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Transcript of India Infrastructure Jun10
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This product has been prepared in collaboration with Feedback Ventures. Refer page 20 for details.BNP Paribas research is available on Thomson Reuters, Bloomberg, and on http://equities.bnpparibas.com.Please contact your salesperson for authorisation. Please see the important notice on the inside back cover.
THINK TANK SERIES
In collaboration with Feedback Ventures
June 2010
Ind ia Transpor t In f ras t ruc t ure B igger
oppor t un i t ies , t ougher qua l i f ica t ions
We are witnessing an increase in the average project size, tightening of pre-
qualification norms and unfavorable geographical concentration of highway
projects. Although the aggregate opportunity size remains about INR1.9t,
cherry-picking the right project is gaining importance. IRB Infrastructure has won
only 3% market share year to date, implying cautious bidding. IL&FS
Transportation Networks has captured the highest share, at 9%.
Our analysis of recent bids reveals that some smaller players were veryaggressive bidders. Competition remains fragmented, implying a positive effect
from the changes recommended by the B K Chaturvedi Committee. We expect
this trend to reverse in the case of mega projects (tighter restrictions).
The Dedicated Freight Corridor (DFC) is the next biggest opportunity in the
railways segment (INR650b). The progress has been slow with only two partial
stretches having been awarded so far. Partial financing has been tied up with
multilateral agencies and a Japanese agency. Land acquisition remains the
biggest challenge. L&T should be a major beneficiary in our sector coverage.
Finally, metro projects are showing some progress. Hyderabad Metro (INR121b)
will be re-bid in July 2010. Two other projects Jaipur (INR75b) and Pune
(INR79b) are on the anvil. L&T and Reliance Infrastructure could be major
beneficiaries of these opportunities.
Vishal Sharma, CFA
BNP Paribas Securities India Pvt Ltd
(91 22) 6628 2441
Shashank Abhisheik
BNP Paribas Securities India Pvt Ltd
(91 22) 6628 2446
PREPARED BY BNP PARIB AS SECURITIES ASIA THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. IMPORTANT DISCLOSURES CAN BE FOUND IN THE DISCLOSURES APPENDIX.
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Contents
1) Changes in national highway business opportunity............................ ................................................................... ................. 3Change in average project size of the balance NH pipeline........... ..................................................................... ................ 3Change in pre-qualification norms............................. ................................................................ .......................................... 3Change in geographical concentration.................................................. ...................................................................... ........ 3
2) Project pipeline: Is it getting riskier? ......................................................... ..................................................................... .......... 4What are the naxal-affected areas? .................................................... ........................................................................ ........ 4Why is this issue a big deal? ..................................................... ........................................................................ .................. 4Who is affected? What to watch out for?................................... ......................................................................... ................. 4How to tackle the issue? What are the steps taken by the government? ...................................................... ...................... 4
3) Analysis of recent bids ........................................................ .......................................................................... ............................. 5Annuities versus Tolls ...................................................... ....................................................................... ............................ 5Fragmented competition........................................... ....................................................... .................................................... 5Are the bids aggressive?............... ........................................................ ..................................................................... ......... 6
4) Dedicated Freight Corridor.................................. ............................................................ ........................................................... 8Project administration........... ........................................................... .......................................................................... .......... 8Dedicated freight lines.......... ....................................................... ..................................................................... ................... 8Logistic parks ..................................................... ........................................................... ...................................................... 8Funding ......................................................... ............................................................ .......................................................... 9Technologically advanced................................................... .................................................................... ............................ 9Projects awarded ................................................... ........................................................ ..................................................... 9Major challenges ................................................... ........................................................... ................................................... 9
5) Metro projects................................................. ............................................................ ............................................................... 11Hyderabad metro .................................................... ....................................................... ................................................... 11Jaipur metro .......................................................... ......................................................................... ................................... 12Pune metro.......................................... ....................................................... ....................................................................... 12
6) About Feedback Ventures ....................................................... ........................................................................ ......................... 14
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Please see India Research Team list on page 15.
Cover page pictures courtesy:
Mumbai Metro I - Reliance Infrastructures
Mumbai Monorail Larsen and Toubro
Naini-Allahabad Bridge HCC with Hyundai E&C
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Changes in nat ional h ighw ay bus iness oppor t un i tyThe national highway (NH) opportunity for developers is changing rapidly. The changes
can be categorised along the following:
Change in average pro ject s ize of the balance NH pipel ineAn analysis of NHAI projects with bid dates in the months of May and June 2010
indicates that the average project size is increasing. The average project length is
150kms (compared with the 100kms for last year) and average project cost is above
INR9b.
In the current pipeline, there are at least five projects with project sizes of above
INR20b. Very few Indian players are likely to qualify for projects of this size, allowing
larger players a higher chance of winning such projects.
