund. under which India Infrastructure Finance Company Ltd (IIFCL) can take out debt up to 20% of the Total Project Cost after the commercial operation date (COD) has been achieved for the project. ICRA LIMITED PAGE 4 . Further. with many players bidding aggressively.4% of total bank loans) now. The Government had launched a take-out financing scheme in October 2010.INDIAN ROAD SECTOR Financing options to increase with the launch of infrastructure debt fund and take-out financing With more and more road projects being awarded on PPP basis. banks are reluctant to lend for such a long duration because its own assets and liabilities mismatch. lenders are turning increasingly cautious. however. Already. As road projects have a long gestation (concession period of 15-30 years). bank lending to the road sector has grown 200% during the last three years to stand at about Rs. Duration of high interest rate regime a concern While funding has so far not been a major problem for road projects. the financing requirement for private players is also increasing. IIFCL launched a credit enhancement scheme under which IIFCL will provide guarantee to the extent of 50 per cent of the debt availed by an operational infrastructure project. LIC and IDFC wherein it was agreed to refinance the debt in the ratio of 20:20:10 respectively. Asian Development Bank (ADB) will further re-insure 50 per cent of the guarantee given by IIFCL to infrastructure companies thus raising the credit rating of the project and consequently improving the marketability of the debt/bonds issued by the project company. Subsequently. These initiatives are expected to help the developers in obtaining low-cost financing for road projects. and also by increasing the limit of FII investments in infrastructure debt funds (from US$5 billion to US$25 billion) in the last union budget. Takeout financing frees up banks’ capital. 1 trillion (2. their sensitivity to interest rates is high and persistently elevated rates can dampen project viability.

INDIAN ROAD SECTOR Performance Overview of Some Listed Companies in Road Sector ICRA LIMITED PAGE 5 .

3% Q1.8 115. 256/143 S ource: Company data.4% 10.5% Q2. FY2012 1268. ICRA estimates Q3.0 44.0 111.8% 4. 24. FY2012 from Rs.7 16. NSE ICRA LIMITED PAGE 6 . 905 crore in Q3.7 62.0% Q3. The increase in debt levels was primarily due to acquisition of a Chinese toll project – Chongqing YuHe Expressway and disbursement of loans for the on-going projects.7 101. 10 Rs.5% Q3.4 28.2% 11.3 17. Border Check Post Rs.3% dropped by 480 basis points (bps) on YoY basis in Q3.2 25.2 118. FY2012.1 883.8% Q2. revenue from its European subsidiary Elsamex S.343 lane km 10 projects Rs. FY2012 1255. FY2011 Operating Income 776. FY2012 1268.2 30.A. and higher traffic.3 24. driven primarily by strong growth in construction/EPC revenues (up 125% to Rs.6 8.7 132.0% 22.5 65.1% 8.9 185.0% Market Data (Feb 20.7% 29. crore Operating Income Change (%) OPBDIT Less: Depreciation Less: Interest Charges Non-Operating Income PBT Less: Tax PAT OPBDIT/OI (%) PAT/OI (%) Q3.1% 8. 1. The decline in net profit margins was higher because of a significant increase in interest expenses on account of both higher debt and interest rate. FY2012 to Rs.72 15.049 crore Rs. Metro Rail. FY2011 1655.000 crore 21 projects with 10.2% Price Performance ITNL SENSEX Stock Movement S ource: Company data.5 3Months 16.67 16.49 times from 2.4 26.061 crore 1 year High/Low Rs.1 46. 2.0 169.6% PAT/OI (%) 13.7% 12. BSE. 2012) Latest Price Rs. FY2011) because of increased construction execution in its ongoing projects especially Jharkhand projects.4 107.0% 320.7 148.9% year-on-year (YoY) in Q3. continued to decline during the quarter (de-growth of 23%) because of non-renewal of some contracts in regions including the Dominican Republic.7 72.2 132.3% 10.5 PAT 106. 115.8% 10.5% Q4.4 1.2 197.8 125.8 62.1 -34.4 28. 4.68 at the end of Q2.2 170.7% 411.268 crore.9% 220. 4. FY2012 primarily because of exceptional expenses/provisions and higher share of operating income from the lower-margin construction business.5 14. FY2012 1093. 209 Market Cap Rs.2 30.8% OPBDIT 261.INDIAN ROAD SECTOR IL&FS Transportation Networks Limited (ITNL) Bloomberg Code BSE Code BSE Group NSE Symbol ILFT@IN 533177 B IL&FSTRANS ITNL Fact Sheet Year of Incorporation Promoter Group Major Subsectors Order Book BOT Projects Operational BOT Projects Revenues FY11 PAT FY2011 Net Worth FY2011 2000 IL&FS Roads. Crore Q1.4% 10.7% 12Months -4. FY2011 733. Profitability: ITNL’s operating margins at 25.3 Rs.0% 356.2 OPBDIT/OI (%) 33.3% 8.5 30. ICRA estimates ITNL’s Consolidated Key Financial Indicators Amounts in Rs.5 261. Increase in Debt-Equity ratio: ITNL’s debt-equity ratio increased sharply in Q3.9 101.7 -16. FY2012 1255.2 25.5 1.9% -1. However.239 crore Operating Income: ITNL’s operating income grew 72.6% Source: Company data.3% 8. FY2011 733. 433 crore Rs.9% 220. FY2011 Q2.5% Stock Data Face Value Book Value EPS (TTM) P/E (TTM) Rs.0% 331.5 29.9% 356.0% Source: Bloomberg. FY2012 to 3. Revenues from BOT projects during the quarter also reported strong growth (up 69% YoY) because of a combination of increase in toll rates. 10.2% 2.4 320. ICRA estimates Amounts in Rs. 403 crore in Q3.3 Growth (%) 13. Shareholding Pattern Promoters Foreign Institutional Investors (FIIs) Domestic Institutional Investors (DIIs) Others 71.

