Road Sector Update - Spark Capital

March 2016

Road Sector Update

Road Sector Update

Road Sector Update

YTD FY16 project award: Target for awarding National Highways road projects in FY16E is ~10,000kms (NHAI –

~5,200kms, MoRTH - ~5,000kms). So far, NHAI has awarded 3,386kms while Ministry has awarded ~3,000kms. Given

that there is only one month left and the fact that price bids for the projects in pipeline are towards the end of March 2016

we expect that NHAI and MoRTH will end the year at ~4,000kms of award each (total~8,000km)

Competition in recent bids: Competition intensity continues to be high as witnessed in the recent bids, resulting in

several projects being bidded-out at EPC value <20% of NHAI’s project cost. Local players with cost advantages and

large players with appetite have had upper hand; APCO Infratech in Uttar Pradesh and Larsen & Toubro are examples

NHAI pipeline: There are 53 projects for which NHAI has invited for price bids (8 projects in BOT, 23 projects in EPC

and 22 projects in Hybrid Annuity Model). These projects amount to ~3,000kms in length (758kms in BOT, 1,346kms in

EPC and 836kms in Hybrid Annuity mode). Of these, 818kms of projects have witnessed postponement in bid

submission date by atleast 3 months; this is likely due to delays in approvals and push-backs from bidders and lenders

for the Hybdrid Annuity projects

Funding: Ministry of Road Transport and Highways saw 24% higher allocation for the year FY17 (Rs. 550bn vs. Rs.

443bn in FY16); NHAI gets 33% lower (Rs. 197bn vs. Rs. 294bn in FY16) and 142% higher allocation to other central

entities like MoRTH, NHIDCL etc (Rs. 194bn vs. Rs. 80bn), also states and union territories Rs. 110bn vs. Rs. 29bn

(288% yoy); projects awarded by the Ministry directly to benefit due to this. Allocation from extra-budgetary resources

have been increased to Rs. 593bn (from Rs. 280bn in FY16), as a result NHAI will be more dependent on borrowings by

way of tax free bonds in FY17E (Rs. 150bn tax free bonds proposed vs. Rs. 190bn in FY16). Totally, road sector’s

allocation stands at Rs. 1,143bn for FY17(vs. Rs. 723bn in FY16, a 58% increase). On top of this, the Pradhan Mantri

Gram Sadak Yojna Scheme got an allocation of Rs. 270bn vs Rs. 190bn in FY16

Company Section

All the Companies in our coverage have witnessed a strong order inflow in YTDFY16 due to sectoral tailwinds. Sadbhav

has won the most (Rs. 26,789mn) in YTDFY16 followed by KNR (Rs. 26,304mn), IRB (Rs. 26,500mn), Ashoka Buildcon

(Rs. 22,237mn) and PNC Infratech (Rs. 20,021mn). Almost all of this order-inflow has come in the road sector, even for

a diversified EPC contractor like Sadbhav

With the recent correction in stock prices we like Sadbhav the most followed by PNC Infratech and then Ashoka Buildcon

in the EPC & Asset Owners space. Sadbhav is likely to win another Rs. 40bn of road projects in the near term (BOT and

Hybrid Annuity model); with its asset business no longer required to be funded by parent Sadbhav can comfortably fund

equity for the Rs. 40bn CAPEX

We like KNR Constructions in the pure road EPC contractors followed by PNC Infratech; geographical strength and

conservative management and good balance sheet quality are other reasons why we remain positive on these names

Find Spark Research on Bloomberg (SPAK <go>),

Thomson First Call, Reuters Knowledge and Factset

VIJAYARAGHAVAN SWAMINATHAN [email protected] +91 44 4344 0022

BHARANIDHAR VIJAYAKUMAR [email protected] +91 44 4344 0038

Spotlight on Road sector continues; Ministry and States get higher allocation this time

Sector Update

March 4, 2016

Market Data

NIFTY 7476

SENSEX 24607

Market Performance

1m 3m 12m

NIFTY 0.7% -5.2% -15.0%

SENSEX 1.1% -4.0% -16.2%

Rating Summary

Stock CMP TP Rating

Rs. Rs.