Change in pre-qual i f icat ion normsRecent changes in the pre-bid qualification criteria of the NHAIs concessions have
altered the scenario for Indian players considerably. In line with expectations of more
stringent technical and financial requirements, the method of calculating the technical
and financial scores of consortiums has been changed.
The new method requires taking a weighted average of scores (technical and financial)
in proportion to the equity share for each member in a consortium. This means that thesize of the players and their credentials need to be substantially bigger to fit the bill.
The magnitude of the change can be understood from the fact that, for a INR50b
project, in the past two players with a combined technical score of 5,000 would have
sufficed; now in the most favourable scenario, the combined technical score would have
to be 5,000, multiplied by the number of members in the consortium. This means that
the requirement for financial and technical scores for a consortium has gone up by a
factor equal to (or greater than) the number of members in it.
We estimate only 10-15 Indian players have more than 2,500 technical points on their
own to qualify for projects of INR25b. This means that rest of the players would need to
form consortiums with larger players to bid for large projects and competition in these
projects would be limited.
Change in geographica l concentrat ionThe remaining opportunities in the highways development program are getting
concentrated with filtered projects. Some of these opportunities did not attract bids in
the initial rounds, due to the non-viability of the projects or they were located in the
disturbed areas, where it becomes difficult to execute projects. We discuss this in detail
in the next section of this report.
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Projec t p ipe l ine: Is i t get t ing r isk ier?Incidents such as the Dantewada (Chattisgarh) Maoist attacks raise questions about
the implementation of the infrastructure development program in India. We analyze this
with respect to transport infrastructure specifically. Naxal activities (terrorist activities)
affect development in two ways: 1) they create challenges in acquiring land (one of the
biggest impediments in infrastructure development); and 2) make the work environment
dangerous for workers, repelling private contractors from these regions.
What are the naxal-af fected areas?Naxal-affected areas in India are notified by the Central Government under the Terrorist
Affected Areas (Special Courts) Act 1984. Accordingly, the Central Government has
identified 131 districts that are at least marginally naxal-affected, of which 51 are
severely affected and 18 moderately affected. The government notifies an area as
naxal affected based on the gravity of the (terrorist) offence. The states that are
particularly affected are Andhra Pradesh, Chattisgarh, Jharkhand, Jammu & Kashmir,
North-eastern states, parts of West Bengal, Orissa, Bihar, Karnataka, Madhya Pradesh,
Maharashtra and Tamil Nadu.
Why is th is issue a b ig deal?As long as there were projects available in attractive, higher-growth regions of India,
projects in naxal-affected areas did not get sufficient bidder interest. Consequently, asignificant portion of the projects that are going to be awarded now, especially in
highways sector, are in these areas. For instance, 2,800kms (23% or INR280b) of
NHAIs Work Plan I and 6,000kms (50% or INR600b) of Work Plan II are in the naxal-
affected areas. Separately, two of the UMPPs that have yet to be bid out are in the
states of Orissa and Chattisgarh (one each). Additionally, in the railway sector, parts of
the Dedicated Freight Corridors (Eastern) pass through these areas, which will likely to
create impediments in land acquisition.
Who is a f fec ted? What t o w atc h ou t fo r?Private developers that take up projects in these areas face issues in executing them.
On the positive side, profitability in these projects is typically higher than average.
Investors should judge historical success of execution of such projects before choosing
to invest in a specific developer. Hindustan Construction (HCC IN, CP: INR117,REDUCE) is one of the developers that has expertise in executing projects in these
areas.
How to t ack le t he issue? What a re the s teps tak en by thegovernment?In almost all infrastructure projects, the onus of land acquisition is on the government.
Private developers typically start work after the possession of land has been given.
However, in certain cases, we believe effective execution of the project is ensured if the
private developer works with the government in educating the benefits of development
and inclusive growth. For instance, in highways, the NHAI has the option to award the
projects on BOT-Toll or BOT-Annuity or EPC basis. In naxal-affected areas, the choice
is typically annuity (eliminates traffic risk) or EPC (eliminates ownership risk) contracts.
Therefore, by reducing or eliminating certain risks from the projects, NHAI can still
award these projects and ensure development in the naxal-affected areas.
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Analysis o f r ecent b ids
Annui t ies versus Tol lsWe analyze 3,611kms of highway project awards worth INR417b (43 projects) since
November 2009. The average cost per kilometer for these projects is INR99m and the
average cost per lane kilometer is INR23m. Annuities comprised 28% of the highway
universe by length and 34% by value, implying that the average cost of annuity projects
was higher than the toll awards.
