construction sector update_141013

7/21/2019 Construction Sector Update_141013

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Your success is our success

Emkay

Sec

torUpdate

Emka Global Financial Services Ltd. 1

Construction

Strengthening the Weak Links

October 14, 2013

Nitin Arora

[email protected]

+91-22-66242491

Ajit Motwani

[email protected]

+91-22-66121255

Premium restructuring another bid to clear clog, may not be enough to

improve project viability

The Cabinet Committee on Economic Affairs (CCEA) has given the principal approval for

restructuring premium payments for certain projects with the aim to improve projectviability and ease cashflows of already strained developer balance sheets. The deferred

premium payments would help concessionaires to use cashflows from the initial few

years for equity commitments for the project. However, it may not be sufficient to improve

viability of projects due to aggressive bids. In our view, the cancellation and re-bidding of

projects would be a prudent option [recently the National Highway Authority of India

(NHAI) cancelled four BOT projects, which are set to come up for re-bidding] against

premium restructuring, which is likely to face challenges.

Re-bidding of stalled contracts likely to push awarding activity upwards in

2HFY14E; NHAI targets 4000km

In the last 6 months, the NHAI has made attempts to resolve issues pertaining to the

sector by: a) de-linking forest and environmental clearances for linear projects, b)directing banks to lower land acquisition requirements for disbursal of loans, c) classifying

debts for BOT projects as secured loans, d) CCEAs exit offer for road developers

irrespective of the construction stage, and e) restructuring of projects via rescheduling of

premium. As a result, the NHAI is now aims to award more than 50% of the total target of

4000km in FY14E on an EPC basis. Given the prevailing financial and structural

challenges in the sector, we see scope of new orders to emerge from potential re-bidding

of stalled contracts and EPC projects (will not garner interest of large developers due to

the small project size). However, the window for resolving the major reform premium

restructuring is very short given the upcoming elections in 2014. In case the standoff

continues it is unlikely that NHAI will be able to bid out a sizeable number of BOT projects

this year/H1FY15.

Substitution of concessionaire not to address financial unviable projects

The government/NHAI-approved substitution of developers (to replace SPV in

consultation with lenders) allowed the latter to sell projects irrespective of the stage of

construction. The substitution policy entails the SPV to hold a 51% stake in the project

post the sale. We believe the policy will not make any significant impact to help revive the

sector sentiment, as it would not largely benefit financially unviable projects, as: a)

developers opting for substitution of stalled contracts, where delays occurred due to the

concessionaire default, the new SPV becomes liable to pay a penalty on delayed

completion, and b) only eight projects of the 47 projects tendered in FY12 have

commenced construction till June 2013. This implies that the majority of the projects were

not given the appointed date, since exit policy would be applicable for projects that have

achieved the appointed date. Also, the ambiguities related to whether tax benefits would

pass on to the new SPV would involve additional costs (stamp duty that itself is 2.5% ofthe transaction value).

Authority aims to clear the clog: Maintain Buy on IRB, Ashoka Buildcon

In the last 2 years, the road sector did not witness any awarding or construction activity.

A large part of the construction work did not keep up with execution run rates, which led

to project delays, mainly due to EC FC clearances and the limited ability of prospective

bidders to mobilize additional equity and competitive bidding, making the project

cashflows unviable to support premium payments. Heightened risk perception about BOT

projects causes financial institutions to be reluctant to take additional exposure in

highway BOT projects.

In this scenario, we maintain a Buy rating on IRB infrastructure and Ashoka Buildcon

because of their strong road-asset portfolio and stable order-books. With a minimalfunding requirement, these companies remain well-funded for exploiting new

opportunities as and when the NHAI awarding activity picks up. We retain a hold rating on

ITNL, given its high parent leverage, along with decelerating high margin fee income

could mean rising interest cost pressures, thereby causing deterioration in profitability.


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Construction Sector Update

Emkay Research October 14, 2013 2

CCEA in-principle approval for rescheduling of premiums

With regard to Kishangarh-Udaipur-Ahmedabad, Cuttuck-Angul, and Shivpuri-Dewas

projects, which have asked for rescheduling of the premium on account of delays in

acquiring land and variations in traffic seen from the time of bidding (which would make the

projects financially unviable), CCEA has approved rescheduling of premiums for 23 road

projects wherein appointed dates were not given . The underlying principle of this

rescheduling process is to maintain the NPV of these premium payments while allowingsome relief in the initial years to compensate for delays in clearances and traffic slowdown.

CCEA stated that NHAI would now consider each project on a case-to-case basis to

determine its eligibility for the rescheduling of restructuring. However, details are still

awaited regarding broad principles agreed on rescheduling like the discounting rate (10-

12%), besides conditions such as bank guarantee and upfront penalty. Developers of

another 16 road projects have also approached the NHAI for restructuring of premiums, but

the roads ministry is not yet to consider their proposals

Exhibit 1: Projects considered for premium restructuring

Projects Concessionaire Length Km Project cost Rsmn Premium Quoted Rsmn Bid date

Rampur- Kathgodam ERA-Sibmost 93 8,500 340 23-Nov-11

Lucknow - Sultanpur Essar-Atlanta 123 10,790 96 13-Sep-11Agra - Etawa by pass Ramky Infrastructure 125 13,460 1,281 24-Nov-11

Hospet-Chitradurga NH-13 Ramky Infrastructure 120 10,450 630 18-Nov-11

Cuttack-Angul NH-42 Ashoka Buildcon 112 11,240 611 18-Nov-11

Solapur - MH/KNT border NH-9 Coastal-SREI 100 9,230 280 12-Dec-11

Shivpuri-Dewas GVK 332 28,150 1,809 1-Aug-11

Raipur - Bilaspur IVRCL A&H 126 12,160 455 18-Nov-11

Vijaywada - Gundugolanu Gammon Infrastructure 104 17,430 576 24-Jan-12

Obdedullganj-Betul Transstroy 123 9,120 330 17-Jan-12

Solapur - Bijapur Sadbhav 111 10,025 756 26-Mar-12

Aurangabad-Barwa Adda KMC 222 24,190 1,350 30-Mar-12

Rajumundary - Gundugulanu IVRCl A&H 121 17,510 721 30-Mar-12

Jalgaon - Gujarat/MH Border L&T 209 19,730 1,451 30-Mar-12

Amravati - Jalgaon L&T 275 25,259 1,310 30-Mar-12

Jind-Punjab/Haryana Border Unity Infra 69 4,388 102 30-Mar-12

Kota - Jhalwar Keti Constructions 88 5,300 35 15-Apr-11

Sangareddy to MH-KNT Border NH-9 L&T 145 12,660 800 30-Sep-11

Hospet-Bellary NH-63 PNC 95 9,101 180 29-Jul-11

Kishangarh-Udaipur-Ahmedabad GMR Infrastructure 555 53,870 6,360 29-Jul-11

Anandpuram - Vishakhapatnam - Ankapalli Transstroy 58 8,630 820 30-Mar-12

Coimbatore Mettupalayam Transstroy-OJSC 53 5,920

Barwa Adda Panagarh IL&FS Transportation 123 1,665 420 10-Apr-13

Total 328777 20712

Source:

Premium Restructuring: Attempt to resolve developers/project cashflow

issues for the short term

The government has made attempts to kick-start the projects worth over Rs300bn, which

also remains essential in terms of creating appetite for contracts lined up for the next round

of bidding. However, it remains to be seen whether the relief offered to developers under

this proposal would be sufficient and acceptable to developers. The underlying statement

of the NHAI that restructuring would be looked into on a case to case basis implies its

ambiguous applicability across all projects is likely to engender litigation issues. Our view

on this development is as follows:

Loans provided by the NHAI, which will not reflect in developers books; however, itwould provide interim relief to concessionaire, as deferred premium payments would

help concessionaires to use cashflows from the initial few years for equity

commitments for the project, ultimately to improve project viability and ease cashflowsof already strained developer balance sheets. At the same time, the government also

wants to ensure adequate financial commitment from developers so as to ensure

timely completion of projects.


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As the NHAI would be considering rescheduling on a case to case basis, small-premium projects and premium projects, which have commenced work, are likely to

remain out of the mechanism. There is a risk that some of these developers may

litigate if they, too, are not given this premium restructuring option, causing further

delays.

The window for resolving this standoff is very short, given the upcoming elections inearly 2014. In case the standoff continues, it is unlikely that the NHAI would be able tobid out a sizeable number of BOT projects in 2HFY14E/1HFY15E.

The prudent strategy, we believe, is to kick-start the projects that have been weigheddown due to financial closure and aggressive biddings, and re-invite them for re-

bidding, which would attract serious developers and discover a new premium or a grant

base.

In our view, the major persistent issue with regard to projects involves financial

restructuring, since other structural problems related to land acquisition, re-bidding for

those projects that have not achieved financial closure (though the intensity can be lower),

and asking financial Institutions to take additional exposure in highway BOT projects,

especially in those cases where the NHAI satisfies all precedent conditions, can still be

resolved.

Premium restructuring not enough, re-bid of projects the prudent option

The projects are broadly categorized into four segments: a) projects wherein developers

are prepared to make progress based on the original bidding parameters as long as the

NHAI fulfills its obligations, b) projects that need to be terminated with a penalty in cases

where the concessionaire has defaulted, c) projects that would be terminated and re-bid

but without a penalty in cases where the concessionaire has defaulted and the NHAI has

failed to meet its obligations, and d) projects wherein concessionaires may be willing to

make progress with some changes to bidding conditions (such as premium restructuring).

As per NHAI estimates, 28 projects (3042.60km) were awarded, but they have not

achieved financial closure, whose grace period of 120 days (over and above the 180 days

required to achieve financial closure) end in October 2013. Recently, the NHAI scrapped

four road projects without penalising the developer as wildlife clearance was still pending.

Kota-Jhalawar road project (80km, a 4-laning project won by Keti Construction) Meerut Bulandshahr (60km, a 4-laning project won by C&C Construction) Rampur-Kathgodam (93km, a 4-laning project won Era Infrastructure) Agra-Etawah (125km, a 6-laning project, won by Ramky Infrastructure)We have noticed that developers are weighed down by economically unviable road projects

as a result of aggressive biddings and due to a lack incentives to help them keep the

projects in their kitty (in some cases the performance guarantee was not submitted which

forms 1% of the project cost). We have highlighted a list of 21 stalled projects (Exhibit 10)

on account of land acquisition issues (delay caused due to EC/FC clearances ), with

majority of them considered for premium for restructuring, part of which is likely to come upfor re-bidding . We believe the solution to kick-start these projects that are weighed down

due to financial closure is to re-invite them for re-bidding, which would attract serious

developers and discover a new premium or a grant base.