ASBL IN 185 235 Buy

IRB IN 225 237 Add

PNCL IN 480 650 Buy

KNRC IN 508 560 Buy

SADE IN 252 315 Buy

Market Performance

1m 3m 12m

ASBL IN -1.1% -4.4% 4.8%

IRB IN -2.5% -6.9% -11.2%

PNCL IN -3.0% -10.2% NM

KNRC IN 1.7% -17.9% 16.5%

SADE IN -18.5% -29.9% -26.5%

Road Sector Update

Abbreviations Used

Acronym Detail

BOT Build Operate Transfer

CRF Central Road Fund

EPC Engineering Procurement Construction

IEBR Internal and Extra Budgetary Resources

MoRTH Ministry of Road Transport & Highways

NHAI National Highways Authority of India

NHIDCL National Highways Infrastructure and Development Corp

PPP Public Private Partnership

SARDP-NE Special Accelerated Road Development Programme North East

TPC Total Project Cost

Road Sector Update

Road Projects awarded in YTDFY16

YTD FY16 NHAI project awards

Type No. of projects Length, kms % of length

BOT 7 874 26%

EPC 47 2,420 71%

Hybrid Annuity 3 92 5%

Total 57 3,386 100%

• 57 projects have been awarded in YTDFY16 (7 projects in BOT, 47 projects in EPC and 3 projects in

Hybrid Annuity Model)

• These projects amount to ~3,386kms in length (874kms in BOT, 2420kms in EPC and 92kms in

Hybrid Annuity mode)

• Projects that were awarded in December 2015 and January 2016 have seen aggressive bidding

5,160 5,000

10,160

3,386 3,000

6,386

4,200 4,000

8,200

NHAI (kms) MoRTH (kms) Total (kms)

Target FY16 YTDFY16 FY16E

Road Sector Update

Trend in NHAI PPP an EPC project awards

Source: NHAI, MoRTH, Spark Capital Research

455

1,686 1,395 1,234 643

3,367

5,059

6,491

1,116

223 734 874 874 1,200 1,200

825

3,283

335 74

0

188

528

0

0 1,215

2,292 2,512

3,312 2,800 2,800

1,281

4,969

1,730 1,308

643

3,555

5,587

6,491

1,116 1,438

3,026 3,386

4,186 4,000 4,000

0

2,000

4,000

6,000

8,000

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 YTD FY16 FY16E FY17E FY18E

km

s

BOT Projects Awarded

EPC Projects Awarded

NHAI project awards - 3,386km projects awarded in YTDFY16; likely to end the year at ~4,200kms

~9,000 7,300 5,000 4,000 5,000NHAI Project

Award PlanNA NA NA NA NA NA

5,587 6,491 1,116 1,438 3,026Achievement 1,281 4,969 1,730 1,308 643 3,555

5,160

~4,200

• At its peak, NHAI awarded 6491kms in FY12 – all in the PPP/ BOT mode; with a sectoral downturn from FY13 due to poor financial health of

contractors, tepid economy and high interest rates, PPP project awards declined significantly resulting in abysmal project awards in FY13

and FY14. New government revived the sector’s fortunes from beginning of FY15 with more focus on EPC mode of project awards

• Against a target of 5,000kms for FY15 actual award has been 3,026kms (734kms in BOT mode and 2,292kms in EPC). This compares

favourably with the subdued award activity witnessed in FY13 and FY14 (2,554kms combined). Target for FY16E is ~5,000kms of which

already 3,386kms have been awarded so far; with just another month to go we expect NHAI to award another 800-1,000kms max

Road Sector Update

NHAI Projects awarded in YTDFY16

EPC/ Hybrid Annuity

# Project kms State

Project Cost

(TPC)