It is the market leader in the road infrastructure space with the largest BOT portfolio of about 10.099 0. which serve to diversify its revenue streams.Kurnool Annuity 328 100% 863 (Himachal Pradesh) on BOT—Toll basis. crore * Not adjusted for ITNL’s stake Annuity Receivable: ITNL has four operational annuity-based projects.097 0.3 East Hyderabad Exp.399 0. Ltd Hazaribagh Ranchi RIDCOR.0 28.7 73.2.276 FY2012 FY2011 (%) FY2012 (%) Projects under development Jharkhand Ph 1 Chhattisgarh -1.618 reported healthy YoY growth in Q3. ICRA estimates. ICRA estimates. crore * Not adjusted for ITNL’s stake 25. Growth Total Operational 4. Daily Toll Collection* Q3. 10.368 107 173 319 698 275 571 522 888 262 38 327 6. border check posts and bus transportation systems. Q3.197 0.760 824 3.329 5.818 crore) from NHAI for development of Kiratpur to Ner-Chowk Kotakatta bypass .403 1. Apart from road development. Vadodara-Halol) years. FY2012 Maharashtra Border to Belgaum Thirvananthapuram City Roads (Phase 1) Kotakatta bypass to Kurnool Hyderabad Outer Ring Road Total Annuity Source: Company Data.000 crore.161 0. Ph 2 Warora Chandrapur Pune Sholapur Moradabad Bareilly Narketpalli Addanki Jorbat Shillong Chenani Nashri Kiratpur-Ner Chowk Total Under Development Grand Total Annuity Annuity Annuity Annuity Annuity Toll Toll Toll Toll Toll Annuity Annuity Toll 466 1. FY2012 remained subdued as no new Share Cost NHAI order was won by the company primarily because of the aggressive bidding Operational Projects witnessed in many projects.337 23. ICRA estimates. a major part of which would be executed in the next three Gujarat Toll (AhmedabadToll 523 84% 466 Mehasana.408 2. ITNL has won a sizeable Belgaum-Maharashtra Border Annuity 472 94% 600 Thiruvananthapuram Phase 1 Annuity 51 50% 110 order (Rs. ITNL’s current order book is strong at around Rs.014 10. crore ICRA LIMITED PAGE 7 . Amounts in Rs.130 0.3 Thiruvananthapuram Phase 2.436 0.121 0.818 18.613 Ahmedabad-Mehsana Vadodara-Halol Noida Toll Bridge RIDCOR. FY2012 because of a combination of growth in Rajkot-Jetpur Toll 389 100% 276 traffic and increase in user fees.984 1. Growth Q2.046 0% 7% 10% 9% 10% 4% Source: Company Data. However. a stable revenue stream for the company.106 50% 1.042 23% 19% 17% 44% 12% 14% 0. in January 2012.347 263 428 869 813 700 1. ITNL is also into areas like metro rails. Accrued Annuity from operational projects* Q3.161 0.109 0.303 0.3 3.720 1.186 0.1 Source: Company data.INDIAN ROAD SECTOR IL&FS Transportation Networks Limited (ITNL): Business Overview Incorporated in 2000.109 0. Table: BOT Projects of ITNL Update on Operations Project Type Lane km ITNL’s Project New Orders Inflows: Order inflow during Q3. 1.3 16.343 100% 74% 50% 74% 74% 50% 35% 100% 100% 50% 50% 100% 100% 1. Phase 1 Rajkot-Jetpur Beawer-Gomti 0.343 lane km in 21 projects across 14 States. Noida Toll Bridge Toll 60 25% 589 Toll Collection: The average toll collection in the six operational toll-based projects RIDCOR. ITNL has been promoted by Infrastructure Leasing & Financial Services Limited (IL&FS). Hyderabad Outer Ring Road Annuity 152 26% 399 Beawar-Gomti Toll 248 100% 355 Avg. Amounts in Rs.048 0. Amounts in Rs.217 0. Phase 1 Toll 2.131 0.