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Exhibit 2: Projects delayed due to land acquisition

Road projects stuck due to land Acquisition Contractor (km) Cost (bn) Lane

1. Vijayawada-Eluru-Gundu Golanu VG Road project 103.6 16.8 6

2. Rajahmundry-Gundu Golanu IVRCL 121.0 16.2 6

3. Anandapuram-Vskp-Anakapalli TRanstroytollway 59.0 8.6 6

4. Raipur-Bilaspur IVRCLAssets 126.5 12.2 4

5. Jind-Punjab/Haryana border UnityInfra 69.4 4.4 4

6. Aurangabad-Barwa Adda KMCConstruction 220.0 24.2 6

7. Hospet-Bellary PNCBetul 95.4 9.1 4

8. Sangareddyto Maha border L&T DPL 145.0 12.7

9. Hospet-Chitradurga RamkeyInfra 120.0 10.3

10. Shivpuri-Dewas GVK 332.5 28.2 4

11. Obedullaganj-Betul TRanstroyOJSC 121.0 9.1 4

12. Solapur-Karnataka border Coartal Srei 100.0 9.2 4

13. Solapur-Bijapur SadhbhavEngineering 110.0 9.9 4

14. Jalgaon-Gujaratborder L&T Infra 208.0 19.7 4

15. Amravati-Jalgaon L&T Infra 275.0 25.4 4

16. Agra-Etawah RamalkyInfra 124.5 12.1 617. Cuttack-Angul Ashoka Buildcon 112.0 11.2 4

18. Kota-Jhalawar Keti Construction 88.1 5.3 4

19. Kishangarh-Ahmedabad GMR Infra 555.5 53.9 6

20. Lucknow-Sultanpur Essar Atlanta 125.9 10.4 4

21. Rampur-Kathgodam ERA-Sibmost 93.2 7.9 4

Source: Emkay Research, NHAI


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Awarding activity to inch upwards in 2HFY14E; NHAI targets 4000km

In FY13, project award activity fell sharply and was at its lowest levels since FY05, with the

exception of FY09. Both BOT (build-operate-transfer) and EPC (engineering, procurement

and construction) project awards by the NHAI declined to 1128km in FY13 from 6380km in

FY12. We have seen a surge in ordering activity in BOT mode between FY09 and FY12,

while the contribution of projects awarded in EPC mode was negligible. However, in FY13,

we noticed the tapering off awarding activity, with 14 BOT projects worth Rs150bn/1822 kmfailing to attract any bids. This led to awarding of only 1128kms of BOT projects as against

the original target of 8800km. As a result, the NHAI is now aims to award more than 50% of

the total target of 4000km in FY14E on an EPC basis. Till date, the NHAI has awarded

(YTD FY14E) 356km and 123km in EPC and BOT modes, respectively. Given the

prevailing financial and structural challenges in the sector, we see scope of new orders to

emerge through the EPC route and potential re-bidding of stalled contracts.

Exhibit 3: Ordering activity remains sedate

1608 1390 1145 643

33605058

6380

1116 4790

1000

2000

30004000

5000

6000

7000

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

(Sep2013)

Length awarded (Km)

Source: Emkay Research , NHAI

Exhibit 4: Construction work per km

753 635

16822205

2693

17842249

2848

6370

500

1000

1500

2000

2500

3000

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

(Sep2013)

Length completed (Km)

Source: Emkay Research , NHAI

Exhibit 5: Awarding activity in BOT and EPC

1608 1390 1145643

3360

50586380

1116

123

3055

345 89 356

0

1000

2000

3000

4000

5000

60007000

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

(Sep2013)

Length aw arded (Km) BOT Length aw arded (Km) EPC


Exhibit 6: Balance of work to be awarded

NHDP component

Total

Length (km)

Completed

4/6 lane(km)

Under

Length (km)

Implementation

No. of projects

Balance for award of

civil works (km)

NHDP Phase-I 7522 7514 8 10 -

NHDP Phase-II 6647 5647 610 52 385

NHDP Phase-III 12109 5611 4813 89 1685

NHDP Phase-IV 20000^ 285 4130 33 10384

NHDP Phase-V 6500 1584 2496 28 2420

NHDP Phase-VI 1000 - - - 1000

NHDP Phase-VII 700* 21 20 2 659

Misc. Projects 656 363 293 9 -

NH-34 5.5 5.5 1

SARDP-NE 388 69 43 2 276

Total 55528 21094 12419 226 16808

Source: Company, Emkay Research


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Exhibit 7: BOT Projects to be tendered

Road Stretch State (kms) Cost (Rs.mn) Status

Barwa Adda-Panagarh West Bengal 122.9 16,650 Work Awarded to ITNL

Jabalpur-Lakhanadone Madhya Pradesh 80.8 7,770 Bids invited

Bhavnagar-Verawal (4 lane) Gujarat 260.0 32,400 Bids invited

Yadgiri-Warangal (4 lane) Andhra Pradesh 99.0 9,570 NA

Hospet-Hubli (4 lane) Karnataka 143.3 12,930 Bids to be re-invited

Numaligarh-Jorhat (4 lane) Assam 51.2 5,850 No bids received, project to be restructured

Ghoshpukur-Salsabari (4 lane) West Bengal 154.9 22,120 Bids to be invited

Karaikudi-Ramanathapuram (2 lane) Tamil Nadu 80.0 3,360 Bids to be re-invited

Demoh-Dibrugarh (4 lane) Assam 46.0 4,730 No bids received, project to be restructured

Jorhat-Demoh (4 lane) Assam 81.8 8,750 No bids received, project to be restructured

Chas-Ramgarh (2/4 lane) Jharkhand 78.3 2,980

Aurangabad-Vedishi (4 lane) Maharashtra 189.1 18,710

Chandikhole-Dubari-Bhuban (4 lane) Odisha 62.2 6,520 Bids invited

Parwanoo-Shimla (4 lane) Himachal Pradesh 89.6 22,930

Chhutmalpur-Saharapur-Yamunagarh-Haryana/UP border Uttarakhand/ UP 104.8 10,240

EPS (6 lane) Haryana/ UP 135.0 NASolapur-Vedishi (4 lane) Maharashtra 98.7 9,700

Hissar-Dabwali (4 lane) Haryana 145.8 13,320 PPPAC proposal circulated

Total 2,023.30 208,530


Substitution/exit policy to bring back momentum?

In order to clear the clog in the sector, the government has made provisions to allow

developers to sell projects (replace the SPV in consultation with lenders) irrespective of the

stage of construction. The substitution policy entails the SPV to hold a 51% stake in the

project post the sale. However, according to the NHAI, there are no restrictions on second

sale. The decision would be applicable to following projects:

The on-going 2- and 4-laning NHAI projects, where financial closures have beenachieved by the concessionaire, but COD has not yet been declared by the authority.

The 6-laning NHAI projects, where financial closures have been achieved by theconcessionaire, but a project completion certificate has not yet been declared by the

authority.

Completed 2-, 4- and 6-laning NHAI projects awarded in BOT mode. All new NHAI projects under PPP yet to be bid out in BOT mode in line with case a, b,

and c as the case may be.

The provision substitution has always been in-built in the model concession

agreement:

Concession agreement for 2000: 51% during the construction period for 3 yearsfollowing COD and to hold 26% for the remaining concession period.

Concession agreement post-November 2009 (B. K. Chaturvedi Committee): 51%during the construction period till COD, and for a period up to 3 years, the bidder can

reduce the shareholding to 33%. Thereafter, the shareholding can be brought down to

26% for the remaining concession period.

The current concession agreement provides a 51% stake during the constructionperiod for 2 years following COD.

However, the current concession agreement contains provision for substitution of the

existing concessionaire to lenders, and such a substitution could have been involved in

case of: (a) financial default (delays of 3 months in servicing debt), (b) concessionaire

default (lender gets 270 days to substitute concessionaire), and (c) other cases of breachof provisions of MCA.


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Substitution/exit policy to help financially viable projects

Arguably, the move would benefit only financially viable projects (presumably, the projects

will not have too many problems), the exit option may not garner interest for projects which

have been bid aggressively (buyers focus only on value generating projects, and it lacks

incentives to share upfront losses). But the real problem lies with economically unviable

projects. However, we do not rule out possibilities, where weaker developers could use this

exit option to sell their stakes in projects (both completed and under-construction can besold) and use the resulting equity in other projects or on fresh bids without being blacklisted

for not complying with concession agreement commitments. Besides, such provision can

also help lenders to exercise greater control over projects funded by them (creates

flexibility to substitute concessionaires, particularly the non-performing ones).

Exit policy for projects achieved appointed date

It is to be noted that the substitution of the SPV would be applicable for projects that have

achieved the appointed date (all clearances related to EC and FC and other pre-conditions

of the NHAI). However, we have observed that of the total 47 projects tendered in FY12,

only eight projects have commenced construction till June 2013. This implies that the

majority of the projects were not given the appointed date. This move, we believe, would

not benefit these projects. It also presents ambiguity about whether the tax holiday that thefirst SPV is eligible for would be passed on to the new SPV, the additional cost of new

stamp duty for forming a new SPV, which is usually 2.5% of the value of the transaction,

and the imposition of penalty for exiting the projects.

83% of projects awarded in FY12 yet to commence construction

The NHAI awarded 15,894km of road projects over FY10-13, both in BOT and EPC mode,

with 98% of the projects on a BOT basis. However, the strong tendering activity did not

corroborate the real progress on the execution front. We have observed that of the total 47

projects tendered during FY12, only eight projects commenced construction activity till

June 2013, increasing the average time to begin construction after a BOT project is

awarded to 18 months (the difference between the LOA date and till date). This is likely to

increase even further if the current clog is not cleared soon. Among the 11 projects

tendered in FY13, only one has started construction, which implies that the average time to

commence construction is 10-12 months, as 80% of the projects were tendered in 1HFY13.

This is expected to increase in the future. The NHAI targets to undertake 2500km of

construction activity in FY14E (the target was 2580km in FY13), with 637km of road

construction already completed till July 2013.