Exhibit 1: Share By Length During Nov 2009-Jun 2010 Exhibit 2: Share By Value, During Nov 2009-Jun 2010
Toll
72%
Annuity
28%
Toll
66%
Annuity
34%
Sources: NHAI; BNP Paribas Sources: NHAI; BNP Paribas
Fragmented compet i t ionCompetition in the market remains fragmented. The highest market share was garnered
by IL&FS Transportation Network (ILFT IN, CP: INR289; Not rated) with a 9% share of
the total awards in the universe. Nagarjuna Construction (NJCC IN, CP: INR188, BUY),Reliance Infrastructure (RELI IN, CP: INR1,188, BUY), Hindustan Construction, Soma
(in consortium; not listed), Transtroy (in consortium; not listed), Navyuga (in consortium;
not listed), and IVRCL (IVRC IN, CP: INR185, BUY)were other major gainers (5% or
more market share). IRB Infrastructure (IRB IN, CP: INR276, BUY) bagged one project
that translates into 3% market share.
Exhibit 3: Fragmented Competition
Soma-
Isolux
7%Transstroy
6%
SEL
4%
Shapoorji
4%
IRB
3%
Navyuga
6%
Oriental-
Leighton
5%
Others (15)
27%
IL&FS
10%NCC
8%
RELI8%
HCC
7%
IVRCL
5%
Sources: NHAI; BNP Paribas
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Are the b ids aggressive?We have classified the bids into three categories:
1 Annuity-based projects: In these projects, the concessionaire receives a fixed
amount (the bid amount) from the NHAI every six months (semi-annual payout) for
the duration of the concession. There is no traffic risk in these projects for the
concessionaire. We have compared the difference of the net present value of the
winning bid and the next best bid as a proportion to the total project cost (TPC) todecide if the project was aggressively bid for.
Exhibit 4: Annuity-Based Bid
TPC Bidder Bid
NPV
of bid
Variation in
NPV of L1
and L2
Variation in
NPV as % of
TPC
(INR m) (INR m) (INR m) (%)
L1 Navyuga KPCL 2,450 37,820Quazigund-Banihal 19,870
L2 Coastal SREI 3,334 51,46713,646 68.68
L1 GPT Infraprojects/RDS Projects (annuity) 71 1,029Forbesganj - Jogbani 735
L2 JKM Infra Projects Pvt Ltd. 100 1,450420 57.21
L1 BSC-C&C 524 7,598Muzaffarpur - Sonbarsa 3,120
L2 Madhucon 640 9,2801,682 53.91
L1 Transstroy (I) Pvt Ltd 213 3,088
Trichy-Karaikudi including Trichy bypass 3,740 L2 GVR Infra 344 4,988 1,899 50.79L1 Transstroy - OJSC consor 205 2,972
Dindigul-Theni- and Theni-Kumli Sect 5,010L2 GVR Galfar 371 5,379
2,407 48.04
L1 Madhucon 654 9,483Chhapra - Hazipur 6,910
L2 BSC & C&C 879 12,7453,262 47.21
L1 Shapoorji 2,019 29,274Jammu to Udhampur 18,140
L2 Gammon 2,350 34,0734,799 26.46
L1 ILFS 3,175 46,035Chennai Nashri 25,190
L2 Gammon 3,600 52,1986,162 24.46
L1 SREI Gulfar 1,356 19,661Udhampur Ramban 9,710
L2 BSC & C&C 1,499 21,7352,073 21.35
L1 Pratibha 130 1,670Bhopal-Sanchi 2,090
L2 JMC 157 2,017347 16.60
L1 IL&FS 725 10,512Jorbat-Shillong (SARDP) 2,170
L2 Oriental 739 10,715203 9.35
L1 Ramky 1,348 19,545Srinagar Banihal 11,010
L2 BSC & C&C 1,380 20,009
464 4.21
Sources: NHAI; BNP Paribas
2 Toll-based projects bid on a grant to be received from NHAI: In these projects,
the concessionaire would receive a grant from the NHAI during the construction
period. This grant is to augment toll revenues, which were insufficient to provide an
adequate return on the construction and other O&M costs. Here, the aggressive bid
is the one where the difference between the winning bid and the next best bid as a
proportion of the total project cost is higher than the average.