Winning

Cost

% Bid on

TPC Winning Bidder

8 Kerala/TamilNadu-Villikuri-Kanyakumari NH- 47 70 Tamil Nadu 13,480 10,780 -20% L&T

9 4 laning of Vijayawada - Machlipatnam 65 Andra Pradesh 11,350 7,410 -35% Dilip Buildcon

10 Delhi - Meerut Expreeway (PKG-2)* 22 Delhi & UP 10,816 10,570 -2% APCO Infratech

11 Delhi - Meerut Expreeway (PKG-1)* 9 Delhi & UP 7,014 7,360 5% Welspun Enterprises

12 Meerut – Bulandshahar* 61 Uttar Pradesh 6,832 8,690 27% APCO Infratech

13 Four / Six laning of Raipur - Simga ( PKG-1) 49 Chhattisgarh 7,267 5,130 -29% Punj Lloyd

14 Construction of Flyover at Nagpur -Raipur road 7 Maharashtra 6,495 NA Gannon Dunkerley

15 4 laning of Saragaon - Bilaspur 35 Chhattisgarh 5,091 3,680 -28% Dilip Buildcon

16 4 laning Simaria - Khagaria section of NH-31 60 Bihar 10,411 5,670 -46% Punj Lloyd

17 4 laning of Simga - Saragaon 42 Chhattisgarh 5,967 3,850 -35% L&T

18 4 laning of Yadgiri - Warangal 99 Telangana 14,240 13,760 -3% L&T

19 4 laning of Bakhtiyarpur - Mokama section of NH-31 45 Bihar 11,675 NA BSCPL Infra

20 4 laning with PS Talebani -Sambalpur 51 Odisha 7,523 3,920 -48% Punj Lloyd

21 4 Laning of Baharagora - Singhara 112 Odisha 12,829 9,087 -29% L&T

22 2 laning Jowai -Mehalaya /Assam border 103 Mehalaya 4,792 4,680 -2% GR Infra

23 2 laning Chhapra -Rewaghat - Muzaffarpur 73 Bihar 5,161 3,970 -23% GR Infra

24 2 laning Biharaharif -Barbigha - Mokama 55 Bihar 3,995 2,972 -26% GR Infra

25 4 laning of Bhojpur to Buxar 48 Bihar 6,424 6,820 6% PNC Infratech

26 4 laning of Koilwar to Bhojpur 44 Bihar 8,140 8,250 1% PNC Infratech

27 4 laning of Patna to Koilwar 33 Bihar 5,561 NA Madhucon Projects

BOT

# Project kms State Rs. mn - - Winning Bidder

1 4 Laning of Guna to Biaora 94 Madhya Pradesh 10,129 - - Dilip Buildcon

2 4 laning of Biaora - Dewas 141 Madhya Pradesh 15,838 - - Oriental Structural

3 4 Laning of Fagne - Mah-Guj Border 141 Maharashtra 18,857 - - IL&FS Transportation

4 8 Laning of Mukarba Chowk to Panipat 70 Haryana 21,287 - - Essel Infraprojects

5 Four Laning of Solapur - Bijapur 109 Maharashtra 13,775 - - Uniquest Infra

6 6 laning of Agra - Etawah bypass 125 Uttarpradesh 26,500 - - IRB Infra

7 4 Laning of Amravati - Chikhli 194 Maharashtra 22,882 IL&FS Transportation

Total 874 129,268

* Hybrid Annuity Projects

Road Sector Update

NHAI Projects awarded in YTDFY16

EPC/ Hybrid Annuity

# Project kms State

Project Cost

(TPC)

Winning

Cost

% Bid on

TPC Winning Bidder

28 2 laning Chhapra -Gopalganj 94 Bihar 8,548 6,440 -25% GR Infra

29 Improvement of Amritsar bypass 25 2,731 NA Varsha Infra

30 4 laning Udhambur - Ramban 40 Jammu Kashmir 21,370 17,100 -20% Gammon India

31 4 laning Ramban - Banihal 32 Jammu Kashmir 21,687 17,830 -18% HCC

32 4 laning of Gorakpur -Gopalganj 41 Bihar 5,818 5,420 -7% Punj Lloyd

33 4 Laning of Madurai - Ramanathapuram 115 Tamil Nadu 13,871 9,370 -32% KNR Construction