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Exhibit 8: Out 47 projects tendered during FY12, only eight projects commenced construction till date

Projects Bidder Award date Km Type Construction Start date

Nagpur-Wainganga bridge JMC projects, Artefact projects May-11 45 BOT Apr-12

Panikholi-Rimoli Gayatri projects Aug-11 163 BOT May-13

2 laning of Kisnagiri-Tindivanam Transitory-OJSC corporation May-11 176 Annuity Apr-12

Vijaywada-Machhlioatnam Madhucon projects Nov-11 64 BOT

Kota -Jhalwar Keti construction Apr-11 88 BOT

Rampur-Kathgodam Era infra-OJSC-SIBMOST Nov-11 93 BOT

MH/KNT Border Sangareddy L&T IDPL Nov-11 145 BOT

Hospet Chitradurga Ramkey infra Nov-11 120 BOT

4-laning Solapur-Bijapur Sadbhav eng Mar-12 110 BOT

4-laning of Cuttcuk-Aangul Ashoka Buildcon Nov-11 12 BOT

4-laning of UP Harayana border-Yamunagar-Saha-Barwala Gammon Infra Mar-12 107 BOT

4-laining of Solapur-Maharashtra/KTK section Coastal-srie Consortium Dec-11 100 BOT

4-laning of Rohtak-Jind Vijai infra Dec-11 48 BOT

4-laining of Mulbagal-Karnatka/AP Border JSR Construction Mar-12 22 BOT

4-laining of Kiratpur ner chowk IL&FS transportation Feb-12 84 BOT

Beawer-Pali-indwara L&T IDPL May-11 244 BOT Dec-112-laining with PS Motihari-Raxaul Tantia-Jiangsu Jan-11 69 BOT Oct-11

4-laning of Punjab-Harayana border-Jind Unity Infra Mar-12 68 BOT

2-laning of Jowai-Meghalaya/Assam border Simplex infra Mar-12 102 BOT

Patna Buxar Gammon infra Nov-11 124 BOT

4- laning of Obedullnganj-Betul Transitory Feb-12 125 BOT

4-laning of Khagaria-Bakhtiarpur Navayuga Engineering Mar-12 112

4-laning of Hoskote-Dobbaspet Transitory-OJSC Consortium Mar-12 80 BOT

4-laining of Jalgaon-Maharashtra/Gujarat L&T IDPL Mar-12 208 BOT

4-laining of Amravati-Jalgoan L&T IDPL Mar-12 275 BOT

Jabalpur to Lakhanadone Gannon Dunkerley Jul-11 80 BOT

4-laning of Gwalior-Shivpuri Essel infraprojects Sep-11 125 BOT

4-laning of Shivpuri-Dewas GVK Transportation Sep-11 330 BOT

4-laning of Raipur-Bilaspur IVRCL Asset holding Nov-11 126 BOT

Rehabitation & upgradation to Birmitrapur to barkote Gammon infrastructure Mar-12 125 BOT

4-laning to Hospet-Bellary-Karnataka/AP PNC Infratech-BF utility Oct-11 95 BOT

4-laning of Mahulia to Behgora to Kharagpur Simplex infrastructure Dec-11 127 BOT

4-laning of Gomti-Chauraha-udaipur Sadbhav Engg, Arvee Mar-12 79.3 BOT

4-laning of Meerut-Bulandshahar C&C construction Sep-11 66 BOT

4-laning of Lucknow-Sultanpur Essar-Atlanta(JV) Oct-11 125 BOT

2-laning of Muzaffarpur-Barauni KNR, frischmann prabhu Oct-11 107 BOT Jul-12

Lucknow-Raibareli Essel infratructure Nov-11 70 Annuity

4-laning of Angul, Sambalpur Abhijit Roads Nov-11 153 BOT

4-laining of Jabalpur-Katni-Rewa Soma Tollways Aug-11 225 BOT6-laning of Gundugolanu-Rajamundry IVRCL asset & holding Mar-12 120 BOT

6-laning of Anandapuram-visakapatnam-Anakapalli Transtroy-OJSC corporation Mar-12 58 BOT

Ahmedabad to Vadodra IRB infrastructure Apr-11 102 BOT Jan-13

6-lanining of Aurangabad-Barwa Adda KMC construction Mar-12 221 BOT

Vijaywada-Gundugolanu Gammon Infra Feb-12 103 BOT

Eatawah-Chakeri (Kanpur) Oriental structural Nov-11 160 BOT Mar-13

Agra-Etawah Bypass Ramky Infra Nov-11 124 BOT

6-laning of Kishangarh-Udaipur-Ahmedabad GMR Infra Sep-11 555 BOT



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EPC to propel momentum?

As awarding activity has stagnated in FY13 and 1HFY14E for various reasons discussed

above, the NHAI is trying to make progress to get the order momentum back on track via

awarding EPC projects. Till date, the NHAI has awarded six projects of 356km via the EPC

route. It is targeting to tender awards of 2000km in 2HFY14E.

Features of EPC Model concession agreement:The agreement is stringent with regard to technical criteria, where EPC contracts have set

minimum criteria of 2.5x the estimated project cost for projects and construction business

(both highways and other core sectors combined) carried out by the bidder over the past 5

financial years. This compares with the BOT contract requirement of 1x the project costs

worth of project business (highways and other core sectors) accumulated over the past 5

years.

Leeway provided on financial net worth. The concession agreement currently providesleeway in terms of minimum net-worth threshold, which is at 10% of the project cost as

against 25% of the project cost for BOT contracts.

DLP (defect liability period) of 2 years on completion of the project highway andadditional DLP for major bridges and structures of 3 years (total 5 years).

Defined maintenance period of 2 years after the completion of work; 1.5% and 2% ofthe contract price to be paid to the contractor in the first and second year, respectively.

Incentive for the contractor for early completion in the form of a bonus. Damages up to 1% of the project cost would be paid by the authority on account of any

delay from their side.

The contractor cannot sub-contract any work in more than 70% of the total projectlength.

The EPC contractallows for a JV of maximum three players, with the lead memberresponsible for satisfying 60%of technical and financial requirements (others have tosatisfy 30% of requirements). This is in addition to the weighted score exceeding the

technical and financial requirements.

Large players may deter to participate in EPC projects

Our discussions with the NHAI and road companies reveal aggressive biddings across

EPC projects in the past, since the EPC qualification document, as per our understanding,

encourages participation with no cap on the number of bidders (it is leant that some bidders

have quoted at a 30% discount to the NHAI benchmark cost) in small-size projects of

Rs3bn (20 bidders) and project size of Rs3-5bn (10 bidders). We consider this aggressive

bidding in EPC projects as generation of negative value for bidders, as: a) scalability of

margins is capped in EPC, b) project value is at risk due to delays in land acquisition (this

would increase overheads), and c) if any change in scope of work, which ultimately would

put project completion at risk.We also believe that small project size of Rs3-4bn (Rs30-

40mn/km) may dissuade large players such IRB Infrastructure and ITNL.


10/32



Exhibit 9: Projects to tendered on EPC basis

Road Stretch State (kms) Cost (Rs.mn) Status

Bheem-Parsoli including Bheem & Parsoli Bypass Rajasthan 33.0 1,000 Awarded

Parsoli-Gulabpura Rajasthan 36.3 1,140 Awarded

Jhalawar-Rajasthan/ Madhya Pradesh Border Rajasthan 62.2 1,770 Awarded

Merta City-Lambia-Jaitaran-Raipur Rajasthan 52.8 1,580 Awarded

Raipur-Bheem (Jassa Khera) Rajasthan 32.4 1,490 Awarded

Ambedkarnagar-Raebareilly (2 lane) Uttar Pradesh 155.9 4,960 Bids invited

Raebareilly-Banda (2 lane) Uttar Pradesh 133.3 3,510 Bids invited

Ladnu Nimbi Jodhan-Degna-Merta City (2 lane) Rajasthan 139.0 3,680 Bids invited

Bhilwara-Ladpura (2 lane) Rajasthan 67.8 2,370 Bids invited

Padhi-Dahod (2 lane) Rajasthan 85.6 2,790 Proposal given

Unaira-Gulabpura (2 lane) Rajasthan 214.0 5,710 RFP stage

Sitarganj-Tanakpur (2 lane) Uttarakhand 52.2 2,200 -

Karauli-Dholpur (2 lane) Rajasthan 100.9 2,890 -

Biharsharif-Barbigha-Mokama (2 lane) Bihar 56.3 1,940 -

Chhapra-Rewaghat-Muzzaffarpur (2 lane) Bihar 75.0 3,050 -

Patna-Gaya-Dhobi (4 lane) Bihar 127.2 10,270 -Jalandhar-Amritsar (6 lane) Punjab 20.0 4,930 -

Thanjavur-Pudukkotai (2 lane) Tamil Nadu 55.2 1,700 -

Tirumayam-Mannamadurai (2 lane) Tamil Nadu 77.7 2,520 -

Bareilly-Sitarganj (2 lane) UP 74.5 2,970 -

Uncha Nagar-Khanuawa-Roppas-Dholpur (4 lane) Rajasthan 75.0 - -

Bar-Bilara-Jodhupur (2 lane) Rajasthan 125.0 - -

Barmer-Sanchor-Gujarat Border (2 lane) Rajasthan 154.0 - -

Total 2,005.10 62,470

Source: NHAI


11/32



To reduce competitive intensity further among new BOT projects

With the competitive intensity edging lower in FY13 across 11 projects, developers stayed

away for putting final bids across projects barring one project, where erratic bidding was

witnessed in the Walajahpet-Poonamallee road project, with 19 financial bids being placed.

We analysed 38 projects accounting for around 50% of the total length awarded by the

NHAI since FY11. In FY13, the final participation (final bids submitted as percentage of pre-

qualified bidders) has fallen sharply, barring four projects, which witnessed double-digitparticipation. The average participation from pre-qualified players in the final bidding for the

projects awarded between FY11-12 has declined from 36% to 13% for the projects

awarded in FY13. We also see an increase in the awarding activity of EPC road projects

will garner interest for core construction players, thereby further reducing competitive

intensity in the BOT space. Given that 2000km is ready to get awarded via the BOT route,

we believe, developers who have the financial muscle will benefit the most in the next

round of bidding.