8 11.3 4.65 Market Cap Rs. 253. FY2011 767.55% Market Data (Feb 20.0 14. 2. and AmritsarPathankot projects.6% 20.8% 17.058 crore) and projects that are yet to start (Rs.3% Q4.1% Q3.3% 341.8 36. NSE ICRA LIMITED PAGE 8 .9 43. higher interest and depreciation resulted in decline in net profit margins. FY2012 735.5% YoY in Q3.8% Source: Company data.3 Growth (%) -4. Shareholding Pattern Promoters FIIs DIIs Others 67. FY2012 801.128 crore 17 projects with 5.8 161. FY2012 primarily because of improvement in construction business margins. 10 Rs.9% 20.6 58.0 45.5 62.5 crore in Q3.438 crore Rs.0 43.392 crore worth of projects are under execution.4 PAT 120. Talegaon-Amravati. FY2012 745. However.7% Source: Bloomberg.0 45. FY2012 to Rs.3% Q2.2% 321. driven primarily by healthy traction in construction execution in Jaipur-Deoli. FY2012 remained subdued as no new NHAI order was won by the company primarily because of the aggressive bidding witnessed in these projects.433 crore Operating Income: IRB’s operating income grew 11.5% 293. FY2012 from Rs.4 135.2 30. 9. However.2% S ource: Company data.2 Rs.0% 13.777 lane km 10 projects Rs. the interest was higher because of both higher debt for on-going projects and higher interest rate.5 36.7% 314.9% -1.9 -8.0 43. 2012) Latest Price Rs. a major part of this consists of operations and maintenance (O&M) projects (Rs.2% PAT/OI (%) 23. 73. Airport.7 132.53% 8.3% 321.8 OPBDIT/OI (%) 48.55% 17. ICRA estimates Amounts in Rs. crore Operating Income Change (%) OPBDIT Less: Depreciation Less: Interest Charges Non-Operating Income PBT Less: Tax PAT OPBDIT/OI (%) PAT/OI (%) Q3.0 11. 14.902 crore 52-W High/Low Rs. 2. 230/121 S ource: Company data.7 164. FY2011 668.9 141. Thus.678 crore). While IRB’s order book is robust at Rs. FY2012 745. 2.5 1.6 136.0 crore in Q3.9% 20.9 43.4 142.4 14.5 110.7% 48.1 132.7 41. 3. 6.1 29. FY2011 Amounts in Rs. 207. FY2011) because of a combination of increase in toll rates.0 490.3 236.7% 15.5 41.5% 11.7% 15. crore Operating Income 512.5 crore. 214.9% Q2.2% OPBDIT 249. Real Estate Rs.37% 6.8 136.0 33.8% improved by 194 bps YoY in Q3. FY2012 735. the AhmedabadVadodara project has recently achieved financial closure and the execution is expected to enhance the revenue growth.9 1.5 341.8 101.7% 12M 12. 3.1 147.8 28.INDIAN ROAD SECTOR IRB Infrastructure Developers Limited (IRB) Bloomberg Code BSE Code BSE Group NSE Symbol IRB@IN 532947 A IRB IRB Fact Sheet Year of Incorporation Promoter Group Major Subsectors Order Book BOT Projects Operational BOT Projects Revenues FY2011 PAT FY2011 Net Worth FY2011 1998 Mhaiskar Family Roads.7 110. Revenues from BOT projects during the quarter also reported healthy growth (up 18.8% 17.4 Price Performance IRB SENSEX 3M 49.4% to Rs.7% Q1. BSE.7 72.1% 16. 452 crore Rs.4% 293.7% Q3. 9. Profitability: IRB’s operating margins at 45.1% Stock Data Face Value Book Value EPS (TTM) P/E (TTM) Rs. effectively only about Rs. ICRA estimates Stock Movement Table: IRB’s Consolidated Key Financial Indicators Q1. FY2011 668.7 105. 745.5 82. FY2011 Q2. ICRA estimates Q3.128 crore.5% 329. higher traffic and commencement of toll on new project. New Orders Inflows: Order inflow during Q3.

7% 7. Length km Lane km Project Cost Source: Company data.3 38.5 1.2% 20.799 104 63 74 1.422 17.5 96 104 119 824 60 260 240 6 134 956 2.978 5.5 3.8 3.9 65 60 1.8 100.0% 11.1 Growth 9.5 Growth 15.0 7.3% Q2.5% 0.3 34. FY2011 13.4 33.9% -2.777 lane km in 17 projects across the country.0% 13.INDIAN ROAD SECTOR IRB Infrastructure Developers Limited (IRB): Business Overview Incorporated in 1998.3% 0.409 37 32 18 2.5 1.7 3.0% 5.5 99.880 11. Surat-Dahisar projects and addition of toll collections from Tumkur—Chitradurga.9 1.2% 0.Mandrup Surat –Dahisar Tumkur –Chitradurga Total Toll Collections: The gross toll collection in operational projects reported robust YoY growth of 29.733 833 500 4.8 206 14.9 5. Amounts in Rs.7% 7. ICRA estimates.142 1.Mandrup Surat –Dahisar Total Operational Under Development Tumkur –Chitradurga Pathankot –Amritsar Talegaon –Amravati Jaipur –Deoli Panaji –Goa Kolhapur Ahmedabad –Vadodara Total Under Development Grand Total 114 102.5 5.2% -1. FY2012 primarily led by higher toll collections in Mumbai—Pune. Table: BOT Projects of IRB Project Operational Thane Bhiwandi Bypass Pune –Sholapur Pune –Nashik Mumbai –Pune Thane –Ghodbunder Bharuch –Surat Ahmednagar–Tembhurni Kharpada Bridge Mohol. The Surat-Dahisar project got completed during the quarter and Kolhapur project is nearing completion.5 37.445 888 1.3% 8. FY2012 with major revenue derived from Jaipur Deoli Talegaon Amravati Amritsar Pathankot.9 95.7 146.5% 23.7 305.0% 5.9 106.4 66. FY2012 14.4 239 699.9 7.2 3. crore ICRA LIMITED PAGE 9 .537 5. has been removed from the order book.0 1.3% 0.2 5.302 246 1.6% Q3. FY2012 15.0 322. Toll Collection Q3.243 24 26 29.8 3.9 38.3 248.6 1.6% Operational Update Order Book Status and Execution: Execution of ongoing projects remained on track in Q3.5 80. Amounts in Rs.8% 5.7% 6.8% 5.7% 5.6% in Q3.6% 2. IRB is also into other areas like airport and real estate development. The Goa-Karnataka project.444 456 410 267 585 276 200 784 2. IRB has been promoted by the Mumbai-based Mhaiskar family and is a leading player in the road infrastructure space with one of the largest BOT portfolio of 5.9 1.3 69.7 29.1 50 196 744. which has been facing land acquisition related delays. Apart from road development. ICRA estimates. crore Source: Company Data.822 Thane Bhiwandi Bypass Pune –Sholapur Pune –Nashik Mumbai –Pune Thane –Ghodbunder Bharuch –Surat Ahmednagar–Tembhurni Kharpada Bridge Mohol.9 93.7 6.9 4.9 34.5 2.777 1.