34 4 laning of Kharar - Kurali section of NH-21 14 Punjab 2,392 NA M.G Contractors

35 4 Laning of Forbesganj - Jogbani 9 Bihar 3,221 NA JKM Infraprojects

36 6 lane Eastern Peripheral Expressway ( PKG-II) 25 Uttar Pradesh 7,858 7,560 -4% Sadbhav Engineering

37 UP/Haryana border - Yamuna Nagar - Panchkula 45 Haryana 6,009 4,680 -22% Sadbhav Engineering

38 4 laning of Kazhakkottam to Mukkola NH-47 27 Kerala 8,452 6,690 -21% KNR Construction

39 6 lane Eastern Peripheral Expressway ( PKG-VI) 22 Uttar Pradesh 7,686 6,750 -12% Gayatri Projects

40 6 lane Eastern Peripheral Expressway ( PKG-V) 21 Uttar Pradesh 6,645 NA Oriental Structural

41 4 Laning of Ghaghra Bridge to Varanasi (PKG-II) 60 Uttar Pradesh 6,670 7,410 11% Gayatri Projects

42 6 lane Eastern Peripheral Expressway ( PKG-III) 25 Haryana/UP 7,885 NA Jaiprakash Associates

43 4 Laning of Ghaghra Bridge to Varanasi (PKG-III) 59 Uttar Pradesh 6,869 7,850 14% Gayatri Projects

44 6 lane Eastern Peripheral Expressway ( PKG-I) 21 Haryana/UP 7,712 7,920 3% Sadbhav Engineering

45 2 Laning Uncha Nagla-Khanuwara-Roppas-Dholpur 75 Rajasthan 2,759 NA H G Infra Engineering

46 4 laning of Sultanpur to Varanasi (PKG-II) 63 Uttar Pradesh 8,153 8,060 -1% Gayatri Projects

47 4 laning of Sultanpur to Varanasi (PKG-I) 75 Uttar Pradesh 10,275 9,860 -4% Gayatri Projects

48 2 Laning Gulabpura - Uniara 204 Rajasthan 5,970 NA Dilip Buildcon

49 4 Laning Ghoshpukur - Salsalabari 84 West Bengal 10,830 NA L&T

50 UP/Haryana border - Yamuna Nagar - Panchkula 42 Haryana 5,623 4,360 -22% Sadbhav Engineering

51 6 lane Eastern Peripheral Expressway ( PKG-IV) 22 Uttar Pradesh 7,893 7,890 0% Ashoka Buildcon

52 Port connectivity at JNPT phase II PKG3 11 Maharashtra 5,050 NA J.Kumar Infra

53 Port connectivity at JNPT phase II PKG4 11 Maharashtra 4,140 NA Ashoka Buildcon

54 New Mangalore Port Road Connectivity Project Karnataka 260 NA RPP Infra Projects

55 6-lane elevated corridor Chandigarh to Kharar 11 Punjab 7,320 7,320 L&T

56 2 laning Aligarh-Moradabad 146 Uttar Pradesh 6,440 6,440 PNC Infratech

57 4-laning Islampur Bypass 10 West Bengal 2,770 2,770 Ashoka Buildcon

Total EPC/ Hybrid Annuity 2,512 387,969

Road Sector Update

Upcoming NHAI projects

Upcoming NHAI opportunity

Type No. of projects Length, kms % of length

BOT 8 758 26%

EPC 23 1,346 46%

Hybrid Annuity 22 836 28%

Total 53 2,939 100%

• There are 53 projects for which NHAI has invited for price bids (8 projects in BOT, 23 projects in

EPC and 22 projects in Hybrid Annuity Model)

