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Hectic award activity
Over the next six weeks, NHAI plans to award nine projects (1,924km),
including the 556km Krishangarh Ahmedabad project. In the near term,
bidding is likely to remain aggressive. However, a sustained pick up in project
awards, along with difficulty in securing financial closure for aggressively bid
projects, should make bidding more pragmatic over the longer term. IRB’s
valuations look reasonable at 11x FY12 PE. Maintain O-PF; though we would
look to upgrade our reco, should any signs of easing of competitive bidding
intensity and rebound in the sluggish trend of BOT revenues emerge.
Strong bidding season. NHAI has invited pricing bids for nine projects
aggregating 1,924km over the next six weeks; six projects (1,010km) are Phase
IV (two-laning) projects, two (358km) are Phase III (four-laning) projects, while
one (556km) is a Phase V (six-laning) project. NHAI plans to award ~7,300km in
FY12, cf. 5,100km in FY11 and 3,200km in FY10. We believe that this is
achievable, given that some of the issues that led to target misses (delays in
obtaining PPPAC approvals, shortage of consultants) have been addressed to a
certain extent, though land acquisition continues to be a challenge.
Krishangarh Ahmedabad presents a large construction opportunity. NHAI
is targeting to award the 556km Krishangarh Ahmedabad project towards Julyend. This is India’s largest highway project, with NHAI approved project cost of
Rs54bn; IRB believes that actual cost could be 20-30% higher. There are 11
bidders for this project and IRB has bid in consortium with Reliance Infra; bidding
competitive intensity could be lower given the project’s large size.
Phase IV projects are also inviting 20-40 bidders. NHAI was earlier
contemplating awarding Phase IV (two-laning) projects on Annuity/ EPC basis, as
it was worried that these projects may not appeal the private sector. However, six
Phase IV projects are proposed to be awarded on Toll basis over the next six
weeks and are generating significant private sector interest, with 20-40 bidders.
Banks are becoming cautious. Our conversations with industry participants
suggest that banks are becoming cautious in lending to the highway sector, in
view of concerns on aggressive bidding. Moreover, it is becoming difficult to
financially close projects at interest rates lower than 11.5-11.75%.
Maintain O-PF. Bidding is likely to remain aggressive in the near term.
However, a pick up in project awards, along with difficulty in securing financial
closure for aggressively bid projects, should make bidding more pragmatic in
the medium to longer term. As one of the leading BOT toll road operators in
India, IRB stands to benefit. Its valuations look reasonable, at 11x FY12 PE
and 6x P/CEPS (55% of CEPS from BOT); we maintain O-PF. We would look to
get more constructive on IRB’s stock should any signs of easing of
competitive intensity and rebound in sluggish BOT toll revenue emerge.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hectic award activity
Over the next six weeks, NHAI plans to award nine projects (1,924km),
including the 556km Krishangarh Ahmedabad project. In the near term,
bidding is likely to remain aggressive. However, a sustained pick up in project
awards, along with difficulty in securing financial closure for aggressively bid
projects, should make bidding more pragmatic over the longer term. IRB’s
valuations look reasonable at 11x FY12 PE. Maintain O-PF; though we would
look to upgrade our reco, should any signs of easing of competitive bidding
intensity and rebound in the sluggish trend of BOT revenues emerge.
Strong bidding season. NHAI has invited pricing bids for nine projects
aggregating 1,924km over the next six weeks; six projects (1,010km) are Phase
IV (two-laning) projects, two (358km) are Phase III (four-laning) projects, while
one (556km) is a Phase V (six-laning) project. NHAI plans to award ~7,300km in
FY12, cf. 5,100km in FY11 and 3,200km in FY10. We believe that this is
achievable, given that some of the issues that led to target misses (delays in
obtaining PPPAC approvals, shortage of consultants) have been addressed to a
certain extent, though land acquisition continues to be a challenge.
Krishangarh Ahmedabad presents a large construction opportunity. NHAI
is targeting to award the 556km Krishangarh Ahmedabad project towards Julyend. This is India’s largest highway project, with NHAI approved project cost of
Rs54bn; IRB believes that actual cost could be 20-30% higher. There are 11
bidders for this project and IRB has bid in consortium with Reliance Infra; bidding
competitive intensity could be lower given the project’s large size.
Phase IV projects are also inviting 20-40 bidders. NHAI was earlier
contemplating awarding Phase IV (two-laning) projects on Annuity/ EPC basis, as
it was worried that these projects may not appeal the private sector. However, six
Phase IV projects are proposed to be awarded on Toll basis over the next six
weeks and are generating significant private sector interest, with 20-40 bidders.
Banks are becoming cautious. Our conversations with industry participants
suggest that banks are becoming cautious in lending to the highway sector, in
view of concerns on aggressive bidding. Moreover, it is becoming difficult to
financially close projects at interest rates lower than 11.5-11.75%.
Maintain O-PF. Bidding is likely to remain aggressive in the near term.
However, a pick up in project awards, along with difficulty in securing financial
closure for aggressively bid projects, should make bidding more pragmatic in
the medium to longer term. As one of the leading BOT toll road operators in
India, IRB stands to benefit. Its valuations look reasonable, at 11x FY12 PE
and 6x P/CEPS (55% of CEPS from BOT); we maintain O-PF. We would look to
get more constructive on IRB’s stock should any signs of easing of
competitive intensity and rebound in sluggish BOT toll revenue emerge.
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