FY2012 1046.9% 139.5% 2.18% 37.3 9.9% 3.9% 0.7% equity stake in it.9% PAT/OI (%) 2. Sudhir Reddy Roads.5 15.987 crore Operating Income: IVRCL’s operating income continued to decline in Q3.9% 3.7 42.9 PAT 28.5 31.1 18.0% Q2. FY2011. 58. IAHL’s shareholders will receive five shares of IVRCL for every six of IAHL on the record date.8 1074.6% Q3. crore Q3.3 8. 3.1 15.8 22.2% Price Performance IVRCL SENSEX Stock Movement S ource: Company data.1 -7.11% 5. FY2011 1417.2 5. 753 Cr 52-W High/Low Rs. Profitability: IVRCL’s operating margins declined by 198 bps to 7.0% -1.1 23.202 crore despite holding a large order book.7 Rs. ICRA estimates.8% Market Data (Feb 20.9 64.3 -45. FY2012 1202.9 0.3 9.6% 11.3 OPBDIT/OI (%) 9.8 8. Amounts in Rs. ICRA estimates.2% Source: Company data. FY2012 with the company reporting de-growth of 15.6% in Q3.342 cr 4 projects Rs. Further.31% IVRCL Fact Sheet Year of Incorporation CMD Major Subsectors Order Book BOT Projects Operational BOT Projects Revenues FY2011 PAT FY2011 Net Worth FY2011 1987 Mr. NSE ICRA LIMITED PAGE 10 .0% in Q3. FY2011 Q2.000 crore 9 projects with total cost ~Rs.7 44. 9.7% 3. 25. 101.1 9. FY2012 1124.2 42.0% 93. Amounts in Rs.1 6.2 1. FY2012 from 3.0% 0. FY2011 Operating Income 1106.9 0.1 95. Merger of Asset Holding Subsidiary: IVRCL’s board has approved the merger of its subsidiary IVRCL Assets & Holding Limited (IAHL) with itself. and demerger of the tower manufacturing and real estate businesses into separate subsidiaries. The pace of execution was impacted by delays in the pickup of some projects on account of clearance and land acquisition related hurdles. 1.1 1. FY2012 Operating Income Change (%) OPBDIT Less: Depreciation Less: Interest Charges Other Income PBT Less: Tax PAT OPBDIT/OI (%) PAT/OI (%) 1202.8 3M -83.7% 12M -26. ICRA estimates Q3.6% 0.4% 46.8 25.9% in Q3.8 7. 136/27 Stock Data Face Value Book Value EPS (TTM) P/E (TTM) Rs.5 Growth (%) -2.0% 93. 2 Rs. its net profit margin declined to a meager 0. FY2012.1% Q1.0 65. crore Table: IVRCL’s Standalone Key Financial Indicators Q1.9% OPBDIT 101. besides slow execution. Irrigation.3 8. FY2012 1046.8% Q3.5 20. Real Estate Rs. FY2011 2052.8 6. E.9 66. because of significant increase in interest cost on account of both higher debt and interest rates.INDIAN ROAD SECTOR IVRCL Limited (IVRCL) Bloomberg Code BSE Code BSE Group NSE Symbol IVRC@IN 530773 B IVRCLINFRA [ICRA]A [ICRA]A1 Stable 11.8% 177.0 6.0 62. Water. Under the share swap ratio.7 8.4% Q2. IAHL is a listed company and IVRCL holds 75.0% 0.7 19.9% 0.8 7.2 7.617 crore Rs. BSE.0% 94. ICRA Ratings Long Term Short Term Outlook Promoters FIIs DIIs Others Shareholding Pattern S ource: Company data. 1.2% 85.1 9. 2012) Latest Price Rs.6 4.5 94.0% Q4. 5.2% YoY for the quarter to Rs. FY2011 1417.8 Market Cap Rs.1% 8.2% 139.6% Source: Bloomberg.5 -15. 158 crore Rs.1 59.

IVRCL currently has a portfolio of nine BOT projects.343 9. desalination.INDIAN ROAD SECTOR IVRCL Limited (IVRCL): Business Overview Incorporated in 1987. IVRCL has been executing projects in the road sector and in segments of the water sector including irrigation. Length km Project Cost IVRCL’s Stake Source: Company data.550 3. About 29% of IVRCL’s order book of Rs.000 crore as on December 2011. 25. and sewerage.267.100 736 8. The company has also undertaken projects on BOT basis for road and desalination works.0 343.9 652. Sudheer Reddy. 49 53. 0. and oil & gas and mining (5%).Phaltan Chengapalli . and has interests in real estate projects as well.Kumarapalayam Kumarapalayam – Chenagmpalli Total Operational Under Development Sion . The rest is spread across water and irrigation (37%).000 crore is accounted for by the road sector. Amounts in Rs.0 421. 25. power (7%).9 1. crore ICRA LIMITED PAGE 11 . The order book to revenue at 4.3 crore per day.Gujarat Mumbai-Goa Karanji-Chandrapur Total under development Grand Total 25 77.125 1. Table: BOT Road Projects of IVRCL Project Operational Jalandhar . There has not been any significant growth in the toll revenues from previous quarter.Walayar Indore .610 51% 75% 100% 100% 100% 100% Revenues from Operational BOT Projects: Revenue collections from three operational road BOT projects—Kumarapalyam-Chenagmpalli. IVRCL is an engineering and construction company promoted by Mr.Amritsar Salem . of which seven are in the road sector.Panvel Baramati .4 times is on the higher side and will require faster execution.450 382 1.1 100% 100% 100% Performance Update Order Book and Execution: IVRCL’s order book stood at about Rs.5 48.5 151.6 502.9 42 155 122 80 501.5 1. Jalandhar-Amritsar and the SalemKumarapalyam tollway project—are in the range of Rs. ICRA estimates. E. building and industrial (21%).