Exhibit 5: Toll-Based Bids (Grant)
TPC Bidder Bid
NPV of
bid
Variation in
NPV of L1
and L2
Variation in
NPV as % of
TPC
(INR m) (INR m) (INR m) (%)L1 Transstroy - OJSC 1120 1,120
Kar/Ker Border to Kannur 12,350L2 Patel KNR 3490 3,490
2370 19.19
L1 Transstroy 550 550Tirupathi-Tirutani-Chennai 5,700
L2 IRB 1080 1,080530 9.30
L1 Soma-Isolux 5640 5,640Varanasi - Aurangabad 28,480
L2 Gammon-Macquarie 7140 7,1401,500 5.27
L1 SEL 2736 2,736Bijapur-Hungund section of NH 13 7,480
L2 GMR-Oriental 2799 2,79963 0.84
L1 GMR-Oreintal (51:49) 3409 3,409Hungund-Hospet section of NH13 9,460
L2 SEL 3476 3,47667 0.71
L1 NCC 1240 1,240Dankuni-Baleshwar 20,340
L2 Soma 1330 1,33090 0.44
L1 Navayuga 612 612Hyderabad - Bangalore of NH 7 6,800
L2 SEL 620 6208 0.12
L1 Abhijeet 1392 1,392Barhi-Hazaribagh 3,980
L2 -
Sources: NHAI; BNP Paribas
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3 Toll-based projects bid on a premium: In these projects, the toll revenues are
adequate to compensate for the costs incurred on the project. Hence, the
concessionaire agrees to share a fixed amount of money with NHAI in the first year
of operations, which increases by 5% per annum throughout the concession
period. In this case, the difference between the net present values of the winning
bid and the second best bid as a proportion to the total project cost would indicate
whether a bid has been aggressive.
Exhibit 6: Toll Based Bids (Premium)
TPC Bidder Bid
NPV of
bid
Variation in
NPV of L1
and L2
Variation in
NPV as % of
TPC
(INR m) (INR m) (INR m) (%)
L1 DLF-Gayatri (241) (2,333)Indore-Dewas 3,250
L2 Ashoka Buildcon (51) (494)1,839 56.58
L1 GVK (486) (4,619)Deoli - Kota 5,934
L2 IRB (270) (2,566)2,053 34.60
L1 IRB (1404) (14,023)Tumkur-Chitradurga 12,000
L2 BSCPL (1271) (12,694)1,328 11.07
L1 RELI (669) (6,475)Hosur Krishnagiri 9,300
L2 Ashoka Buildcon (602) (5,826)648 6.97
Sources: NHAI; BNP Paribas
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Dedicat ed Fre ight Corr idor
Pro jec t admin is t ra t ion A special purpose vehicle (SPV), Dedicated Freight Corridor Corp of India Ltd
(DFCCIL), was set up in October 2006 to implement the Dedicated Freight Corridor
project.
While the design, construction and development will be done by DFCCIL, the
operations will be handled by Indian Railways.
The implementation will be in a combination of EPC and PPP models. Consultants
have been appointed to finalize the framework for implementation.
Dedicated f re ight l ines The project envisages construction of 2,800kms of rail corridor spanning seven
states. The maximum length will be in Uttar Pradesh (UP) (37%). Total land
required is 12,500 hectares.
The DFC is divided into two Eastern Corridor and Western Corridor. The Eastern
Corridor will connect Ludhiana (Punjab) and Son Nagar (Bihar) (1,279kms) and the
Western Corridor will connect Dadri (UP) to Jawaharlal Nehru Port Trust, Mumbai(Maharashtra) (1,483kms).
Beneficiaries are civil contractors, Larsen & Toubro (LT IN, CP: INR1,836, BUY) for
civil, mechanical and electrical works), Kalindee Rail Nirman (KRNE IN; CP:
INR133; Not rated), Texmaco (TXM IN, CP: INR133; Not rated), Stone India
(STON IN; CP: INR54; Not rated), BEML (BEML IN, CP: INR1,036; Not rated),
Titagarh Wagons (TWM IN, CP: INR379; Not rated), Kernex Microsystems (KMSI
IN, CP: INR95; Not rated)and MIC Electronics (MICE IN, CP: INR41; Not rated).
Log ist ic parks The DFC envisages setting up a complete supply chain that includes logistic parks
located along railways. Multimodal Logistic Parks (MMLPs) are envisaged at
selected locations along the DFCs.
The locations for the logistic parks are Navi Mumbai, Vapi, Ahmedabad,Gandhidham, Jaipur, and Rewari on the Western Corridor and Ludhiana and
Kanpur on the Eastern Corridor. This initiative will be through the Public Private
Partnership (PPP) route. The total opportunity is worth INR200b.
Beneficiaries are logistics companies such as Sical Logistics (SICL IN, CP: INR74;
Not rated), World Windows Infrastructure (not listed), Container Corp of India
(CCRI IN, CP: INR1,297; Not rated), DHL Logistics (not listed), Mahindra Logistics
(not listed), Transport Corporation of India (TRPC IN, CP: INR117; Not rated),
GATI (GTIC IN, CP: INR62; Not rated)and Adani Logistics (not listed).
