We hosted a conference call with National Highways Authority of India (NHAI) represented by Mr
G Suresh (Chief General Manager – Finance, Matters Concerning Public Private Partnership (PPP)
Policy). Below we highlight some of the key takeaways from the conference call.
Land acquisition is no longer a cause for concern. NHAI has started reaping the rewards of its
strategy to increase manpower strength at the ground level. However some states (e.g., Uttar
Pradesh, Bihar, Punjab, Kerala) remain less cooperative (more details on page 2).
Confrontation with Planning Commission being resolved. NHAI has opined that it is not
possible to match cess funds (charged on petrol sales) with annuity payments for each year, which
was the issue raised by the Planning Commission. It also clarified that any shortfall in financing
(including annuity payments) in a particular year would be met through market borrowings.
Additionally, it will relook at the viability of certain annuity projects and award them either as cash
contracts or toll projects, to accelerate the project awards (more details on page 2).
NHAI is likely to tap corporate debt market over next three years. Most of NHAI’s external
funding is in the form of tax free bonds (short-term maturity). While it is currently in talks with
multilateral agencies, it plans to tap the debt market with long-term paper (power dominates the
infrastructure sector in the debt market) to finance the budget shortfall. It anticipates borrowing
INR200bn (USD4.5bn) over FY11-13.
We think NHAI can achieve 6,000-7,000km of project awards in FY11. NHAI has awarded
c2,800km up to September 2010 (c2,600km during Apr-May 2010). With steps taken to restructure
the viability of outstanding live projects and c5,000-7,000km new projects available for bidding
over the next six months, we think NHAI can achieve c6,000-7,000km in FY11. Our estimate is
further supported by the healthy response to its recent projects (>40 applications per project).
We remain positive on long-term growth prospects (IRB is our top pick). While
NHAI voiced an upbeat tone on the revival of project awards, historical evidence suggests
that results will come, though with a lag. Hence, despite a negative bias in the near term
(3-4 months), we remain positive on the long-term sector growth prospects. IRB (IRB IN,
OW(V), INR281, TP INR355) is our top sector pick.
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