• These projects amount to ~3,000kms in length (758kms in BOT, 1,346kms in EPC and 836kms in

Hybrid Annuity mode)

• Of this, 818kms of projects have witnessed postponement in bid submission date by atleast 3

months

Road Sector Update

NHAI Projects in pipeline

NHAI bid pipeline

# Project Type kms State

Original Bid

Date

Revised

Bid Date

1 Four Laning of Banjhabahal to Telebani BOT 77 Orissa NA NA

2 Four Laning from Singhara to Binjabahal Section BOT 104 Orissa NA 29-Mar-16

3 Construction of Dhalkola Bypass EPC 6 West Bengal 9-Dec-15 NA

4 Jharpokharia Baripada Baleshwar EPC 81 Orissa 9-Dec-15 NA

5 Development of Delhi-Meerut Expressway - pkg 2 Hybrid 20 UP 15-Dec-15 15-Mar-16

6 Four Laning of Nagina-Kashipur section EPC 102 UP 16-Dec-15 3-Apr-16

7 Four laning of Haridwar Nagina section EPC 73 UP 16-Dec-15 3-Mar-16

8 Six Laning of Aurangabad to Bihar - Jharkhand Border BOT 70 Bihar 17-Dec-15 NA

9 Six Laning of Bihar- Jharkhand Border (Chordaha) to Barwa Adda BOT 150 Bihar 17-Dec-15 NA

10 Four Laning of Mahulia-Baharagora- JH/WB Border Section EPC 72 Jharkhand 17-Dec-15 NA

11 Four laning of Varanasi Gorakhpur section EPC 60 UP 17-Dec-15 NA

12 Rehabilitation and Upgradation to Four laning of NH-31D EPC 71 West Bengal 18-Dec-15 18-Mar-16

13 4 Laning Nh-6 From Chichra To Kharagpur EPC 51 West Bengal 18-Dec-15 18-Mar-16

14 4-Laning Of Varanasi Gorakhpur Section EPC 76 UP 19-Dec-15 NA

15 Four Laning Of From Addahole (Near Gundya) To Bantwal Cross EPC 65 Karnataka 22-Dec-15 NA

16 Four Laning Of Hassan To Maranahally EPC 48 Karnataka 22-Dec-15 NA

17 Four Laning of Hospet-Bellary-Karnataka/AP Border EPC 95 Karnataka 22-Dec-15 10-Mar-16

18 Four Laning of Solan Kaithalighat Section Hybrid 23 Himachal Pradesh 28-Dec-15 21-Mar-16

19 Upgradation Of Kullu-Manali Section EPC 37 Himachal Pradesh 28-Dec-15 NA

20 RFQ for Four/six Laning of Aurangabad to Telwadi BOT 86 Maharashtra 4-Jan-16 NA

21 RFQ for Four/Six Laning of Bodare to Dhule BOT 67 Maharashtra 4-Jan-16 NA

22 Six laning of Kamrej - Chalthan Section EPC 16 Gujarat 5-Jan-16 29-Mar-16

23 Four Laning Tuljapur – Ausa (including Tuljapur Bypass) Section Hybrid 56 Maharashtra 15-Jan-16 15-Mar-16

24 Construction of new link (NH-133B) from Sahibganj Bypass) Hybrid 6 Bihar 15-Jan-16 10-Mar-16

25 4Lane Stand Alone Ring Road / Bypass for The Nagpur City Hybrid 34 Maharashtra 20-Jan-16 11-Mar-16

26 4 Lane Stand Alone Ring Road/Bypasses for Nagpur City Hybrid 28 Maharashtra 20-Jan-16 11-Mar-16

27 Four Laning of Hubli - Hospet Section EPC 139 Karnataka 28-Jan-16 22-Mar-16

28 RFP forDelhi-Ludhiana-Amritsar- Katra Expressway NA NA Delhi/ Punjab 7-Mar-16

29 4-Laning of Chutmalpur-Ganeshpur section of NH-72A Hybrid 49 Uttarakhand/ UP 7-Mar-16