FY2012.9 crore in Q3. 236.24% Market Data (Feb 20.5 23.2 15.4 23.8 144. FY2011.4 19.0 27. ABL’s revenues from BOT projects increased from Rs.5% 8. Amounts in Rs.9% 6. FY2012 352. 210 crore Rs. FY2012.2% in Q3.8 Growth (%) -34.2% Q3. Power T&D Rs.2% 26. ICRA estimates.4% Q3.6 48. The operating income is not comparable because of two changes in accounting policy that the company made in Q4.7% 23. ICRA estimates Q3. On QoQ basis.2 15. FY2012.0% Q2.9% 6.4 29.5 16. 66.4% -1.6 Price Performance ABL SENSEX 3M -12. FY2011 236. Profitability: ABL’s operating margins during Q3.0 11. FY2011 to Rs.2% Stock Data Face Value Book Value Rs. 893 crore Operating Income: ABL’s operating income increased from Rs. 209 Market Cap Rs.0 23.8 26.7 182.2% 69. NSE ICRA LIMITED PAGE 12 .6 PAT 30.9 23. 4. crore Q3. Katariya Roads.6 19. Further.5 24.2 155. 1. FY2011 Q2.9% 10.4 crore in Q3.2 19.28 crore in Q3. 308/180 S ource: Company data.23% 14.4 49. FY2011 to Rs.6 5. FY2012.2 27. FY2012 286. 10 Rs.3% 5. Amounts in Rs.2 29.7% 12M -21.6%. 2012) Latest Price Rs.7% 11.312 crore 18 projects with 4.099 crore 52-W High/Low Rs. The operating profitability was lower primarily on account of major maintenance expenditure incurred in one of its BOT project (IndoreEdalabad). Shareholding Pattern Promoters FIIs DIIs Others 67.2% Stock Movement S ource: Company data.4 23. FY2012 Operating Income Change (%) OPBDIT Less: Depreciation Less: Interest Charges Other Income PBT Less: Tax PAT OPBDIT/OI (%) PAT/OI (%) 352.2% 66. FY2012 286. ABL has not eliminated the EPC revenue derived from its BOT SPVs.4 19.9 23.9% Q1.9% Q4.5 -26.2% 66.3 16.3% 5.4 -35.6% PAT/OI (%) 10. the accounting method of amortization of intangible assets has been changed from straight line to proportion of traffic volumes.4% 56.0 23.9 69. FY2012 388.4 11.2 30. ABL’s operating income grew by 23. crore Table: ABL’s Key Financial Indicators Q1. Ashok M.9 15. 167. FY2011 236. BSE.3% 17.6% 91.3 13.6 11.96 crore in Q3. FY2011 603.23% 1.9% Q2.9 24.6% OPBDIT 67.766 lane km 11 projects Rs.302 crore Rs.3 OPBDIT/OI (%) 24.5 15.6% Source: Company data.INDIAN ROAD SECTOR Ashoka Buildcon Limited (ABL) Bloomberg Code BSE Code BSE Group NSE Symbol ASBL@IN 533271 B ASHOKA ABL Fact Sheet Year of Incorporation Promoter Major Subsectors Order Book BOT Projects Operational BOT Projects Revenues FY2011 PAT FY2011 Net Worth Mar 2011 1993 Mr. 1.6% 4. ICRA estimates.6% 4.5 4. FY2011 Operating Income 279.9 27.1 12. FY2012 stood at 19.3% 56.0 16. Since Q4. 352.4% Source: Bloomberg. 50.1% 76.

the size of these projects is larger.0% 100. Prior to the company’s incorporation.2 448 3.766 100.2% 14.6 35.0% 100.65 4.Dharwad Others Total 376.1 340. FY2012 because of delays in getting clearances and achieving financial closure.Chhattisgarh Cuttak-Angul Total Under Development Grand Total 841.8% 5.Baragarh Belgaum . FY2012 15.2 451.73 11.6 Growth 5.9% 14.0 407.9% -1.72 58.311 4.91 8. FY2011 14.Kharagpur Sambhalpur .0% 100.0% 51.4% ABL’s Stake Project Cost Source: Company data. While the projects under development are fewer in number than the operational projects.Edalabad Waiganga Bridge Pune .1% 87.0% 146. However.471 Indore -Edalabad Ahmednagar -Aurangabad Wainganga Bridge Dewas Bypass Katni Bypass Pune .3% 8.0% 100.26 4.0% 100.73 6.8 406.0 39.0% 100% 2.32 15.1% 4.8% -8.Dharwad Jaora .7% -0. ICRA estimates.75 4.97 12.Karmala Nagar .0 168.200 1.61 10.12 85. and once completed will make the portfolio of operational projects stronger.2% 70. 4.27 11. In 1997.6 454.0% 535 165 41 161 61 71 50 103 15 14 6 1. ABL is a Nashik (Maharashtra)-based infrastructure company with focus on road projects. The gross toll collections jumped by 70.0% 100. Table: BOT Road Projects of ABL Project Lane km Operational Projects Chhattisgarh .5% due to inclusion of new tolls.0 11.5% Q2.58 5.4% 937.0 7.1% 316. its promoters were into civil construction.0% 100.2 4. ICRA estimates.21 5.142 694 835 1.6% 19.34 3.INDIAN ROAD SECTOR Ashoka Buildcon Limited (ABL): Business Overview Incorporated in 1993.7% -5.18 1.02 5.5% 16. Amounts in Rs.62 99.222 Performance Update BOT Project Portfolio: ABL has portfolio of eighteen BOT roads and BOT bridge projects.2% -3.44 Growth 11.9 368.249 9.9% 100.1% 46.74 4.83 4.Shirur Nagar . most of which (~85%) is from its own road projects. Toll Collection Q3.0% 50. FY2011. Order Book and Execution: The size of the EPC order book of ABL is around Rs.9 3.03 4.2 160. Toll Collections: All the BOT projects of ABL are on toll basis.68 4.455 51.Aurangabad Nasirabad ROB Sherinallah Bridge Dhule Bypass Operational Projects Projects under Development Dhankuni . crore Source: Company data.Karmala Jaora-Nayagaon Chhattisgarh .6% -1. FY2012 16.48 13.8 1. Project execution remained subdued during Q3. Collections from Pune-Shirur have however suffered following discontinuation of one toll plaza in Q3-Q4. Amounts in Rs.65 Q3.16 5. crore ICRA LIMITED PAGE 13 .100 8.51 4. and toll collection has reported healthy growth in most projects.Nayagaon Pimpalgaon-Nasik-Gonde Durg .36 4.0 216.4% 12.6 26.42 6.0% 100.Bhandara Belgaum .25 16.Shirur Dewas Bypass Katni Bypass Nagar .62 4.5% 26.0% 100.691 587 1.52 4.0% 37. ABL entered the business of developing toll roads and bridges on BOT basis.0 8. two of the ongoing projects—Jaora-Nayagaon and DurgChhattisgarh—are nearing completion (~100% work done).Bhandara Indore .4% -3. of which eleven are operational and seven are under various stages of development.0% 99.312 crore.