Exhibit 10: Competitive intensity amongst developers

Date Name of Project Winners

Cost

(Rs

bn)

Length

(km)

Final

bidders

Players

pre-

qualified

% Final

bids

participationApr-11 Ahmedabad Vadodara IRB Infrastructure 49.2 195 13 22 59%

Apr-11 Beawar-Pali-Pindwara L&T 23.9 244 16 19 84%

May-11 Barwa Panagarh DSC 16.7 123 9 20 45%

Jul-11 Kishangarh--Ahmedabad GMR Infra 53.9 556 7 11 64%

Sep-11 Gwalior Shivpuri Essel Infraprojects 10.6 125 15 28 54%

Sep-11 Shivpuri Dewas GVK 28.2 330 14 19 74%

Oct-11 Lucknow Sultanpur Essar - Atlanta 10.4 126 12 34 35%

Nov-11 Cuttak Angul Ashoka Buildcon 11.2 112 16 27 59%

Nov-11 Etawah and Chakeri (Kanpur) Oriental Structural 14.9 160 9 35 26%

Nov-11 Hospet Chitradurga Ramky Infra 10.5 120 14 37 38%

Nov-11 Mah/KNT- Sangareddy L&T 12.7 145 19 37 51%

Nov-11 Patna - Buxar Gammon Infra 8.1 105 1 36 3%

Nov-11 Raipur Bilaspur IVRCL 12.2 127 17 33 52%

Dec-11 Bikaner - Suratgarh MBL Infra 5.1 172 6 33 18%

Dec-11 Chittorgarh Neemachah Chetak Enterprises Ltd. 5.1 117 9 36 25%

Jan-12 Kiratpur - Ner chowk IL&FS Transportation 18.2 113 4 28 14%

Jan-12 Obdellagang - Betul Transtroy 9.1 121 6 36 17%

Mar-12 Amravati Jalgaon L&T 25.4 275 12 22 55%

Mar-12 Anadpuram- Visakhapatnam - Ankapalli Transtroy - OJSC 8.4 58 6 35 17%

Mar-12 Gomti Chauraha - Udaipur Sadbhav Engineering 11.1 79 10 39 26%

Mar-12 Hoskote - Dobaspet Transtroy - OJSC 7.2 80 4 36 11%

Mar-12 Jalgaon - Guj/Mah Border L&T 19.7 209 17 29 59%

Mar-12 Jind - Punjab/Haryana Border Unity infrastructure 4.4 69 5 40 13%

Mar-12 Kharagpur-Baleshwar IL&FS Transportation 4.8 119 5 40 13%

Mar-12 Rajahmundry - Gundugulunu IVRCL Asset 16.2 121 3 35 9%Mar-12 Sikar - Bikaner IL&FS Transportation 6.3 238 1 30 9%

Mar-12 Solapur - Bijapur Sadbhav engineering 11.0 110 16 38 42%

Apr-12 Bridge across Narmada (Vadodara - Surat section) HCC 5.1 6 2 35 6%

May-12 Walajahpet - Poonamallee Essel project 12.9 93 19 37 51%

May-12 Goa karnataka - Kundapur IRB Infra 24.0 187 2 35 6%

Jul-12 Raebareli-Jaunpur PNC Infratech 5.7 166 8 30 27%

Jul-12 Coimbatore-Mettupalayam Transstroy-OJSC Consortium 5.9 54 6 35 17%

Aug-12 Walayar-Vadakkancherry KNR Construction 6.8 54 1 32 3%

Nov-12 Kashipur-Sitarganj Galfar Engg & Contracting SAOG 6.1 77 1 30 3%

Nov-12 Rajasthan border-Fatehpur-Salasar Galfar Engg & Contracting SAOG 5.3 154 2 32 6%

Nov-12 Rajsamand-Gangapur-Bhilwara 87 6.8 Sadbhav Engg Ltd Sadbhav Engg Ltd 6.8 87 1 35 3%

Mar-13 Rohtak-Hissar Sadbhav Engg Ltd 9.6 99 5 34 15%

Mar-13 Khed-Sinnar IL&FS Transportation Networks 13.5 138 4 40 10%

Total 479.6 5,686 296 942 33%

Source:


12/32



Traffic growth muted

Our analysis of traffic growth over a period of 17 quarters in 21 road projects owned by IRB

infrastructure, Ashoka Buildcon, ITNL, GMR Infrastructure and Sadbhav Engineering

shows a declining trend. The sectors flat traffic growth in the past 2-3 quarters can be

attributed largely to: a) lower port traffic witnessed across major ports, which has been

declining for seven consecutive quarters, b) early arrival of the monsoon, with the higher-

than-expected rainfall during June-July 2013, and c) overall economic slowdown and theresultant lower GDP growth.

Exhibit 11: Road Traffic growth Flattish

Traffic grow th9.7

3.74.9

6.9

3.1

5.8

1.8

0.41.2

0.0(1.3)

0.0 (0.1)

(2.0)

-

2.0

4.0

6.0

8.0

10.0

12.0

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Source: Emkay Research , Companies

Exhibit 12: Port traffic edged lower

54 4

55.8

0.8

(1.4)(1.4)

(0.8)(5.4)(4.8)

(2.2)(7.2)

-8

-6

-4

-2

0

2

4

6

8

Q

1FY11

Q

2FY11

Q

3FY11

Q

4FY11

Q

1FY12

Q

2FY12

Q

3FY12

Q

4FY12

Q

1FY13

Q

2FY13

Q

3FY13

Q

4FY13

Q

1FY14

Port traffic

Source: Emkay Research , IPA

Exhibit 13: Container traffic declined

5.06.0

5.06.0

3.3

5.7

3.2

0.2 (0.3)

2.5

(6.3)

1.0

(3.8)

(8.0)

(6.0)

(4.0)

(2.0)-

2.0

4.0

6.0

8.0

Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14

Container traffic

Source: Emkay Research, IPA


13/32



Major amendments discussed under Model ConcessionAgreement

Proposed amendments in pre-qualification criteria of the RFQ document

The current RFQ document has been able to encourage a large number of bidders to

participate in the pre-qualification process. It has also been observed that many bidders,

who are not competent to undertake the project, are also getting pre-qualified. This isleading to problems in the post-award scenario of the projects with such bidders. The

overcrowding and aggressive bidding by such bidders have also led to a situation, where

reputed and competent bidders stay away. Lately, a number of projects with such bidders

either have failed to achieve financial closure or are facing substantial delays in completion.

Such projects in distress are susceptible to defaulting on loan repayments and becoming

non-performing assets (NPAs). In the course of experience gained in evaluating the RFQ

applications for various projects, it has been felt that some provisions of the Model RFQ

required modifications and/or clarifications.

A) Assessment of Available Capacity for execution of future projects

The technical capacity of the applicant is calculated on the basis of aggregate

project/construction execution experience under different categories of projects during thelast 5 financial years preceding the applications due date. However, the above

methodology of assessing technical capacity only takes into account the past experience of

the applicant and does not capture the available technical capacity of the firm at the time of

bidding with respect to present commitment on deployment of resources for other projects

undertaken by the firm for development/implementation. As a result, applicants with limited

or no capacity available for execution of additional projects are also pre-qualified, and in

the event of the project award are failing to either achieve financial closure or execute the

project in a timely manner. Therefore, it is pertinent to consider the applicants

committed resources/investments on the ongoing projects to arrive at the available

technical capacity. Thus, it is proposed that in addition to assessing the past

performance of project executions, the available bid capacity with respect to

resource commitment in projects under development/execution may also be

assessed while pre-qualifying the applicants.

B)Assessment of Financial Capacity

The applicants financial capacity is assessed on the basis of the net worth of the firm in the

preceding financial year. In order to qualify, the net worth of the applicant is required to be

minimum 25% of the total project cost for which the applications are invited, and the net

worth of the applicant is computed as the sum of subscribed and paid-up equity and

reserves from which the sum of revaluation reserve, miscellaneous expenditure not written-

off and reserves not available for distribution to equity shareholders is deducted. However,

it has been observed in a number of cases that applicants qualifying in the net worth

criteria are failing to achieve financial closure or unable to infuse equity in the awarded

projects due to unavailability of adequate equity capital and/or a highly leverage balance

sheet of the applicant. It clearly demarcates that net worth as the only deciding factoris not the sufficient parameter to assess the applicants ability to arrange financing

required for the project.

Therefore, it has proposed to introduce the following additional qualification criteria in the

RFQ document with respect to financial capacity of the applicants:

(i) Adjustment of Net Worth with respect to Debt-Equity ratio of the Applicant:

It is proposed that net worth of the applicants shall be suitably adjusted with a factor linked

to the debt-to-equity ratio of the applicant. This will reduce the applicable net worth of the

applicant in case of a highly leveraged entity, thus preventing it from qualifying for high-

value projects.


14/32



Exhibit 14: Adjustment to net worth for debt-equity ratio

Debt-Equity Ratio Applicable Factor

Less than or equal to 3:1 1

More than 3:1 & upto 6:1 0.85

More than 6:1 &upto 10:1 0.6

More than 10:1 0.2


(ii) Submission of Equity Financing Plan by the Applicants:

It is proposed that applicants will have to furnish a detailed equity financing plan on the

equity requirement with regard to the total project cost for the project indicated in the RFQ

document. The proposed equity financing plan shall include submission of certificates with

regard to sources of equity to the applicant. Additionally, the applicants shall also require to

furnish their equity commitment for projects to be executed during the construction period

of the project, which will prevent bidders from participating in projects unrealistically without

ensuring availability of equity required for the project.

Exhibit 15: TPC of the project that bidder has applied (Rsbn)

Debt-Equity Project cost

0-2.5 30% of TPC

Above 2.5-upto-6.5 25% of TPC

Above 6.5 205 of TPC


(iii) Restriction on the Applicants on account of pending financial closure and non-

performing assets

It is proposed that applicants shall be restricted from participating in the project in case

financial closure of three or more awarded projects is pending on the date of the RFQ

submission for reasons attributable solely to the applicant. Currently, this provision is

provided in the RFP document.

Payment of Premium by the ConcessionaireWith a view to mitigating the initial cash-flow constraints, it is proposed that the payment of

premium may start 3 years after COD for 4-laning projects, and from the scheduled project

completion date for 6-laning projects. Further, keeping in view the likely increase in the

cashflows of the projects and the reduction in debt service requirements, it is proposed that

after the 10th anniversary of COD for 4-laning projects/project completion date for 6-laning

projects, the percentage/absolute increase in premium would be higher compared with the

initial period.

The following options are being proposed:

Option 1 Revenue Sharing Principle

To ensure that there is no revenue sharing during the initial years of the project, it isproposed to modify the concession agreement provision as per the following:

For 4-laning projects: Percentage revenue sharing would start from the fourth year ofCOD or thereafter (depending on the bid), and would increase by 1% every year till the

tenth anniversary of COD. Thereafter, the increase would be 2% per year for the rest of

the phase of the concession period.

