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Roads conference takeaways: 20 Km/day execution likely by FY13-14
NHAI moving on the right path; however, challenges remain
We attended the Conference on Roads and Highways organized by
Infraline Energy on June 15-16 at Delhi. Key takeaways are below:
1. NHAI is targeting award of 7300 Kms in FY12 and 9000 Kms in FY13.
According to the NHAI acting chairman, India should see 21000 Kms of
roads under implementation beyond FY13-14, which in turn should lead to
execution of 20 Kms/day.
2. The two major issues delaying road projects, according to the NHAI
chairman are
Land acquisitions: Land acquisitions continue to be a major drag
on road activity. However, in a positive step, NHAI has now started
giving conditional COD in cases where land acquisition issues in
wildlife-notified areas are delaying completion of construction.
Manpower-related constraints: Consultants required to do the
pre-study, preparation of DPR, etc are fewer than required. In
addition, the employee bandwidth at NHAI is also insufficient.
NHAI is working with the government towards setting up more
training schools/institutes to increase the number of personnel
with the relevant skills.
3. New premium calculation results in back-ended cash flows, making
financiers uneasy: Premiums on newer projects are being de-linked from
revenues; instead, the initial premium will increase by 5% yoy. Lenders are
worried about this methodology, since the higher premium will imply
lower cash flow generation in the initial years, as cash flows are more
back-ended. In addition, banks are relatively more comfortable financing
road projects than projects in other infrastructure segments. However,
there is an increasing focus on the track record of the concessionaire in
addition to the commercial viability of projects.
Implications
We continue to highlight IRB (IRBI.BO, Buy) and IL&FS (ILFT.BO, Buy) as
our top picks in the roads space given their strong execution track record.
We believe road companies with a strong execution track record stand to
benefit most from the large pipeline of projects likely to be awarded by
NHAI in FY12E and FY13E. Risks: 1) Aggressive bidding; 2) lower road
project awards.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Roads conference takeaways: 20 Km/day execution likely by FY13-14
NHAI moving on the right path; however, challenges remain
We attended the Conference on Roads and Highways organized by
Infraline Energy on June 15-16 at Delhi. Key takeaways are below:
1. NHAI is targeting award of 7300 Kms in FY12 and 9000 Kms in FY13.
According to the NHAI acting chairman, India should see 21000 Kms of
roads under implementation beyond FY13-14, which in turn should lead to
execution of 20 Kms/day.
2. The two major issues delaying road projects, according to the NHAI
chairman are
Land acquisitions: Land acquisitions continue to be a major drag
on road activity. However, in a positive step, NHAI has now started
giving conditional COD in cases where land acquisition issues in
wildlife-notified areas are delaying completion of construction.
Manpower-related constraints: Consultants required to do the
pre-study, preparation of DPR, etc are fewer than required. In
addition, the employee bandwidth at NHAI is also insufficient.
NHAI is working with the government towards setting up more
training schools/institutes to increase the number of personnel
with the relevant skills.
3. New premium calculation results in back-ended cash flows, making
financiers uneasy: Premiums on newer projects are being de-linked from
revenues; instead, the initial premium will increase by 5% yoy. Lenders are
worried about this methodology, since the higher premium will imply
lower cash flow generation in the initial years, as cash flows are more
back-ended. In addition, banks are relatively more comfortable financing
road projects than projects in other infrastructure segments. However,
there is an increasing focus on the track record of the concessionaire in
addition to the commercial viability of projects.
Implications
We continue to highlight IRB (IRBI.BO, Buy) and IL&FS (ILFT.BO, Buy) as
our top picks in the roads space given their strong execution track record.
We believe road companies with a strong execution track record stand to
benefit most from the large pipeline of projects likely to be awarded by
NHAI in FY12E and FY13E. Risks: 1) Aggressive bidding; 2) lower road
project awards.
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