Exhibit 7: Implementation Phases Of The DFC
Corridor Stretch Distance Expected Financing
completion Institution amount Cost
Western
Phase I Rewari-Vadodara 920 kms 2009-16 JICA INR180b 0.20%
Phase II Vadodara-JNPT 430 kms 2010-17
Phase III Rewari-Dadri 140 kms 2010-17
Eastern
Phase IA Sonenagar-Mughalsarai na 2009-16
Phase IB Mughalsarai-Khurja 710 kms 2010-16 World Bank INR125b (USD2.5b) 5.50%
Phase II Khurja-Ludhiana 413 kms 2011-17
Note: JICA: Japan International Cooperation Agency; ADB: Asian Development Bank; na: Not availableSources: DFCCIL; BNP Paribas
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Funding DFCCILs most recent estimate of DFC is INR650b. This expenditure is likely to be
funded in 2:1 debt-to-equity ratio.
The sources of funds are the Ministry of Railways (MoR) internal generation,
budgetary support, multilateral/bilateral agencies, PPP and debt.
The World Bank has in principle approved USD2.5b for construction of theMughalsarai-Khurja stretch on the Western Corridor.
The Asian Development Bank (ADB) has proposed to provide technical assistance
of USD1.5b for feasibility study of the 430km of Ludhiana-Khurja stretch on the
Western Corridor. Both loans are at an annual interest of 5.5%.
JICA has committed to INR180b at 0.2% for funding 920kms stretch between
Rewari and Vadodara on the condition that at least 30% of the total equipment is
sourced from Japan.
Technologica l ly advanced The DFC will employ technology that is more advanced than that used now. The
corridor will be made of double lines with an upgraded design and dimensions of
containers. The project aims to run double stack containers to carry goods such as
passenger cars.
The speed of the carriages will be enhanced to an average of 100kmph from the
existing 50kmph.
Increase in axle load from 23-25 tonnes to 32.5 tonnes and train load from 4,000
tonnes to 15,000 tonnes.
Train dimensions will increase (length to double to 1,500 meters, height increase
from 4.26 meters to 7.1 meters, width from 3.2 meters to 3.66 meters).
Pro jec ts aw ardedTwo major projects have been awarded on the Eastern Corridor:
Soma Enterprises has been awarded an INR6.05b contract in February 2009.
A consortium of B. Seenaiah and Co (not listed) and C&C Constructions (CCON
IN; CP: INR243; Not rated)has been awarded a contract for INR7.81b.
Major chal lenges Land acquisition is a major impediment. Examples, such as Kolkata Metro
extension, Ajmer-Pushkar rail line and Munger Rail Bridge, are indicative of the
challenges involved as these projects were delayed due to incomplete land
acquisition. Additionally, land acquisition is much more difficult in crowded urban
areas due to encroachments.
The Indian Railways has special powers to acquire land for major infrastructure
projects; a notification u/s 20E has been issued for acquisition of 6,000 hectares of
land.
Indian firms ability and capacity to execute large packages of specialized works inmechanized track-laying, electrification, and signalling work is limited.
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Exhibit 8: Current Status Of DFC
Corridor Stretch Distance Expected Current status
CompletionWestern
JICA funding available; land acquisition by mid-2011; civilcontractor selection by end-2011; testing & commission by 2016
Loan agreement signed in March 2010 for 25% of commitment,tenders to be finalized by mid-2010
Phase I Rewari-Vadodara 920kms 2009-16
30% of the project cost to be spent on Japanese equipment.
Phase II Vadodara-JNPT 430kms 2010-17 Land acquisition by mid-2011; civil contractor by end-2012;testing & commissioning by 2017
Phase III Rewari-Dadri 140kms 2010-17 Land acquisition by mid-2011; civil contractor by end-2012;testing & commissioning by 2017
Eastern
Phase IA Sonenagar-Mughalsarai na 2009-16
World Bank funding available, land acquisition to be completedby end-2010, Testing & Commission in 2016
Loan agreement to be signed in September 2010
Phase IB Mughalsarai-Khurja 710kms 2010-16
Parsons Brinckerhoff India, Halcrow Group (UK), Wilbur Smithand Lee Associates appointed as consultants for systemdesign, bid document, and construction supervision for Khurja-Kanpur
ADB funding proposed, land acquisition to be completed byend-2010, Testing & Commission in 2017
Phase II Khurja-Ludhiana 413 kms 2011-17
ADB appointed consultant submitted feasibility report inNovember 2009
Sources: DFFCIL; BNP Paribas
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Met ro p rojec t sThe previous editions of this newsletter have discussed contract awards in Kolkata,
Bengaluru and Chennai metros which are being implemented on an EPC basis. This
newsletter edition discusses two metro projects coming up on a PPP basis in Pune and
Jaipur. We also provide an update on the Hyderabad metro, where financial bids are
due in July 2010.
Since the metro rail projects are not financially viable on their own, they need either
viability gap funds (the Government typically allows a maximum grant of 40% of the
project cost 20% from the Centre and 20% from the state) or bundling with real estate
to enhance viability.
