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Construction : Cover Story | July 2018 | Source : CW-India

48 per cent of NHAI's 150 awarded road projects bagged by mid-size contractors in FY18. Here's more!

States such as Tamil Nadu, Madhya Pradesh, Maharashtra, Rajasthan and Chhattisgarh are expected to incur higher capex on roads in FY18E, according to a recent Equirus report titled Construction 1QFY18 Results Tracker: A Step in the Right Direction.

Consider this:
  • Tamil Nadu: Last leg of 115 km of state highways and 107 km of major district roads (MDRs) to be executed at Rs 1.6 billion.
  • Maharashtra: 195 projects worth Rs 300 billion proposed under HAM; Rs 35 billion allocated for these projects.
  • Rajasthan: Development of rural roads the highest priority; 1/3rd of budgetary allocation of Rs 21 billion towards these. 
  • Chhattisgarh: Rs 61.27 billion allocation for roads and bridges; 43 per cent CAGR rise in allocation over FY16.
  • Karnataka: 418.5 km of core road networks to be developed at an estimated Rs 53.1 billion.
  • Telangana: Development and widening of 8,987 km under progress at Rs 45.64 billion.
  • Andhra Pradesh: Budget allocation of Rs 1.97 billion towards rural roads; further Rs 5.02 billion proposed under PMGSY.
  • Haryana: Focus on newer projects like Delhi-Amritsar-Katra and Kundli-Manesar-Palwal.
  • Kerala: Eight projects lined up at Rs 5.8 billion.
  • Reports further indicate that in FY18, NHAI set a record by awarding 150 road projects of 7,397 km; 63 per cent of the projects were awarded under HAM, 53 per cent under EPC and the remaining under BOT. Over the past two years, the change in bidding strategies from BOT to the less capital-intensive EPC and HAM modes has been evident and NHAI and the Ministry of Road Transport and Highways have been floating tenders for smaller projects.

That said, the share of mid-size projects (in the Rs 5 billion-10 billion bracket) made up 40 per cent of all contracts in FY18, as reported. What's more, reports also indicate that projects in the Rs 10 billion-20 billion bracket rose from the 15 per cent base to 22 per cent of all contracts. This has certainly opened a new window of opportunities for mid-size contractors. While the biggest contract winners were large companies such as Dilip Buildcon, IRB Infrastructure Developers and Ashoka Buildcon, 90 mid-size developers are known to have bagged a huge pie of 48 per cent of the bids awarded in the year - CW calls them Bold Bidders! In fact, some prominent companies share more on their recently bagged projects, strategies and growth chart this month with us (interviews from page 62).

Big baggers
While the current scenario has created room for all, the big developers seem to be strategising and being more selective in their approach towards bidding.
In a recent interview with INFRASTRUCTURE TODAY, Karunakaran Ramchand, Managing Director, IL&FS Transportation Network, said, 'We have aligned our strategies and believe there will be ample opportunities for a large player like us with expertise in developing road or tunnel networks under the PPP and EPC modes.'  
IRB Infrastructure Developers has bagged four projects from NHAI. 'The first time we forayed into HAM, we won three projects: Two in Tamil Nadu and one in Gujarat,' shares Virendra D Mhaiskar, Chairman and Managing Director, IRB Infrastructure Developers. 'The fourth project, under BOT, is in Uttar Pradesh. The aggregate length of the projects is about 220 km and the cost outlay is Rs 89.30 billion.'
Of the many big ticket projects awarded under the Bharatmala programme, Ashoka Buildcon bagged five major projects worth Rs 55 billion. These include three projects in Karnataka, one in Gujarat and one in Jharkhand. 'We have a strong order book of viable projects of about Rs 120 billion that will contribute significantly to the health of the company,' says Sanjay Londhe, Director & CEO Projects, Ashoka Buildcon. 'We will continue to bid for viable projects; more important, we will focus on completing projects in hand.'

Better risk allocation
Lenders to HAM-based highway projects are comfortably placed with the debt level in a safe zone and bidding not unduly aggressive. With banks extremely cautious and shying away from projects not backed by experienced sponsors with strong financials, developers with healthy financials are the ones vying for HAM projects, which is keeping bids prudent.

In a note to investors, Sachin Gupta, Senior Director, Crisil, said, 'Banks are limiting their exposure to 35 per cent compared to 70 per cent in BOT.'

At a recent AIIB Annual General Meet, Interim Finance Minister Piyush Goyal exclusively shared with the CW team, 'If we try to bunch HAM, EPC and PPP together, it will be difficult for the government to implement some of the envisaged programmes.' He went on to add, 'Generally, the government tries to keep each mode of execution independently, considering sectoral, project, gestation period and financial risks. So it's better not to try and mix up modes of execution.' While the minister hinted that the government is not completely phasing out the PPP mode, he said, 'With the focus on HAM, don't think that NHAI is stressing its balance sheet because these projects are giving capital, which are available for future projects. It works both ways: It's great for the developers and it's great for the country too. In fact, owing to such models, particularly HAM, look at the amount of mid-level and small-level players that have bid for projects!'

For its part, NHAI continues to be on an awarding spree. An award pipeline of about 568 km worth Rs 139.5 billion is currently visible on the authority's website. And, as reflected in the Equirus report, currently 13 HAM projects covering 573 km with a total project cost of Rs 163.8 billion are to be bid out. It's boom time for the bold!
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