30 4-Laning of Rampur-Kathgodam section of NH-87 Hybrid 46 Uttarakhand 7-Mar-16

Road Sector Update

NHAI Projects in pipeline

NHAI bid pipeline

# Project Type kms State

Original Bid

Date

Revised

Bid Date

31 4-laning of Rampur-Kathgodam section of NH-87 Hybrid 42 Uttarakhand NM 7-Mar-16

32 Construction of Flyover/Underpass at IFFCO Chowk EPC - Haryana NM 9-Mar-16

33 Construction of Flyover/Underpass on NH-8 EPC - Haryana NM 9-Mar-16

34 Construction of Flyover/Underpass on NH-8 EPC - Haryana NM 9-Mar-16

35 6 laning of Udaipur to Rajasthan/ Gujarat Border section of NH-8 BOT 100 Rajasthan NM 10-Mar-16

36 Four Laning of Gagalheri-Saharanpur-Yamunanagar of NH-73 Hybrid 36 UP NM 10-Mar-16

37 Construction and Upgradation of NH-131A near Narenpur Hybrid 49 Bihar NM 10-Mar-16

38 4/6 laning Kharar to Ludhiana of NH-95 Hybrid 76 Punjab NM 18-Mar-16

39 Four Laning of Lucknow-Sultanpur Section of NH-56 EPC 127 UP NM 18-Mar-16

40 6 laning Vijayawada-Gundugolanu of NH-5 BOT 104 AP NM 22-Mar-16

41 Four Laning of Kodinar to Veraval Section of NH-8E Hybrid 42 Gujarat NM 23-Mar-16

42 Four Laning of Una to Kodinar of NH-8E Hybrid 41 Gujarat NM 23-Mar-16

43 Four Laning of Kagavadar - Una section of NH-8E Hybrid 41 Gujarat NM 23-Mar-16

44 Four Laning of Mahuva to Kagavadar of NH-8E Hybrid 39 Gujarat NM 23-Mar-16

45 4 laning Talaja – Mahuva of NH – 8E Hybrid 47 Gujarat NM 23-Mar-16

46 4 laning Barhi-Hazaribagh of NH-33 EPC 40 Jharkhand NM 23-Mar-16

47 RFP for 4 – laning of Phagwara- Rupnagar Section of NH- 344A Hybrid 81 Punjab NM 28-Mar-16

48 2 laning Shimla Bypass NH – 22 Hybrid 27 HP NM 28-Mar-16

49 4-lane (Partial Access Controlled) Laddowal Bypass Hybrid 17 Punjab NM 28-Mar-16

50 Four lane Elevated Highway between Samrala Chowk to Ludhiana Hybrid 12 Punjab NM 28-Mar-16

51 RFP for Four laning of Bar- Bilara- Jodhpur section of NH-112 EPC 111 Rajasthan NM 29-Mar-16

52 Two/Four laning of Govindpur (Rajgunj)- West Bengal Border EPC 57 Jharkhand NM 30-Mar-16

53 Six lane of Greenfield Proposed Udaipur bypas Hybrid 24 Rajasthan NM 31-Mar-16

54 4 laning UP/Haryana border-Yamunanagar-Panchkula EPC 19 Rajasthan NM 31-Mar-16

Road Sector Update

Road sector funding

Budget Allocation – Ministry of Road Transport & Highways (MoRTH)

Rs. mn FY16 (budget) FY16 (revised) FY17 (budget) yoy, %

Allocation to Centre

To NHAI 294,201 294,201 196,530 -33%

To Other Central Entities 65,826 80,019 193,540 142%

To SARDP-NE 40,000 40,000 50,000 25%

Allocation to States 28,680 28,090 108,330 286%

Allocation to Union Territories 420 420 1,600 281%

Sub Total 429,127 442,730 550,000 24%

Internal & Extra Budgetary Resources (IEBR) 426,945 280,000 592,790 112%

*IEBR includes NHAI Tax free bonds and 54-EC bonds, against FY16’s target of Rs. 280,000mn, bonds worth Rs. 230,000mn was issued