Hyderabad and Jaipur are being planned as bundled metro rail and real-estate projects.
Pune is likely to be awarded as a pure metro rail project, supported by grants from the
Government and municipality.
Hyderabad met roThis project was earlier awarded to a consortium of Maytas Infra (MAY IN, CP: INR205;
Not rated), Navabharat Ventures (NBVL IN; CP: INR428; Not rated), Ital Thai of
Thailand (ITD TB, CP: THB3; Not rated)and IL&FS (not listed) in July 2008.However,since the consortium failed to achieve financial closure in the stipulated period, thecontract was scrapped in July 2009, and is now being re-bid.
Project length and features: Metro rail line of 71.16kms (fully elevated) and real
estate development rights over 269 acres of land.
Project cost: INR121.32b (metro rail component only).
Short-listed bidders: The following bidders have submitted applications for pre-
qualification for the project in response to the Global RFQ floated by Hyderabad Metro
Rail. All eight bidders have pre-qualified for the RFP Phase of the project.
Exhibit 9: Hyderabad Metro Short-listed Bidders
Larsen & Toubro Ltd
Lanco Infratech-OHL Concesiones SL consortium
Reliance Infrastructure-Reliance Infocomm consortium
Essar-Leighton-Gayatri-VNR consortium
GVK-Samsung C&T Corporation consortium
GMR Infrastructure Ltd
Transstroy-OJSC Transstroy-CR 18G-BEML consortium
Soma-Strabag AG (Austria) consortium.
Source: Feedback Ventures
Timelines (for bidding, construction and concession period):
The bid for the project is due on 14 July 2010. The concession period is for 35 years,
which includes five years for construction of the metro. The concession period is
extendable by another 25 years.
Alignment:
Hyderabad Metro Rail Project consists of three corridors joining important locations in
the Hyderabad Metropolitan Region:
Corridor-I : Miyapur to L B Nagar: 29.87kms;
Corridor-II : Jubilee Bus Station to Falaknuma: 14.78kms;
Corridor-III : Nagole to Shilparamam: 26.51kms.
Key risks:
Political uncertainty regarding the fate of Hyderabad in the wake of the Telangana
issue has increased the political risk associated with the project.
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The high real estate component of the project, especially when Hyderabad real
estate is in over-supply mode: The project envisages development of 269 acres of
land to make it financially viable for investments.
What the project would mean for the winning entity/consortium:
Hyderabad Metro would be a prestigious project for the winning consortium. While the
viability of the project largely rests on real estate development, the project would provelucrative for developers who are able to tap the potential of the real estate component.
Ja ipur metroJaipur Metro Rail project was planned as a Government-funded project until recently,
when it was decided to use the PPP model. The project has been in the limelight
recently due to the political will shown by Chief Minister Ashok Gehlot to ensure that the
project is expedited. A Comprehensive Mobility Plan (CMP) survey outcome indicates
that the population of the Jaipur region would be 6.7m by the year 2031, with the peak
hour vehicular trip increasing 2.8 times from the current level.
Project length and features: 28.5kms in Phase I (6.5kms underground, while 22kms is
elevated).
Project cost: INR75.03b (metro rail component only).
Likely bidders: The project has generated high interest among many developers,
many being first-time entrants in the metro rail arena.
Timelines:
All surveys and DPR completed for project to be undertaken on EPC basis.
Government decided to implement the project on PPP basis in April 2010; the
Planning Commission has indicated a viability gap funding of 20% from the Centre
if executed through the PPP route.
Government is in the process of appointing a consultant for preparing the bid
documents and managing the award transaction.
The bid process is likely to commence in about six months.
Key risks:
With the recent shift to the PPP model of operation for the metro, the project may
get delayed by at least a year as fresh proposals are to be submitted for the
Central Government nod.
Lack of agreement over the applicability of PPP model of operation for the Jaipur
metro.
Planning Commission had raised concerns about the expected traffic for the metro;
only 19% of Jaipurs population depends on public transport for commuting, so
shifting them to the metro would take a long time and there would be a smaller
traffic load for the proposed rail service.
What the project would mean for the winning entity/consortium:
The project is likely to have very high dependence on real estate revenues higher
than other metro rail projects due to lower fare box revenues. Hence, the project
viability remains a question mark until more details about project structuring are
announced.
Pune met roThe Pune Metro project, conceptualized in 2006, has seen significant delays and local
protests. With the current resolve of the Municipal Body to expedite the implementation
process, the project is now likely to move faster.
Pune Metro is currently being planned as a PPP project the proposed funding mix as
given below.
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Exhibit 10: Pune Metro SPV Planned Holding Structure
Pune
Municipal
Corp
10%
State Govt
20%
Central
Govt
20%
Private
Parties
50%
Source: Ministry of Urban Development
Project length and features: 42.5kms in Phase I; total envisaged length is 75.5kms (only
5kms underground, with the balance being elevated).