ICRA estimates Q3. 2012) Latest Price Rs.0 13. BSE.7% 9.4% 54.5 8.5 12. Irrigation.1 PAT 13.9 52.5 6.7% in Q3. FY2012 from 12.0% 1. 5.4 0. driven mainly by the better execution of power projects. Amounts in Rs.8 1. crore Table: MPL’s Key Financial Indicators Q1. FY2012 329.5 12.4 4.3 10.3 8. 624.5% 11.9 15. FY2012 624.8 11. NSE ICRA LIMITED PAGE 14 .3% Q4. FY2012 416.7 7.0 50.7% 3.5 5.7% 3. ICRA estimates.6 Growth (%) -13.9 3M 39.6 19. Profitability: MPL’s operating margins declined to 8.8 11.57% MPL Fact Sheet Year of Incorporation Promoter Major Subsectors Order Book BOT Projects Operational BOT Projects Revenues FY2011 PAT FY2011 Net Worth FY2011 1990 Mr.3% 1.5 8. FY2011 Q2.4% in Q3.0 6. crore Q3.4 6. the net profit margin declined to a low 1.7 31.2% Q3.5% 44.0 12. 1. 1 Rs.9 29. 352.4 68.0 14. FY2011 593. The share of road projects in the operating income of MPL stood at 19% in Q3. N. FY2012 to Rs.7 11.7% OPBDIT 43.4% 1.0% 1.870 crore 8 projects 4 projects Rs. 32 crore Rs.0 7. FY2011 352.5 34.9 crore from Rs.3% Q1.713 crore Rs.INDIAN ROAD SECTOR Madhucon Projects Limited (MPL) Bloomberg Code BSE Code BSE Group NSE Symbol MDHPJ@IN 531497 B MADHUCON [ICRA]A+ [ICRA]A1 Stable 57.5% Q3.1% 44.1 77.5% Market Data (Feb 20. FY2012 Operating Income Change (%) OPBDIT Less: Depreciation Less: Interest Charges Non-Operating Income PBT Less: Tax PAT OPBDIT/OI (%) PAT/OI (%) 624.9 50. 609 crore Operating Income: MPL’s operating income grew 77.7 OPBDIT/OI (%) 10.1 0.5% 46. FY2012 416.1% -1.2% 54.2% in Q3. 71. 6.2% 52.8 1.6% 3.7% 12M -35.5% 62. 91.0 13.3 Market Cap Rs.2% Source: Bloomberg. ICRA estimates.2 -44.1% 2. FY2011.6 12. Nageswara Rao Roads. FY2011. FY2012 ICRA Ratings Long Term Short Term Outlook Promoters FIIs DIIs Others Shareholding Pattern S ource: Company data. 526 crore 52-W High/Low Rs. Further. because of the increase in interest cost on account of both higher debt and interest rate.3 Rs.42% 20.1 crore in Q3.5 12.9% Source: Company data.4 6.4% Q2.0 26.5% YoY in Q3. FY2012.9 11.0 10.21% 12.7% PAT/OI (%) 3.2% Price Performance MPL SENSEX Stock Movement S ource: Company data.3% Q2.8% 9. Mining Rs.4 351. FY2011 352. Amounts in Rs.9 18. 112/46 Stock Data Face Value Book Value EPS (TTM) P/E (TTM) Rs.4% 1. FY2011 Operating Income 407.

stood at Rs. with the contribution of the power.0%) and irrigation (23.198 Annuity Annuity Annuity Toll 58 73 57 129 317 Performance Update Order Book and Execution: MPL’s order book. and real estate.45 crore per day during Q3. FY2012.0%) segments. The BOT portfolio covers a length of 693 km and has a mix of toll and annuity projects. and was dominated by the roads (55. mining and other segments being smaller. ICRA estimates.020 Type Toll Toll Toll Toll Source: Company data. It has also undertaken projects in other sectors such as power. crore ICRA LIMITED PAGE 15 . MPL’s BOT portfolio in the road sector has eight projects. Revenues from Operational BOT Projects: The total toll collections in the four operational BOT projects of MPL were in the range of Rs. clearances and financial closure. Project Cost 340 370 390 920 2.178 6. FY2012 because of issues related to land acquisition. Table: BOT Road Projects of MPL Project Length km Operational Bharatpur-Mahua DK Expressway Trichy-Thanjavur Madurai-Tuticorin Total Operational Under Development Chhapra-Hazipur Barasat-Krishnagar Ranchi-Jamshedpur Vijayawada-Machilipatnam Total under development Grand Total 65 84 164 63 376 693 813 980 1655 730 4. with focus on roads and irrigation projects. as of Q3. Financial closure for the Barasat-Krishnagar and Ranchi-Jamshedpur projects was achieved during the quarter. Amounts in Rs. 6. 0.870 crore (4x FY2011 revenue). The execution of road projects remained subdued during Q3. MPL is a Hyderabad (Andhra Pradesh)-based construction and infrastructure company. FY2012. real estate.INDIAN ROAD SECTOR Madhucon Projects Limited (MPL): Business Overview Incorporated in 1990. mining. of which four are operational.