Total 856,072 722,730 1,142,790 58%

1

2

3

4

In the current budget, allocation to NHAI has been reduced by 33%

While, allocation to other central entities like MoRTH, NHIDCL etc. has been increased to 142%

Similarly, allocation to states and union territories have gone up significantly for FY17

Allocation from IEBR has been increased by 112%; however we expect this to be revised down as was witnessed in FY16

Road Sector Update

Funding for NHAI – NHAI tax bonds and 54-EC capital gains bonds are key monitorables

NHAI funding sources

Rs. mn FY16 (revised) FY17 (budget) yoy, %

From Central Road Fund 229,201 121,530 -47%

Toll Collection/ Premiums 65,000 75,000 15%

Total Budget Allocation 294,201 196,530 -33%

IEBR 280,000 592,790 112%

-of which NHAI bonds 190,000 150,000

-of which 50-EC bonds 40,000 NA

Total to NHAI 574,201 789,320 37%

Source: Union Budget 2016-17, Spark Capital Research

Land Acquisition

expense ~Rs. 150bn

We expect this

expense to be lower

FY16 FY17

Tax free bonds of Rs.

190bn issued

Proposed to issue

bonds for Rs. 150bn

54-EC Capital Gains

bonds of Rs. 40bn

issued

NA

Funding for NHAI:

Budgetary Allocation - ~Rs. 197bn for FY17E:

NHAI collects toll (on ~6,600kms/ 104 toll plazas of NH constructed by NHAI), and receives money from revenue share and negative grant/premium; it

deposits this in the Consolidated Fund of India. Against this, MoRTH releases money to NHAI as ‘Additional Budgetary Support’ through Permanent

Bridge Fee Fund (PBFF) as plough back of Toll Remittance made to CFI, the split of these amounts expected for FY17 are:

− Toll collections: ~Rs. 40bn for FY17E

− Revenue share, negative grant/ premium: ~Rs.35bn for FY17E

Government of India introduced a Cess on both Petrol and Diesel sales in the country (Rs. 6/ litre at present); the cess collected were to be put aside in a

Central Road Fund (CRF) for exclusive utilization for the development and maintenance of state and national highways. For FY17E Rs. 121bn has been

allocated from the Cess Fund (this was Rs. 229bn in FY16)

NHAI has been given borrowing power for ~Rs. 593bn for FY17E:

Comprises of Capital Gain Tax free Bonds under Section 54-EC of the Income Tax Act, 1961 and Tax Free bonds

Tax Free bonds – Rs. 150bn

Given a large expected funding from these bonds, it is key to monitor them (as only Rs. 230bn was issued against initial target of Rs. 427bn)