For 6-laning projects: Percentage revenue sharing would start from the scheduledproject completion date or thereafter (depending on the bid), and would increase by 1%

every year till the tenth anniversary of project completion date. Thereafter, the increase

would be 2% per year for the rest of the phase of the concession period.

Option 2 Fixed Monetary Value Principle

For 4-laning projects: Bidders should quote a specific monetary amount that is payableto the authority from the fourth year of COD, and this amount should increase by 5%

per year till the tenth anniversary of COD. Thereafter, the increase would be 8% per

year for the rest of the phase of the concession period.


15/32



For 6-laning projects: Bidders should quote a specific monetary amount that is payableto the authority from the scheduled project completion date, and this amount should

increase by 5% per year till the tenth anniversary of completion of construction.

Thereafter, the increase would be 8% per year for the rest of the phase of the

concession period.


16/32


Emkay

Comp

anyUpdate

Emkay Global Financial Services Ltd. 16

Financial Snapshot (Consolidated) (Rsmn)

YE- Net EBITDA EPS EPS RoE EV/

Mar Sales (Core) (%) APAT (Rs) % chg (%) P/E EBITDA P/BV

FY12A 31,307 13,735 43.9 4,960 14.9 9.6 18.8 5.3 5.6 0.9

FY13A 36,872 16,333 44.3 5,567 16.7 12.2 20.4 4.7 5.5 1.0

FY14E 41,433 18,705 45.1 4,471 13.5 -19.7 16.1 5.8 5.7 0.9

FY15E 44,109 21,184 48.0 5,636 17.0 26.1 17.8 4.6 5.9 0.8

IRB Infrastructure

Separating Fundamentals from the Noise

October 14, 2013

Rating

Buy

Previous Reco

Buy

CMP

Rs78

Target Price

Rs158

EPS Chg FY14E/FY15E (%) NA/NA

Target Price change (%) -7

Nifty 6,096

Sensex 20,529

Price Performance

(%) 1M 3M 6M 12M

Absolute 1 -22 -31 -50

Rel. to Nifty -1 -25 -38 -54

Source: Bloomberg

Relative price chart

50

75

100

125

150

175

Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13

Rs

-70

-56

-42

-28

-14

0%

IRB Infrast ructure (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock DetailsSector Construction

Bloomberg IRB IB

Equity Capital (Rs mn) 3,324

Face Value(Rs) 10

No of shares o/s (mn) 332

52 Week H/L 158/ 52

Market Cap (Rs bn/USD mn) 26/ 427

Daily Avg Volume (No of sh) 3,061,331

Daily Avg Turnover (US$mn) 3.7

Shareholding Pattern (%)

Sep'13 Mar'13 Dec'12

Promoters 62.9 62.9 62.7

FII/NRI 22.3 22.3 22.7

Institutions 4.0 4.0 4.0

Private Corp 3.9 3.9 4.3

Public 6.9 6.9 6.3

Source: Bloomberg

Nitin Arora

[email protected]

+91-22-66242491

Ajit Motwani

[email protected]

+91-22-66121255

n Strong cashflows from a healthy mix of operating and under-

construction assets, and moderate gearing the key

competitive differentiators in a capital-intensive business

n Earnings to remain flat over FY13-15E. But we expect a

CAGR of 10% in cash profits, providing the ability to fund

equity in new projects

n Biggest beneficiary of new road projects to be tendered out

in 2HFY14E. 4 projects scheduled to commence toll

collections over the next.

n Attractive valuations at 0.8x P/BV & 5.9x PE near the end

2008 troughs IRB remains our preferred road BoT asset play.

Maintain buy with the revised target price of Rs158/share

Equity requirement of Rs3-4bn in FY14E, Rs17-18bn over 2-3 yearsIRB Infrastructure Developers (IRB) has 15 road projects under it portfolio, of which 10

are currently operational and the rest are under construction. The companys total equity

requirements over the next 2-3 years have been estimated at Rs17bn. On account of

commissioning of 4 road projects i.e. Jaipur-Deoli, Amravati-Talegaon, Amritsar-

Pathankot, & Ahmedabad-Vadodra along with EPC arm will garner cumulative operating

cash flow Rs19.6 bn from FY13-15E. These, coupled with current cash of Rs14.7bn,

would be sufficient to meet equity requirements of the company for the next 2 years.

Peak D:E of 2.33x still manageable

IRB Infrastructures consolidated debt (adjusted for loans and advances) stands at

Rs79bn, including its standalone debt of Rs11.4bn, with cash balance of Rs14.7bn as of

March 31, 2013. Debt worth Rs71.3bn, accounted for individual road projects, is fairlypositive for the company compared to other road developers like ITNL, which has debt

worth Rs37bn on its standalone balance sheet as of March 2013, with no certainty of

recurring income to offset the surge in the interest cost. We estimate peak debt (for

current projects in its kitty) of Rs116bn, which would imply debt equity of 2.33x.

Current price implies less than 1x book value adjusted for Mumbai-Pune

The stock has corrected 34% over the last 3 months. The current market price of Rs79

(market capitalization of Rs26.2bn) implies value of 0.4x the invested book (historically

seen at 1x) adjusted for the Mumbai-Pune Expressway Project (MIPL). IRB has invested

Rs33bn in FY13 as equity investments, and loans and advances in BOT road projects.

We have adjusted the value for MIPL of Rs13.6bn (FY13 revenue is Rs4.16bn; likely to

report revenue of Rs4.39bn and Rs5.43bn in FY14E and15E, respectively), with

relatively low debt of Rs8.76 bn. MIPL (Mumbai - pune ) accounts for 24% of our SOTPand 40% of value derived for the total BOT road assets. This is one the non-disputable

road assets, which has certainty of cashflows, with a revenue CAGR of 14% over FY13-

15E as against 13% during FY11-13. We understand that there have been concerns

over the recent project (Ahmedabad-Vadodara), with relatively aggressive bid & traffic

disappointment. However, we believe, Amritsar-Pathankot, Jaipur-Deoli and Amravati-

Talegaon projects have potential value, as these were won in a low-competitive

environment and at high grant levels (close to 40%).


17/32

IRB Infrastructure Company Update


Despite strong execution E&C order-book at Rs56bn provide reasonable

visibility; however, growth could remain subdued

IRB Infrastructures order-book at the end of March 2013 stood at Rs 76.6bn. Out of this,

Rs56bn worth of orders would be executed over the next 3 years. The backlog includes

Rs23bn worth of Goa-Kundapur project, which the company added in Q2FY13.

The companys construction revenue is likely to moderate, due to completion or nearingcompletion of its key projects. Recently, the Talegaon-Amravati project was completed,

while Jaipur-Deoli, Amritsar-Pathankot and Tumkur are complete 95%, 90% and 85%,

respectively. Irrespective of the completion of its four key projects, the company would able

to maintain construction revenue for FY14E at the similar level of what it had garnered in

FY13, due to increase in contributions from Ahmedabad-Vadodara and Goa-Kundapur

(which is expected to be executed in 2HFY14E; it is waiting for financial closure) .

IRB Infrastructure expects the bidding activity to regain momentum during Q3/Q4FY14

(expects 1,000-2,000km of fresh projects to come up from the NHAI, while 3,000-4,000km

to be bid out during 3Q/4QFY14E), and expects new orders to come from potential re-bids

(projects stalled on account of non-achievement of financial closure and fresh biddings).

Exhibit 16: Revenue CAGR of 9.4% over FY13-15E

1724

31 37

41 44

-

10

20

30

40

50

FY10 FY11 FY12 FY13 FY14E FY15E


Exhibit 17: EBITDA CAGR of 14% over FY13-15E

8 10

14 16

19 21

-

5

10

15

20

25



Exhibit 18: PAT growth to remain Flat

4.5 4.05.0

5.64.5

5.6

-

1.0

2.0

3.0

4.0

5.0

6.0



Exhibit 19: EPS

13 1215

1713

17

-

2

4

6

8

10

12

14

16

18




18/32



Exhibit 20: Flat EPC revenue growth

10

1721 26 26 24

0

5

10

15

20

25

30



Exhibit 21: BOT revenue to surge higher

7 8 9 11

1520

-

5

10

15

20

25



Exhibit 22: Current market price implies less than 1x invested book value

CMP 79

No of shares 332

Market cap Rsmn 26260

Value for Mumbai Pune Rsmn 13,411

Market cap adj. for Mumbai Pune project 12,849

Investments (equity + L&A) in road projects at end-FY2013 33,075

Investments in MIPL at end-FY2013 1,073

Investments adjusted for MIPL 32,002

Implied P/B (x) 0.40



19/32



Exhibit 23: Total Investments (Equity, Loans & advances )

FY11 FY12 FY13

Project Rsmn Loans & advances Loans & advances Loans & advances

Investments in road projects Equity

Short

term

Long

term Total Equity

Short

term

Long

term Total Equity

Short

term

Long

term Total

Thane-Bhiwandi bypass 611 611 611 18 629 611 611

Mumbai-Pune Expressway 778 200 978 778 434 1212 778 295 1,073

Pune-Sholapur 451 451 451 451 451 451

Pune-Nashik 519 12 531 519 15 534 519 519

Ahmednagar-Karmala-Tembhurni 80 0 80 80 80 80 80

Bridge over Patalganga River-Kharpada 80 80 80 80 80 80

Thane-Ghodbunder 222 707 929 222 500 722 222 6 228

Bharuch-Surat 872 2,297 3169 872 5,472 6344 872 2680 3,552

Integrated Road Development in Kolhapur 855 855 1,336 227 1563 1,336 566 1,902

Surat-Dahisar 2,611 2611 4,653 1,117 5770 4,653 847.8 5,501

Pathankot-Amritsar 355 1,180 257 1792 355 162 1,145 1662 774 7.9 2326.3 3,109

Talegaon-Amravati 322 2 57 381 322 151 828 1301 364 352 1093.4 1,810

Jaipur-Deoli 390 264 272 926 780 200 1,837 2817 975 480.62 2924.9 4,380Panji-Goa 311 929 1240 311.4 1,173 1484 311 1173.1 1,485

Tumkur-Chitradurg 0 1,181 156 1337 476 476 952 1110 315.727 1110.7 2,537

Ahmedabad-Vadodara Expressway 1,000 69 2,950 4019 1000 33.61 2950.0 3,984

MVR Infra 801 972.92 1,775

Subtotal - Investment in road projects 8,457 6,772 742 15971 12,846 7,832 8,942 29620.4 14,939 6,558 11578.2 33,075

Investments in other subsidiaries

Construction subsidiary 312 1,588 1900 312 1353.2 1665.2 312 957 1,269

Real estate subsidiary 586 1 587 586 1 587 586 1 587

Hospitality subsidiary 0 26 26 0 119.4 119.5 0.09 182 182

Sindhudurg Airport 0 182 182 0 10.1 10.2 0.09 211 211

Subtotal - Investment in other subsidiaries 898 1,796 2694 898 1483.81 2381.81 898 1351 2,249

Total investments in subsidiaries 9,354 8,570 742 18666 13,744 9,316 8,942 32002 15,837 7,909 11,578 35,324



20/32



Maintain Buy with a Revised Target price of Rs 158

With significant slow down in NHAI awarding activity (only 1300 km awarded in FY13

Annual target ~9K kms) and possibly impact on NHAI funding plan on account of recent

termination of road project we do not foresee meaningful increase in awarding activity by

NHAI. Hence we have build in just Rs20bn of new project wins for IRB in FY14 similar to

levels the company has achieved till FY13.

