Govt spending in road sector benefits mid-size infra firms

Source: The Hindu Business Line, Oct 11, 2017

Mumbai: The Centre’s investments in the road sector have benefited small and mid-size construction and infrastructure companies. Analysis of data from the National Highways Authority of India (NHAI) shows that top-10 receivers of contracts during 2016-17 fiscal bagged around 30 out of the 76 projects. This accounts for more than 50 per cent of the total projects worth around ₹60,000 crore awarded.

Large conglomerates leading the infrastructure sector both in terms of order inflow, revenues and market cap, including companies like L&T, IL&FS, Tata, benefited less from NHAI bids. For example, L&T won just two contracts worth ₹1,700 crore while Tata Realty and Infrastructure Limited (TRIL), a subsidiary of Tata Sons, won just one project worth ₹1,100 crore.

Industry players suggest the size of contracts awarded is not enough for large companies to keep healthy margins. And with NHAI’s focus on awarding project through a new Hybrid Annuity Model (according to ICRA, more than 50 per cent of contract awards in FY17 were made through HAM model when compared to just 8 per cent in FY16), this trend is likely to continue. Most of the HAM projects awarded so far have been in the range of ₹1,000-2,000 crore which is too small to attract larger players, experts point out.

“While we keep doing projects in the road sector, for L&T, it is important to participate in outstanding projects where we can add value by doing something that no other player in India is capable of doing,” MV Satish, Whole-Time Director and Senior Executive Vice-President (Buildings, Minerals and Metals), L&T, told BusinessLine.

He added that despite the tendering activity for iconic road projects announced earlier have been somewhat slow, the bids for these projects, including the Mumbai Trans Harbour Link, should be finailised in the third or fourth quarter of the current fiscal.

 Upcoming players

According to Rohan Suryavanshi, Head – Strategy & Planning at Dilip Buildcon, the Bhopal-based road developer that has bagged the largest number off NHAI contracts in the last financial year up to the tune of ₹7, 000 crore and has recently divested its entire road portfolio to Shrem Group, says there has been a lot of actions happening in the road sector compared to other sectors.

“A lot of orders have been added to our order book in past one-two years, around ₹11,000 crore have come only from the road sector,” Rajiv Reddy, Vice-President, Operations at Hyderabad-based Gayatri Projects Ltd told BusinessLine. “By March-end, we are targeting another ₹5,000 crore as we are bidding for projects worth of ₹25,000 crore over the next couple of months,” he added.

 Optimistic targets

In the 2016 financial year, the number of project awards by NHAI saw 43 per cent increase from 3,076 km in FY15 to 4,390 km, ICRA report says. Although the pace of both project awards and construction was way below the targets set (the total target for project bidding was 25, 000 km out of which NHAI was supposed to tender 15,000 km and MoRTH the remaining 10,000 while the construction target was 15,000 km out of which not more than half was achieved), analysts expect the momentum to pick up significantly in the current fiscal.

 

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