Roads: Doubling of roads ordering for next five years a step closer to being realized - Kotak

The recent approvals by the central and Maharashtra cabinets pave the way for a steep uptick in roads capex with limited 20% reliance on private sector for funding. Most of these are known projects which have now gotten approval from the respective cabinets. Nonetheless, the stiff timelines would suggest doubling of ordering activity for road construction players for the next five years. Beyond roads, key projects getting approval include Mumbai Metro (line 5 and 6) and Navi Mumbai International airport. Key beneficiaries include road construction names in Sadbhav Engineering (Rs293, ADD, Rs240) and Ashoka Buildcon (Rs192, BUY) and diversified play in L&T (Rs1,140, ADD, TP: Rs1,300). Pace of land acquisition and shoring up of funding would be key determinants of whether or not the capex envisaged gets realized over the next five years.

Bharat mala: Rs5.5 tn boast to highway projects beyond NHDP

The cabinet approval of the Bharat mala project (as per news reports) would boost prospects of road construction players and developers. Stiff timelines would imply ~8,000-10,000 kms of annual ordering versus current run-rate from NHAI at sub-5,000 kms. The same provides continuity to ordering with NHDP programme having less than 10,000 kms of projects remaining to be awarded. Reliance on private sector for funding would be modest at ~20%, versus 60-70% levels seen in FY2012 but and some leg up from current standpoint. The broad programme also involves setting up of economic corridors and thus would facilate bringing down the cost of logistics over the long term.

- Bharat mala project covers projects worth ~34,000 kms of highways and related investment of Rs5.3 tn happening over the next 5 years. This implies annual ordering of Rs1.7 tn over the next three years, more than double of the current run-rate of ordering from NHAI (excludes MORTH projects)..

- For the highway construction programme, Rs2.1 tn will come from market borrowing, Rs1.1 tn is expected to come through private investment and Rs2.2 tn will come from the central road fund and through toll operate transfer model.

- Overall spending approved by the cabinet includes another Rs1.6 tn. Such addition includes constructing 6,000 km long inter corridor and feeder routes, 2,000 km of border and international connectivity roads, 5,000 km to be upgraded under the national corridor efficiency programme, 800 km of greenfield expressways, 10,000 km under the NHDP and 2,000 km of coastal and port connectivity roads.

- The related 44 economic corridors to be developed include Mumbai-Cochin-Kanyakumari, Bengaluru-Mangaluru, Hyderabad-Panaji and Sambalpur-Ranchi. These economic corridors plan to open up India's hinterland to development.

Maharashtra cabinet approves Rs850 bn of capex

Maharashtra cabinet has cleared projects worth Rs850 bn, most of which belong the Mumbai Metropolitan Region. Most of these relate to known projects in metros (Rs150 bn), hybrid annuity (Rs300 bn), Navi Mumbai airport (Rs160 bn, Rs50 bn in phase I) and Mumbai Nagpur expressway (Rs500 bn). This paves the way for such ordering getting realized over the next few years.

- The two metro lines approved include Metro line 5 worth Rs84 bn (Thane-Bhiwandi-Kalyan, 24 km) and Metro line 6 worth Rs67 bn (Swami Samarthnagar-Jogeshwari - Vikhroli, 14.5 km). These would get funded from off-budget borrowings.

- The cabinet also cleared the Rs160 bn Navi Mumbai International Airport Project. The timeline for phase I (~Rs50 bn) is set at December 2019. After getting the formal award, GVK would have 6 months to source funding for the project. The project is expected to start construction in early CY2018.

- The Hybrid annuity projects programme worth Rs300 bn had received a lukewarm response from participants. The Maharashtra cabinet has approved the following changes to the model concession agreement: (1) 60% funding from the government (40% earlier), (2) contractor to be repaid over 20 years (15 year earlier) and (3) minimum road length reduced to 50 km (100 km earlier). This would entail a support of Rs90/100 bn from the state exchequer for these projects over FY2019 and FY2020.

- The cabinet has also given nod for formation of an SPV for the 701-km Mumbai Nagpur expressway. All funds required for the project will be raised through the SPV, Nagpur Mumbai Super Communication Expressway Ltd. This project would have a project cost of ~Rs500 bn and would be awarded in 16 packages.

Source : Equity Bulls

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