With minimal funding requirement IRB remains well funded for exploiting new opportunities

as and when NHAI awarding activity pick up. However in the mean time company is

focusing on reducing its interest cost and has managed to lower the interest rates at

Bharuch Surat by 150bps to 10.65% and is evaluating the prospect of refinancing debt of

Surat Dahisar from IIFCL which will again lead to similar correction in interest rates at the

project debt level.

We have revised our target price lower by 6% as we lowered E&C multiple for construction

business from 4x to 5x at Rs42/share (Earlier Rs53/share) on account lower carry forward

order backlog as order offtake slows down.

With 4 projects schedule to commence toll collection over the next year, minimal funding

requirement and benefits of lower interest rate, we believe IRB remains the Road BoT

asset to play. We maintain our BUY rating and revised our TP to Rs 158 as compared toRs169 earlier.

Exhibit 24: SoTP Fair value at Rs 158

Asset Operated Holding

Valuation

Measure Disc rate

Value

(Rs mn)

Value

/Share

EPC Business 100% PER 4 14128 42.5

PV of O&M Contracts 100% NPV 13.5% 3,178 9.6

Value of Construction segment - (a) 17,306 52

Mumbai Pune Expressway & NH4 100% FCFE 12.5% 13,411 40.3

Surat Dahisar 90% FCFE 13.5% 2,590 7.8

Bharuch Surat 100% FCFE 13.5% 3,442 10.4

Mohol-Mandrup Road 100% FCFE 13.5% -37 -0.1

Kharpada-Patalganga Bridge 100% FCFE 13.5% 226 0.7

Ahmednagar Tembhurni Road 100% FCFE 13.5% 244 0.7

Thane Ghodbunder 100% FCFE 13.5% 1,109 3.3

Pune Nashik 100% FCFE 13.5% 306 0.9

Pune Sholapur 100% FCFE 13.5% 522 1.6

Thane Bhiwandi Bypass 100% FCFE 13.5% 1,462 4.4

Kolhapur City Roads 100% FCFE 14.5% 3,268 9.8

Namakkal - Omallur - NH-7 100% FCFE 13.0% 656 2.0

Amritsar Pathankot 100% FCFE 14.5% 6,531 19.7

Jaipur - Deoli 100% FCFE 14.5% 6,952 20.9

Amravati Talegaon 100% FCFE 14.5% 2,970 8.9Tumkur Chitradurga 100% FCFE 14.5% 200 0.6

Ahmedabad Vadodara 100% FCFE 14.5% -3,731 -11.2

Goa - Kundapur 100% FCFE 15.5% -610 -1.8

Gross value of BOT 39,513 119

Add: PV of Loans to SPV 2,411 7.3

Less : Net Debt at Parent Level -8,275 -24.9

Value of BOT - Net of debt - (b) 33648.7 101.2

Aryan Infra Investment - (C) 66% Book value 1,650 5.0

Total Value - (a+b+c) 56,137 158

Source: Emkay Research


21/32



Key Financials (Consolidated)

Income Statement

Y/E Mar (Rsmn) FY12A FY13A FY14E FY15E

Net Sales 31,307 36,872 41,433 44,109

Growth (%) 28.4 17.8 12.4 6.5

Expenditure 17,572 20,540 22,728 22,925

Employee Cost 1,376 1,557 1,731 1,722

Other Exp 0 0 0 0

SG&A 970 1,223 1,330 1,330

EBITDA 13,735 16,333 18,705 21,184

Growth (%) 25.6 18.9 14.5 13.3

EBITDA marg in (%) 43.9 44.3 45.1 48.0

Depreciation 2,970 4,415 5,581 6,538

EBIT 10,765 11,918 13,124 14,646

EBIT mar gin (%) 34.4 32.3 31.7 33.2

Other Income 1,252 1,301 1,236 1,193

Interest expenses 5,505 6,153 7,730 7,917

PBT 6,512 7,066 6,630 7,923

Tax 1,552 1,530 2,221 2,390

Effective tax rate (%) 23.8 21.7 33.5 30.2

Adjusted PAT 4,960 5,536 4,409 5,533

Growth (%) 6.9 11.6 -20.4 25.5

Net Marg in (%) 15.8 15.0 10.6 12.5

(Profit)/loss from JVs/Ass/MI 0 -31 -62 -103

Adj. PAT After JVs/Ass/MI 4,960 5,567 4,471 5,636

E/O items 0 0 0 0

Reported PAT 4,960 5,567 4,471 5,636

PAT after MI 4,960 5,567 4,471 5,636

Growth (%) 9.6 12.2 -19.7 26.1

Balance Sheet


Equity share capital 3,324 3,324 3,324 3,324

Reserves & surplus 25,243 29,232 32,630 37,139

Net worth 28,566 32,556 35,954 40,463

Minority Interest 1,123 1,092 1,030 927

Secured Loans 50,455 66,349 72,259 90,491

Unsecured Loans 17,913 12,712 12,712 12,712

Loan Funds 68,367 79,060 84,970 103,203

Net deferred tax liability 259 259 259 259

Total Liabilities 98,315 112,967 122,213 144,851

Gross Block 57,817 57,918 91,005 96,030

Less: Depreciation 2,283 2,830 3,368 3,917

Net block 55,534 55,088 87,636 92,113

Capital work in progress 24,452 49,160 36,024 48,548

Investment 186 620 620 620

Current Assets 28,399 27,205 17,714 16,802

Inventories 1,624 2,488 2,171 1,003

Sundry debtors 141 310 1,033 1,046

Cash & bank balance 18,208 14,710 4,813 5,057

Loans & advances 8,427 9,696 9,696 9,696

Other current assets 0 0 0 0

Current lia & Prov 10,265 19,106 19,954 13,403

Current liabilities 10,017 15,996 16,844 10,293

Provisions 248 3,110 3,110 3,110

Net current assets 18,134 8,099 -2,240 3,399

Misc. exp 9 0 0 0

Total Assets 98,315 112,967 122,041 144,680

Cash Flow


PBT (Ex-Other income) 5,260 5,765 5,394 6,730

Depreciation 2,970 4,415 5,581 6,538

Interest Provided 5,505 6,153 7,730 7,917

Other Non-Cash items 0 0 0 0

Chg in working cap -779 476 442 -5,395

Tax paid -1,587 -2,422 -2,221 -2,390

Operating Cashflow 11,369 14,387 16,925 13,400

Capital expenditure -24,201 -25,456 -24,994 -23,538

Free Cash Flow -12,832 -11,069 -8,068 -10,138

Other income 1,252 1,301 1,236 1,193Investments -3,702 1,680 0 0

Investing Cashflow -25,484 -21,167 -23,758 -22,344

Equity Capital Raised 0 0 0 0

Loans Taken / (Repaid) 24,457 14,815 5,910 18,232

Interest Paid -5,505 -6,153 -7,730 -7,917

Dividend paid (incl tax) -1,319 -1,191 -1,245 -1,127

Income from investments 0 0 0 0

Others 0 0 0 0

Financing Cashflow 17,633 7,471 -3,064 9,188

Net chg in cash 3,518 691 -9,897 244

Opening cash position 12,000 18,208 14,710 4,813

Closing cash position 15,518 18,899 4,813 5,057

Key Ratios

Y/E Mar FY12A FY13A FY14E FY15E

Profitability (%)

EBITDA Margin 43.9 44.3 45.1 48.0

Net Margin 15.8 15.0 10.6 12.5

ROCE 14.1 12.9 12.9 12.5

ROE 18.8 20.4 16.1 17.8

RoIC 24.0 22.9 20.3 17.1

Per Share Data (Rs)

EPS 14.9 16.7 13.5 17.0

CEPS 23.9 30.0 30.2 36.6

BVPS 85.9 78.4 88.7 102.2DPS 1.8 4.0 3.2 0.0

Valuations (x)

PER 5.3 4.7 5.8 4.6

P/CEPS 3.3 2.6 2.6 2.1

P/BV 0.9 1.0 0.9 0.8

EV / Sales 2.4 2.5 2.6 2.8

EV / EBITDA 5.6 5.5 5.7 5.9

Dividend Yield (%) 2.3 5.1 4.1 0.0

Gearing Ratio (x)

Net Debt/ Equity 1.8 2.5 2.7 2.9

Net Debt/EBIDTA 3.7 3.9 4.3 4.6

Working Cap Cycle (days) -0.9 -65.4 -62.1 -13.7


22/32


Emkay

Compa

nyUpdate

Emkay Global Financial Services Ltd. 22

Financial Snapshot (Consolidated) (Rsmn)

YE- Net EBITDA EPS EPS RoE EV/

Mar Sales (Core) (%) APAT (Rs) % chg (%) P/E EBITDA P/BV

FY12A 56,056 14,656 26.1 4,970 25.6 14.8 20.2 4.3 8.3 0.8

FY13A 66,449 18,396 27.7 5,194 26.7 4.5 16.4 4.2 8.8 0.6

FY14E 64,185 19,171 29.9 4,368 22.5 -15.9 11.4 4.9 8.8 0.5

FY15E 77,908 24,430 31.4 4,711 24.2 7.8 11.2 4.6 7.7 0.5

IL&FS Transportation

Higher Leverage to Suppress Earnings

October 14, 2013

Rating

Hold

Previous Reco

Buy

CMP

Rs111

Target Price

Rs134

EPS Chg FY14E/FY15E (%) NA/NA

Target Price change (%) 3

Nifty 6,096

Sensex 20,529

Price Performance

(%) 1M 3M 6M 12M

Absolute -7 -25 -39 -40

Rel. to Nifty -9 -28 -45 -45

Source: Bloomberg

Relative price chart

100

125

150

175

200

225

O ct -1 2 D ec -1 2 F eb -1 3 A pr -1 3 J un -1 3 A ug -1 3 O ct -1 3

Rs

-60

-44

-28

-12

4

20%

IL&FS Transportation (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock DetailsSector Construction