Project cost: INR78.97b for the first component of 31.5kms (metro rail component
only).
Likely bidders: Likely to witness very high interest levels, as this is likely to be a pure
metro rail project (no bundling with real estate) supported by viability grant funds from
the Government. Pune is also considered very attractive due to its rapid growth and the
Pune-Mumbai development corridor.
Timelines:
The timelines are yet uncertain for the Pune Metro due to the various unresolved
issues related to the project.
The DPR is ready (and approved by the Maharashtra Government) for the corridor
falling with the limits of the Pune Municipal Corporation (PMC). Pimpri-Chinchwad
Municipal Corporation (PCMC) PCMC asked DMRC to prepare a DPR for the
metro route falling within PCMC limits in March 2010. (Pimpri and Chinchwad are
suburbs of Pune city, with much of the industrial activity concentrated here).
Key issues and reasons for delay:
Lack of agreement on cost sharing between PMC and PCMC.
Public dissent regarding past proposals to award high FSI in regions surrounding
the metro rail alignment.
Public dissent on choice of technology: Proposed standard gauge to be imported at
high cost as against broad gauge, which is already available in India. Lowercapacity of standard gauge trains means longer trains and, hence, longer
platforms, stations and yards, resulting in higher cost.
Assessed traffic not sufficient for Metro in the short term.
Linear metro design for a city radial in shape.
High number of intersections of tracks at various levels.
What the project would mean for the winning entity/consortium:
While we await the project contours to take final shape, Pune is a fast growing city and
development of metro rail in the city would be an attractive project for the winning
consortium.
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About Feedback Ventur esFeedback Ventures is Indias leading integrated infrastructure services company, with a
mission of Making Infrastructure Happen. Totally focused on infrastructure
development, Feedback Ventures offers an integrated suite of services across the core
and social sectors of infrastructure.
Feedback is known for its innovative work and for operationalizing challenging projects
in difficult locations. Some 17 of Indias 50 biggest listed companies are Feedbacks
clients. So are the governments 22 of the 28 Indian states and 4 of Indias 7 Union
Territories.
Feedback Ventures is presently working on more than 35,000 MW of new power
generation capacity; 20,000 km of National and State Highways; 100,000 acres of real
estate development and a building area of more than 22 million square feet.
Feedback is enabled by a large pool of multidisciplinary experts; cutting-edge functional
and domain knowledge; an all-India network of offices; and a strong shareholding
L&T, IDFC, and HDFC.
Feedback Venture Product Offerings
Feedback offers:An INTEGRATED SUITE OF SERVICES covering all the steps
From Concept to Commissioning
FEEDBACK WORKS ACROSS ALL CORE AND SOCIAL SECTORS OF INFRASTRUCTURE
Transportation & Logistics
Highways
Railways
MRTS
Ports
Airports
Logistics
Energy
Power Generation
Power Transmission
Power Distribution
Power Trading
Power Regulation
Coal
Oil and Gas
Realty & Townships
Water & Sanitation
SEZs
Hospitals
Urban Planning &
Development
IT Parks, Offices,BuildingsHotels, Clubs, Convention
Centres
Feedback today has Indias largest independent group of multi-disciplinary
infrastructure professionals. The team comprising planners, architects, engineers,
social and environmental scientists, and MBAs is considered the best in the industry.
Having the right mix of experience and expertise with a commitment to stay ahead of
the competition has made Feedback the most admired infrastructure services company.
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15 BNP PARIBAS
Ind ia Research Team
MANISHI RAYCHAUDHURIHead of India ResearchBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]
GAUTAM MEHTAAssociateBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]
KARAN GUPTAMetals & MiningBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]
VISHAL SHARMA, CFAInfrastructure - E&CBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]
SHASHANK ABHISHEIKInfrastructure - E&C (Associate)BNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]
AVNEESH SUKHIJAReal Estate (Associate)BNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]
LAKSHMINARAYANA GANTICapital Goods/CementBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]
CHARANJIT SINGHCapital Goods/Cement (Associate)BNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]
GIRISH NAI RUtilitiesBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]
AMIT SHAHOil & GasBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]
SRIRAM RAMESHOil & Gas (Associate)BNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]
ABHIRAM ELESWARAPUTech - ITBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]
AVINASH SINGHTech - IT (Associate)BNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]
SAMEER NARINGREKARTech - TelecomBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]
KUNAL VORA, CFATech - Telecom (Associate)BNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]
VIJ AY SARATHI, CFAFinancial ServicesBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]
ABHISHEK BHATTACHARYAFinancial Services (Associate)BNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]
JOSEPH GEORGEConsumerBNP Paribas Securities India Pvt Ltd+91 22 6628 2452
MANISH A GUPTAConsumer (Associate)BNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]
ANMOL GANJOOHealthcareBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]
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16 BNP PARIBAS
NOTES
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17 BNP PARIBAS
NOTES
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18 BNP PARIBAS
NOTES
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19 BNP PARIBAS
D I S C L A I M E R S & D I S C L O S U R E S
ANALYST(S)
Vishal Sharm a, CFA, BNP Paribas Securi t i es India Pvt Lt d, +91 22 6628 2441, vishal.sharm [email protected] s.com .