5% -1.9 26. 1 Rs.8% Q3. 2.6 62.4 -29. 2.4 5. ICRA estimates Q3.5% 4. ICRA estimates.7% 12M -16.5 OPBDIT/OI (%) 11. FY2011 Operating Income 425.0 15.2% Stock Data Face Value Book Value EPS (TTM) P/E (TTM) Rs. FY2011 260.2 41.9% PAT/OI (%) 6. BSE.4% 5.1% 5. The net profit margin increased to 5. 5. Road projects contributed about 90% to the total operating income.940 crore 9 4 Rs. 723.52% 13. NSE Source: Company data.8 53.7 crore Operating Income: SEL’s operating income reported a sharp 52% YoY growth in Q3.1 10.9 -38.1% 75.2% Q3.6 crore Rs.3% Q3.7% 31. 325 crore. Amounts in Rs. FY2012 to Rs. FY2012. Irrigation Rs. ICRA estimates.2% Price Performance SEL Sensex Stock Movement S ource: Company data.940 crore as of December 2011.0 18. The order book stood at Rs.2 52.7 119. crore ICRA LIMITED PAGE 16 . FY2011 to 10.1% 5.9 Market Cap Rs.2 28.7 10.2 82. 156/94 S ource: Company data. FY2012. 119. FY2012 612.INDIAN ROAD SECTOR Sadbhav Engineering Limited (SEL) Bloomberg Code BSE Code BSE Group NSE Symbol Promoters FIIs DIIs Others SADE@IN 532710 B SADBHAV 47.0% Q2. FY2011 476.7 75.5% Q2.4 68.0% 52.2 6.5% 4.8 9.1% 5. 5.8 11.1% in Q3.4% in Q3. FY2012 Operating Income Change (%) OPBDIT Less: Depreciation Less: Interest Charges Non-Operating Income PBT Less: Tax PAT OPBDIT/OI (%) PAT/OI (%) 723.1 10.1 10.8 33.9 Rs.5% Q4.4 11.5% Q2.9 6. FY2011 1046.8 14.3 7. Amounts in Rs.7 10.9 10.7 PAT 25. The interest expenses reduced QoQ due to lower working capital borrowings.3 40. crore Table: SEL’s Key Financial Indicators Q1. FY2012 remained weak with the company winning only one mining project of Rs.2 26.2% Q1. Shareholding Pattern Market Data (20 Feb 2012) Latest Price Rs. FY2012 430.8% 90. Profitability: SEL’s operating margins declined marginally from 11.56% SEL Fact Sheet Year of Incorporation Promoter Major Subsectors Order Book BOT Projects Operational BOT Projects Revenues FY2011 PAT FY2011 Net Worth FY2011 1988 Mr.9 8.7 crore on the strength of faster execution of road projects. Vishnubhai M Patel Roads. 625.5% 52.0% 5.4% 11. 57.209 crore Rs.4 11.9 -41.8% in Q3.4 13.4% 5.7 12.3 18.6 14.1% 45.46% 18.8% 45.3 Growth (%) OPBDIT 50.7 4.4 20.7 68. New Orders Inflows: Order inflow during Q3. 9.6 3M -24.46% 20. FY2012 430.163 crore 52-W High/Low Rs.8% Source: Bloomberg. FY2011 476.6 4.7% 5.4% 67. FY2012 723. 143.6 41.

7 2057.204 790. Of these. The Dhule Palesner project received partial COD (68. Amounts in Rs.738 lane km of national and state highways.3 km out of 96 km stretch).426.INDIAN ROAD SECTOR Sadbhav Engineering Limited (SEL): Business Overview Incorporated in 1988.257. ICRA estimates. eight are toll-based BOT projects.873 1. SEL is a construction and infrastructure company with focus on roads and irrigation projects.0 480. The 20 road projects completed correspond to around 3. Execution of road projects remained healthy during Q3.0 489.669 2. while one is based on the annuity model (Nagpur Seoni Expressway). irrigation.797.420. it had successfully completed 20 road & highway projects.2 1.3%).4 1.8 277.1 500.854.213. and 5 mining projects. crore ICRA LIMITED PAGE 17 . Till March 2011.1 7.1 5. The annuity project is partly complete as of date. and mining segments.4 1. 21 irrigation projects. Table: BOT Road Projects of SEL Project Operational Mumbai Nashik Expressway Ahmedabad Ring Road Aurangabad Jalna Tollway Nagpur Seoni Expressway Total Operational Under Development Maharashtra Border Check Post Dhule Palesner Tollway Hyderabad Yadgiri Tollway Rohtak Panipat Tollway Bijapur Hungund Tollway Total under development Grand Total 90% 27% 60% 100% 77% 422 392 143 323 389 1.6 Toll Toll Toll Annuity Performance Update Order Book and Execution: SEL’s order book is spread across the road (66.7 Fees Toll Toll Toll Toll 20% 80% 51% 51% 398 304 276 226 1. SEL’s stake Lane km Project Cost Type Source: Company data. FY2012 with many projects running ahead f schedule. Revenues from Operational BOT Projects: SEL has nine BOT road projects.