Bloomberg ILFT IB

Equity Capital (Rs mn) 1,943

Face Value(Rs) 10

No of shares o/s (mn) 194

52 Week H/L 229/ 97

Market Cap (Rs bn/USD mn) 22/ 353

Daily Avg Volume (No of sh) 88,829

Daily Avg Turnover (US$mn) 0.2

Shareholding Pattern (%)Jun10 May10 Dec10

Promoters 46.3 46.5 46.5

FII/NRI 43.3 43.6 42.6

Institutions 6.5 7.0 7.0

Private Corp 1.8 1.0 1.2

Public 2.2 2.1 2.6

Source: Bloomberg

Nitin Arora

[email protected]

+91-22-66242491

Ajit Motwani

[email protected]

+91-22-66121255

n Robust order backlog (3x FY13 E&C rev) to help construction

income CAGR of 24% over FY13-15E, but high margin fee

income to stagnate, implying a muted EBITDA CAGR of 4%

n Standalone leverage to surge higher to 2.2x, as ITNL pumps

in equity (Rs24bn) to complete the projects

n High leverage in the absence of meaningful rate cuts to

exert pressure on standalone profitability

n Dilution imminent in and post-FY15E, as standalone leverage

unsustainable. Earnings highly leveraged to new orders.

Retain hold with the revised target price of Rs134

Construction revenue growth intact, but fee income to stagnate

Supported by back-ended FY13 order wins (Rs38bn), ITNLs order-book currently

stands at healthy Rs146bn. With robust revenue visibility (3.1x FY13E constructionrevenues), we expect the standalone construction revenues to surge at a CAGR of 24%

over FY14-15E. In Q1FY14, the company witnessed execution delays in projects such

as Chennai Nashri (due to regional violence and unrest) and Moradabad Bareilly (delays

in land acquisition), besides delays in other projects caused by early monsoons.

However, with majority of the fee income on new order wins has already been booked in

FY13, we see fee income stagnating over FY13-15E (50% of the booked FY14E fee

income in Q1 to edge lower from Q2 onwards). With only Rs3-3.5bn of residual fee

income to be booked on the current backlog (driven largely by projects such as Khed-

Sinnar and Barwa-Adda), arguably the company will have to significantly depend on new

order wins for fee income growth. Hence, we see ITNLs fee income stagnating at

Rs5.5bn, as we model an order inflow of Rs90bn over FY14-15E (Rs45bn each year).

Muted EBIDTA a CAGR of 4%

Since fee income is a high-margin stream of revenue for ITNL and the contribution of fee

income to total revenues is expected to tumble from 17% in FY13E to 10.9% in FY15E

as per our calculations, we estimate standalone EBIDTA growth to remain muted at a

CAGR of 4% over FY13-15E, with the EBITDA margin likely to contract by 200bps and

260bps in FY14E and FY15E, respectively.

Leverage to surge higher putting pressure on standalone profitability

Due to lower contribution of fee income to overall revenue, we see ITNL resorting to

taking further debt on the standalone book to infuse equity requirements towards funding

its new projects. The company plans to raise Rs15.5 bn via preferential issue (already

raised Rs4 bn) and rights issue to address the equity requirement (Rs24 bn over FY13-

15E) for future projects. We believe that even after raising funds at upper end 40% ofthe equity requirements will be funded by taking debt on standalone books (Q1FY14

debt at Rs40 bn) and will increase further on account of new orders. Hence, we see a

surge in debt on the standalone balance-sheet from Rs37bn in FY13 to Rs53 bn by

FY15E, which would lead to further deterioration in its leverage ratios, which would

increase the interest burden on ITNL. However, in case leverage increases further, it

would become essential for the company to maintain its EBITDA at Rs6.5bn and Rs7bn

in FY14E and FY15E, respectively, to service interest costs on standalone level.


23/32

IL&FS Transportation Company Update


Earnings highly leveraged to order inflows, high debt still remain a concern:

Maintain Hold

With robust order inflow in till FY13, ITNL has been able to deliver 17% earnings growth

over FY10-13 led by its high margin fee income. However as ITNLs earning & cash flows

are highly leverage to new order inflows, we believe sustaining such high growth rate in fee

income is unlikely. Given this backdrop of decelerating high margin fee income growth, the

high parent leverage (standalone debt at Rs53 bn with D:E at 2.2x in FY15E) could meanincreasing interest cost pressures for ITNL. High leverage in absence on meaningful rate

cuts to put pressure on standalone profitability and could mean increasing interest cost

pressures for ITNL. Dilution eminent in/post FY15E as standalone leverage unsustainable.

We have cut our target price to Rs134 (Earlier TP 150) as we have adjusted traffic for some

of the projects like kiratpur ner chowk (implied P/BV0.45x) as well as for projects like sikar

Bikaner & khed sinnar and reduced our E&C multiple to EV EBITDA of 3x from 3.5x as

construction earnings will edge lower in FY14E and construction earnings trajectory

remains uncertain as some projects faces structural issues.

Exhibit 25: Fee income to stagnate

6.95.6 5.7 5.7 5.7

5.2

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0


(Rsbn)

Fee income


Exhibit 26: Fee income as a % of total revenue

34%

21%17%

15%10.9%

0%

5%

10%

15%

20%

25%

30%

35%

40%

FY11 FY12 FY13 FY14E FY15E

(Rsbn)

Fee income as a % total revenue


Exhibit 27: Consolidated debt to inch higher

169

3355

102

144 148

1.6

2.1

3.3 3.6 3.4 3.5

-

50

100

150

200


(Rsbn)

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Consolidated Debt Net Debt/equity


Exhibit 28: Standalone debt to surge higher

15.3 18.927.3

37.4 41.553.5

0.91.1

1.4

1.8 1.8

2.2

-

0.5

1.0

1.5

2.0

2.5


(Rsbn)

0

10

20

30

40

50

60

Standalone Debt Debt/equity


Exhibit 29: Consolidated revenue

24.1

40.5

56.166.4 64.2

77.9

0.0

20.0

40.0

60.0

80.0

100.0


(Rsbn)

Revenue


Exhibit 30: Consolidated EBITDA

8

12

1518 19

24

0

5

10

15

20

25

30


(Rsbn)

EBITDA



24/32



Exhibit 31: Consolidated PAT

3.4

4.35.0 5.2

4.4 4.7

-

1.0

2.0

3.0

4.0

5.0

6.0


(

Rsbn)

PAT


Exhibit 32: Consolidated ROE

27.0

22.220.2

16.4

11.4 11.1

-

5.0

10.0

15.0

20.0

25.0

30.0


(%)

ROE


Exhibit 33: Standalone revenue

8.5

16.2

27.733.7

37.7

47.9

0

10

20

30

40

50

60


(Rsbn)

Revenue


Exhibit 34: Standalone EBITDA

5.48 5.32 5.52

6.46 6.496.98

0

1

2

3

4

5

6

7

8


(Rsbn)

EBITDA



25/32



Exhibit 35: SOTP fair value at Rs134hare

SPV Holding

Valuation

Measure

Disc

rate

Equity

alue

(Rs mn)

Stake

alue

(Rs mn)

alue/

Share

BOT

Gujarat Road and Infrastructure company ltd 83.6% Operational FCFE 13% 7,525.5 6,292.1 32.4

WGEL 100.0% Operational FCFE 14% 1,613.9 1,613.9 8.3

Delhi - Noida 25.4% Operational FCFE 14% 6,268.8 1,589.1 8.2

Gomti - Beawar 100.0% Operational FCFE 14% 350.4 350.4 1.8

RIDCOR 50.0% Operational FCFE 14% 8,130.2 4,065.1 20.9

RIDCORII 50.0% Under development FCFE 15% 3,783.6 1,891.8 9.7

Pune Sholapur NH-9 Road Project 100.0% Under Construction FCFE 15% 2,846.3 2,846.3 14.7

Chadrapur Warora Road Project 35.0% Under development FCFE 15% 1,683.5 589.2 3.0

Narkatapally to Addanki Road Project 50.0% Under development FCFE 15% 3,288.7 1,644.3 8.5

Moradabad Bareili Road Project 100.0% Under development FCFE 15% 7,088.7 7,088.7 36.5

Kharagpur - Baleshwar 100.0% Under development FCFE 15% -258.3 -258.3 -1.3

Kiratpur Ner Chowk 100% Under development FCFE 15% 2923 2923 15Sikar Bikaner 100% Under development FCFE 15% 829.8 829.8 4.3

Khed Sinnar 100% Under development FCFE 15% 816.5 816.5 4.2

Barwa Adda Panagarh 100% Under development FCFE 15% 623.5 623.5 3.2

Toll Projects - (A) 47,514 32,905.4 169

North Karnataka expressway ltd Road Project 94% Operational FCFE 13% 1,145.6 1,071.2 5.5

Thiruvananthpuram Road Development Company Ltd Road Project 50% Operational FCFE 13% -468.7 -234.0 -1.2

Andhra Pradesh expressway ltd Road Project 100% Operational FCFE 13% -494.9 -494.9 -2.5

East Hyderabad expressway ltd Road Project 74% Under Construction FCFE 13% 537.2 397.5 2.0

Hyderabad Ring Road 26% Under Construction FCFE 13% -54.9 -14.3 -0.1

Hazaribaug Ranchi expressway ltd Road Project 74% Under Construction FCFE 14% 185.0 136.9 0.7

Jharkhand - Ph - I Road Project 100% Under Construction FCFE 14% 157.2 157.2 0.8

Jharkhand Ph - II Road Project 100% Under development FCFE 14% 544.9 544.9 2.8

Shillong Jorbat Road Project 50% Under development FCFE 14% 1121.2 560.6 2.8

Chenani Nashri Road Project 100% Under development FCFE 14% 1,791.0 1,791.0 9.2

Annuity Projects - (B) 4,463.6 3,915.9 20.2

Vansh Nimay infraprojects Ltd 100% Operational FCFE 14% 301.6 301.5 1.6

ITNL ENSO Rail system limited 70% Under Construction FCFE 14% 1,159.2 811.5 4.2

MP Check post 51% Under development BV 0.75x 1,174.2 880.6 4.5

YuHe Project - Chonguin Road project 49% Operational BV 0.8x 1,176.0 6.1

Urban Infra Projects - '(C) 2,635.0 3,169.6 16.3

Investments in Elsamax 100% BV 1.0x 14.0 2,722.2 14.0Investments in other Companies 1,109.3 1,109.3 5.7