Shashank Abh ishe ik , BNP Par ibas Secur i t ies Ind ia Pvt L td , +91 22 6628 2446,
shashank .abhisheik @asia.bnppariba s.com .
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may not be reproduced (in whole or in part) or delivered or transmitted to any other person without our prior written consent. By accepting thisreport, the recipient agrees to be bound by the terms and limitations set out herein.
The information contained in this report has been obtained from public sources believed to be reliable and the opinions contained herein areexpressions of belief based on such information. No representation or warranty, express or implied, is made that such information or opinions isaccurate, complete or verified and it should not be relied upon as such. This report does not constitute a prospectus or other offering document oran offer or solicitation to buy or sell any securities or other investments. Information and opinions contained in this report are published for referenceof the recipients and are not to be relied upon as authoritative or without the recipients own independent verification or taken in substitution for theexercise of judgement by the recipient. All opinions contained herein constitute the views of the analyst(s) named in this report, they are subject tochange without notice and are not intended to provide the sole basis of any evaluation of the subject securities and companies mentioned in thisreport. Any reference to past performance should not be taken as an indication of future performance. No member company of the Group acceptsany liability whatsoever for any direct or consequential loss arising from any use of the materials contained in this report.
The analyst(s) named in this report certifies that (i) all views expressed in this report accurately reflect the personal views of the analyst(s) withregard to any and all of the subject securities and companies mentioned in this report and (ii) no part of the compensation of the analyst(s) was, is,or will be, directly or indirectly, related to the specific recommendation or views expressed herein.
This report is prepared for professional investors and is being distributed in Hong Kong by BNP Paribas Securities (Asia) Limited to persons whosebusiness involves the acquisition, disposal or holding of securities, whether as principal or agent. BNP Paribas Securities (Asia) Limited, a
subsidiary of BNP Paribas, is regulated by the Securities and Futures Commission for the conduct of dealing in securities, advising on securitiesand providing automated trading services. This report is being distributed in the United Kingdom by BNP Paribas London Branch to persons whoare not private customers as defined under U.K. securities regulations. BNP Paribas London Branch, a branch of BNP Paribas, is regulated by theFinancial Services Authority for the conduct of its designated investment business in the U.K. This report may be distributed in the United States byBNP PARIBAS SECURITIES ASIA or by BNP Paribas Securities Corp.
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Within the next three months, BNPP or its affiliates may receive or seek compensation in connection with an investment banking relationship withone or more of the companies referenced herein.
The analyst(s) named in this report certifies that (i) all views expressed in this report accurately reflect the personal view of the analyst(s) withregard to any and all of the subject securities and companies mentioned in this report; (ii) no part of the compensation of the analyst(s) was, is, orwill be, directly or indirectly, relate to the specific recommendation or views expressed herein; and (iii) BNPP is not aware of any other actual ormaterial conflicts of interest concerning any of the subject securities and companies referenced herein as of the time of publication of the researchreport.
R e c o m m e n d a t i o n s t r u c t u r eAll share prices are as at market close on 21 June 2010 unless otherwise stated. Stock recommendations are based on absolute upside(downside), which we define as (target price* - current price) / current price. If the upside is 10% or more, the recommendation is BUY. If thedownside is 10% or more, the recommendation is REDUCE. For stocks where the upside or downside is less than 10%, the recommendation is
HOLD. In addition, we have key buy and key sell lists in each market, which are our most commercial and/or actionable BUY and REDUCE callsand are limited to at most five key buys and five key sells in each market at any point in time.
Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause atemporary mismatch between upside/downside for a stock based on market price and the formal recommendation.
*In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the marketwill reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases,therefore, our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value.
R a t i n g d i s t r i b u t i o n ( a s a t 1 8 J u n e 2 0 1 0 )Out of 540 rated stocks in the BNP Paribas coverage universe, 353 have BUY ratings, 108 are rated HOLD and 79 are rated REDUCE. Withinthese rating categories, 1.85% of the BUY-rated companies either currently are or have been BNP Paribas clients in the past 12 months, 4.82% ofthe HOLD-rated companies are or have been clients in the past 12 months, and 6.33% of the REDUCE-rated companies are or have been clients inthe past 12 months.
Should you require additional information please contact the relevant BNP Paribas research team or the author(s) of this report.
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