INDIAN ROAD SECTOR Annexure ICRA LIMITED PAGE 18 .

and the North-South East-West (NS-EW) corridor. major district roads. which involves development of 7. Substantial progress has been achieved under NHDP with the four-laning of about 31% of the stretch already complete and another 24% under implementation. of more than 8% over the last five years). or CAGR. while about 54% is double lane. which together account for about 13% of the total road length. ICRA research NHDP: The National Highways Authority of India (NHAI). Given the scenario. and Silchar (Assam) to Porbandar (Gujarat). about 27% of the national highway stretch is single/intermediate lane.134 km 131. Category of Roads in India Category National Highways/Expressways State Highways Major District Roads Rural and other Roads Source: NHAI. ICRA research ICRA LIMITED PAGE 19 . maintenance and management of the national highways. The programme involves upgrade/strengthening of about 54.INDIAN ROAD SECTOR Background The Indian road network consisting of national highways. State highways and major district roads.000 crore (around US$60 billion). the most prominent of which is the National Highway Development Project (NHDP) launched in 1999. Other Development Programmes: Many States are also planning to upgrade their State highways.3 million km.800 km of State highway have been approved for development under the PPP mode.000 km of highways in several phases at a planned investment of Rs. NHDP includes four-laning of the Golden Quadrilateral (GQ) with a total length of 5. Around 77 projects with 7. is implementing the NHDP. State highways. four-laning of GQ is almost complete. the Indian Government has taken many initiatives to improve the country’s road infrastructure.899 km 467. ICRA research Length 71. which comprise about 2% of the total road length. carry another 40% of the total road traffic. Status of NHDP Source: NHAI. National highways/expressways. which is the nodal agency for development.763 km 2.650. The capacity of the highways is increasingly becoming a constraint. carry about 40% of the total road traffic.300 km of expressways connecting Srinagar (Kashmir) to Kanyakumari (Tamil Nadu).000 km Status of National and State Highways Under Upgrade National Highways State Highways Planned to be upgraded 20000 15000 33000 40000 Length in km Major road development programmes Source: MORTH. given the rapid growth in the number of vehicles (compounded annual growth rate. The network carries 65% of the country’s freight and 80% of its passenger traffic. On their part. a major part of which is envisaged to come from the private sector. and urban and rural roads is one of the largest in the world with a cumulative stretch of about 3. Further. development of rural roads is being undertaken through the Pradhan Mantri Gram Sadak Yojna (PMGSY).846 km. Currently. 300.

and smaller project size in the sector. Source: ICRA research Break-up of Projects Awarded by NHAI (Length in km) ICRA LIMITED PAGE 20 . BOT (Toll) Developer builds and maintains the road. ICRA research Typical Highway Development Models Model Description EPC Government funds the entire project cost. Over the last five years. many players both in the organised and unorganised sectors have been engaged in this business. Developer gets toll from users during concession period.INDIAN ROAD SECTOR Industry Structure and Role of Private Sector Road development in India is undertaken by the Central and State Governments and implemented through agencies like NHAI. Source: NHAI. with the policy framework being reworked and major development initiatives like NHDP being undertaken. Historically. Due to relatively low capital requirement in the construction business. BOT Developer builds and maintains the road. construction and maintenance of Government funded roads has been executed by private contractors on EPC or item rate contract basis. long gestation period. However. Border Roads Organisation (BRO). Government initiatives have so far been successful in attracting foreign investment into the sector. Traditionally. Contract Contractor builds roads for Govt. development and maintenance of road infrastructure has been funded by the Government. which has reduced the funding pressure on the Government and increased the pace of development as well. SPV collects user fees and repays the loans. The enormous investment requirement of NHDP necessitates private sector participation for successful completion. After the concession period the road is to be transferred back to the Government. The maintenance of the road during the concession period is the responsibility of the private developer. The road sector has witnessed significant changes over the last decade. State public works departments (PWDs) and municipal corporations. SPV Government sets up SPV. thereby opening up opportunities for greater private sector participation. NHAI has been increasingly awarding projects on the BOT—toll model. Private sector interest in funding road projects has been lacking historically because of the large investment requirement. Projects that are not commercially viable on the BOT—toll model are considered for other alternatives like viability gap funding (which involves providing an upfront grant to the developer). the private sector has played an important role in the road sector by taking up construction. SPV raises loans to finance the project. many large construction players have stayed away from road construction because of the relatively low margins involved. resulting in high competitive intensity. (Annuity) Developer gets fixed annuity payments from Government during concession period. Private sector funding of road projects usually takes the BOT route in which the private developer invests in the road development project and earns returns in the form of annuity or user fees (toll) over the concession period (which can range up to 30 years). and BOT—annuity model (fixed annuity payments thereby eliminating traffic risk). invests a part of project cost as equity. and uncertainty of returns. However.

Major Clearances Clearances Pollution Clearance Environmental Clearance Forest Clearance Rehabilitation. Volatility in traffic can be relatively higher in cases where there is concentration of traffic related to any particular industry. ICRA research Authority Central Pollution Control Board Ministry of Environment & Forests Ministry of Environment & Forests MoRTH. Resettlement of Displaced Families Source: MORTH. Further. sewer lines. Environment and forest clearances Clearances for rail over-bridges (ROBs) and rail under-bridges (RUBs) Shifting of Utilities like electrical lines. Some of the factors that can cause project delay include: Land acquisition: The acquisition of land or right of way (RoW) remains the major drag in the implementation of road projects. and coordination takes time.INDIAN ROAD SECTOR Key Risks Associated with BOT Projects Funding Risk: The responsibility of arranging funding for the project lies with the developer. thereby impacting the liquidity of the project SPV and returns from the project. and telecommunication lines calls for the assistance of the utility owning agencies concerned. Traffic could be impacted by factors such as economic growth in the region. the capacity of the construction industry could also become a constraining factor. the equity investment made by the developer towards the project gets blocked for a long period of time. and leakage of traffic. State Government. water pipelines. Implementation Risk: Delay in project implementation results in loss of revenues and cost-overruns. Law and order problems Equipment/manpower constraints: Given the large number of projects awarded recently and planned to be awarded. existence/ development of alternative routes. Traffic Risk: BOT projects are highly sensitive to traffic growth and any swing in traffic can have a significant impact on the project’s return indicators and debt servicing capability. NHAI ICRA LIMITED PAGE 21 .

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