Pipavav rail corporation BV 1.0x 179.1 179.1

Autovia Spain 48% BV 1.0x 930.2 930.2

Other Subsidiaries - (D) 1,123.4 3,831.6 19.7

E&C business EV/EBITDA 3x 19,525 19,525 100.5

Construction business - (E) 26,663.4 26,663.4 117

Net Debt at parent levels -37,329 -37,329 -192

Total Value (A+B+C+D+E) 37,931.7 26,018.2 134

Source:


26/32



Key Financials (Consolidated)

Income Statement


Net Sales 56,056 66,449 64,185 77,908

Growth (%) 38.5 18.5 -3.4 21.4

Expenditure 41,401 48,053 45,014 53,478

Employee Cost 3,694 3,819 4,074 4,775

Other Exp 1,704 2,016 2,016 2,016

SG&A 3,210 4,483 4,957 5,816

EBITDA 14,656 18,396 19,171 24,430

Growth (%) 26.9 25.5 4.2 27.4

EBITDA marg in (%) 26.1 27.7 29.9 31.4

Depreciation 766 944 1,336 1,826

EBIT 13,890 17,452 17,835 22,604

EBIT mar gin (%) 24.8 26.3 27.8 29.0

Other Income 1,238 1,414 1,591 1,769

Interest expenses 7,282 11,190 12,672 17,204

PBT 7,846 7,676 6,754 7,169

Tax 2,457 2,274 2,001 2,124

Effective tax rate (%) 31.3 29.6 29.6 29.6

Adjusted PAT 5,389 5,402 4,753 5,045

Growth (%) 19.8 0.2 -12.0 6.1

Net Margin (%) 9.6 8.1 7.4 6.5

(Profit)/loss from JVs/Ass/MI 419 208 385 334

Adj. PAT After JVs/Ass/MI 4,970 5,194 4,368 4,711

E/O items 0 0 0 0

Reported PAT 4,970 5,194 4,368 4,711

PAT after MI 4,970 5,194 4,368 4,711

Growth (%) 14.8 4.5 -15.9 7.8

Balance Sheet


Equity share capital 1,943 1,943 1,943 1,943

Reserves & surplus 24,834 34,456 38,028 41,943

Net worth 26,777 36,398 39,970 43,885

Minority Interest 2,935 2,716 3,444 3,778

Secured Loans 81,124 135,931 104,735 113,801

Unsecured Loans 21,996 8,522 44,524 56,149

Loan Funds 103,120 144,453 149,259 169,951

Net deferred tax liability 2,047 2,425 2,425 2,425

Total Liabilities 134,878 185,992 195,098 220,039

Gross Block 122,174 174,991 176,703 198,337

Less: Depreciation 4,412 5,356 6,692 8,518

Net block 117,762 169,635 170,011 189,820

Capital work in progress 0 0 0 0

Investment 3,954 6,871 6,871 7,077

Current Assets 30,759 29,277 37,671 46,232

Inventories 210 169 311 311

Sundry debtors 8,820 7,517 10,276 12,728

Cash & bank balance 2,838 4,544 1,679 4,273

Loans & advances 17,143 14,170 19,629 22,024

Other current assets 1,748 2,877 5,777 6,896

Current lia & Prov 17,602 19,911 19,574 23,209

Current liabilities 15,455 17,297 17,458 21,093

Provisions 2,146 2,614 2,116 2,116

Net current assets 13,157 9,367 18,098 23,024

Misc. exp 0 0 0 0

Total Assets 134,873 185,873 194,980 219,921

Cash Flow


PBT (Ex-Other income) 7,846 7,676 6,754 7,169

Depreciation 766 944 1,336 1,826

Interest Provided 7,282 11,190 12,672 17,204

Other Non-Cash items 0 0 0 0

Chg in working cap 3,212 5,497 -11,597 -2,332

Tax paid -2,457 -2,274 -2,001 -2,124

Operating Cashflow 16,648 23,033 7,164 21,744

Capital expenditure -56,318 -47,495 -1,712 -21,634

Free Cash Flow -39,670 -24,462 5,453 109

Other income 0 0 0 0Investments -2,010 -2,917 0 -206

Investing Cashflow -58,328 -50,412 -1,712 -21,840

Equity Capital Raised 0 0 0 0

Loans Taken / (Repaid) 47,590 41,332 4,806 20,692

Interest Paid -7,282 -11,190 -12,672 -17,204

Dividend paid (incl tax) -903 -786 -796 -796

Income from investments 0 0 0 0

Others -162 -271 343 0

Financing Cashflow 39,242 29,085 -8,318 2,691

Net chg in cash -2,438 1,707 -2,866 2,594

Opening cash position 5,275 2,838 4,544 1,679

Closing cash position 2,838 4,544 1,679 4,273

Key Ratios

Y/E Mar FY12A FY13A FY14E FY15E

Profitability (%)

EBITDA Margin 26.1 27.7 29.9 31.4

Net Margin 9.6 8.1 7.4 6.5

ROCE 14.0 11.8 10.2 11.7

ROE 20.2 16.4 11.4 11.2

RoIC 13.8 11.5 9.9 11.4

Per Share Data (Rs)

EPS 25.6 26.7 22.5 24.2

CEPS 29.5 31.6 29.4 33.6

BVPS 137.8 187.4 205.7 225.9DPS 4.0 3.4 3.4 0.0

Valuations (x)

PER 4.3 4.2 4.9 4.6

P/CEPS 3.8 3.5 3.8 3.3

P/BV 0.8 0.6 0.5 0.5

EV / Sales 2.2 2.4 2.6 2.4

EV / EBITDA 8.3 8.8 8.8 7.7

Dividend Yield (%) 3.6 3.1 3.1 0.0

Gearing Ratio (x)

Net Debt/ Equity 3.7 3.8 3.7 3.8

Net Debt/EBIDTA 6.8 7.6 7.7 6.8

Working Cap Cycle (days) 67.2 26.5 93.4 87.8


27/32


28/32

Ashoka Buildcon Company Update


Exhibit 36: EPC Revenue to propel higher

5.5

10.3 11.414.8 14.7 16.8

-

2.0

4.0

6.08.0

10.0

12.0

14.0

16.0

18.0


Source: Company, Emkay research

Exhibit 37: Toll revenue CAGR 13.4% over FY13-15E

1.7 1.92.6 2.9 3.0

4.3

-

1.0

2.0

3.0

4.0

5.0



Exhibit 38: Revenue CAGR 8.8% over FY13-15E

8.0

13.015.0

18.5 18.421.9

0.0

5.0

10.0

15.0

20.0

25.0



Exhibit 39: EBITDA to inch higher

2.1 2.53.3

3.7 4.0

5.3

-

1.0

2.0

3.0

4.0

5.0

6.0



Exhibit 40: EPS

5.46.5

7.3

3.9

5.74.9

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0



Exhibit 41: EBITDA Margin

26.9

19.4 21.7 20.1 21.724.0

-

5.0

10.0

15.0

20.0

25.0

30.0



Exhibit 42: Incremental Equity requirement over FY14-15E

Project Rsmn Source of funds Rsmn

Dhankuni , Belguam, Sambalpur(adj for stake) 1,500 FY13 Cash 338

Chennai orr(adj for stake) 1,000 BoT CFO over FY13-15E 1,919

Working capital Requirement 1,000 E&C CFO Over FY13-15E 2549

Debt repayment 2,695

Total 6,195 4,806

Surplus/(Shortfall) (1,389)

Source: Emkay research


29/32

Ashoka Buildcon Company Update


New projects to drive Toll revenue growth

Revenue from BOT business adjusted for stake to surge higher 13.4% CAGR over FY13-

15E whereas total revenue from BOT to post CAGR of 23% over FY13-15E. Majority of the

ramp in revenue will come from projects like Durg Chattisgarh and Chattisgarh Bhandara in

FY14E followed by commissioning of Sambalpur Baragarh & Belgaum Dharwad. The

Belgaum-Dharwad (have scalability for high traffic growth due to traffic running from

Mumbai to Bangalore on GQ) and Dhankuni-Kharagpur projects (Goods to Eastern belts ,Traffic from Haldia post to Northern & Southern region , handles minerals as well ) being 6-

laning projects, impart high visibility and comfort over futurerevenue ramp-up.

Partnership with SBI-Macquarie gives scalability

SBI Macquarie (SBI-M) has committed to invest Rs7bn (Already invested till sate of Rs3.8

bn in ACL), the holding company for ABLs new road concessions (ABL is required to invest

its share of equity of Rs8.5bn, already invested Rs7 bn). According to the agreement SBI

will have 34% stake in ACL which implies pre-money valuation of 1.6x P/B for ACL. These

valuations appear attractive considering the IRR profile of the underlying projects, and also

lend considerable credibility to ACLs project portfolio. The terms of the agreement assure

SBI-M a guaranteed 12% IRR on its initial investment of Rs7bn in ACL which entails outgo

of Rs14.6 bn by FY20E.According to the agreement there are three ways that the private investor can exit:

IPO of ACL Sale to others or swap into the individual asset SPVs. In case of a shortfall in realizing

the guaranteed returns even after swapping into the SPVs, SBI-M can increase its

stake in ACL to a maximum of 49% however; no provision to swap into the parent

company, ABL which we believe is a key positive for the shareholders of ABL.

We believe that investment is a value creating proposition considering the interest rates are

currently holding up for road project financing at 12-13% and availability of equity capital

ensures timely project completion and faster cash generation from the BOT assets. We

dont believe that 12% capital protection rate a concern considering the IRR of ACL

projects under ranges between 13-20%.

Exhibit 43: NPV of ACL portfolio

NPV ACL Stake FY14E FY15E FY16E FY17E FY18E FY19E FY20E

Dhankuni - Kharagpur 100% 3732 6241 8332 10175 12174 13820 15435

Sambhalpur - Baragarh 100% 1216 2228 2562 2937 3360 3861 4438

Belgaum - Dharwad 100% 860 972 1484 2008 2563 3145 3981

Pimpalgaon - Nasik 26% 1008 1242 1408 1612 1789 2090 2340

Under construction project

construction sector update_141013

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