Company Section

Road Sector Update

Orderbook as at Dec’15Orderbook as at Dec’15

Ashoka – Order Inflow, Rs. mn IRB – Order Inflow, Rs. mn

EPC Business - Order inflow and Orderbook

Road EPC

Total: Rs. 41,864mn Total: Rs. 173,210mn

Road Captive Power T&D

12.5% 13.0% 11.0%

EPC Margins, %

Road EPC for Captive projects

25% - 35%

EPC Margins, %

18,132

24,009 23,570

16,570

0

26,851

12,486

22,237

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

YT

D F

Y1

6

Road BOT projects won Road EPC projects won

Roads73%

Power T&D27%

45,360

11,420

48,800

26,390

14,900

76,900

26,500

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

YT

D F

Y1

6

IRB Infrastructure

Ongoing BOT

projects39%

BOT projects - yet to

start construc

tion…

BOT Projects - O&M10%

Road Sector Update

Orderbook as at Sept’15 Orderbook as at Dec’15

KNR – Order Inflow, Rs. mn Sadbhav – Order Inflow, Rs. mn

EPC Business - Order inflow and Orderbook

Total: Rs. 82,719mnTotal: Rs. 34,701mn

Road EPCRoad projects on sub-

contract

14% 11%

EPC Margins, %

Road EPC, Captive

Mining Irrigation

11%, 13% 18% - 22% 6%

EPC Margins, %

Orderbook as at Dec’15

PNC – Order Inflow, Rs. mn

Total: Rs. 30,600mn

Road EPC

14%

EPC Margins, %

5,764

10,330 11,580 11,161

7,905

2,927

5,879

26,304

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

YT

D F

Y1

6

KNR Constructions

Mining25%

Irrigation

20%

Transportation55%

Roads98%

Irrigation

2%

21970

18310

115009610

13810

1857020021

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

YT

D F

Y1

6

Roads

Roads100%

Airport Runway

0%

5,876 10,023

28,142

9,848

30,038

23,174

38,192

26,789

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

YT

D F

Y1

6

Mining Irrigation Transportation

Road Sector Update

IRB – Standalone Revenues and EBITDA margin

Ashoka – Standalone PAT

Ashoka – Standalone Revenues and EBITDA margin

EPC Business – Revenues and Profitability

11

,94

8

13

,38

0

16

,37

6

15

,56

6

19

,66

7

20

,73

1

23

,38

2

26

,60

7

14%14%

12% 13% 13% 13%12%

12%

FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E

Revenue EBITDA

84

7

1,0

45

1,0

22

1,0

34

1,4

22

1,5

87

1,6

91

2,0

48


Sandalone PAT

16

,70

4

22

,75

9

27

,28

9

26

,57

9

21

,08

4

21

,84

7

33

,24

7

30

,60

1

26%28%

30%32%

34%36% 29%

30%


Revenue EBITDA

IRB – Standalone PAT

2,2

43

2,9

86

3,5

20

3,3

42

1,9

25

2,0

22

2,8

68

2,3

60


Sandalone PAT

Road Sector Update

EPC Business – Revenues and Profitability

KNR – Standalone Revenues and EBITDA Sadbhav – Standalone Revenues and EBITDAPNC – Standalone Revenues and EBITDA

KNR – Standalone PAT Sadbhav – Standalone PATPNC – Standalone PAT

71

1

78

4

76

5

70

1

1,0

04

1,2

43

1,5

95

1,9

48

Sandalone PAT

56

8

52

8

52

1

61

0

73

0

1,3

08

74

6

1,0

23

Sandalone PAT

11

,39

1

12

,73

3

13

,03

6

11

,52

1

15

,61

0

19

,23

8

22

,62

6

27

,23

2

11%12% 12% 12%

14%13% 13%

13%

Revenue EBITDA

7,9

30

7,5

05

6,9

21

8,3

48

8,7

61

8,6

94

11

,24

5

13

,52

6

16%18%

17%15% 14%

17%

13%

13%

Revenue EBITDA

22

,09

4

26

,75

5

18

,11

0

23

,58

1

29

,69

8

31

,79

5

36

,33

5

41

,32

1

11% 11%

9%

11% 10%11% 11%

12%

Revenue EBITDA

1,1

96

1,4

06

74

1

1,0

62

1,1

37

1,2

12

1,5

42

2,1

83

Sandalone PAT

Road Sector Update

Ashoka Buildcon – SoTP Valuation

SoTP Valuation of Ashoka Buildcon Stake Valuation Method

Total

Equity

Value

ACL's

Value

ASBL's

Value

per

share

ProjectsACL's

Stake

ASBL's

StakeRs. mn Rs. mn Rs. mn Rs.

Indore – Edalabad Road 100% FCFE using 13% CoE 1,576 1,571 8

Ahmednagar – Aurangabad Road 100% FCFE using 13% CoE 377 377 2

Wainganga Bridge 50% FCFE using 13% CoE 343 172 1

Nashirabad Railway-Over Bridge 100% FCFE using 13% CoE 213 213 1

KSHIP WAP-2 51% FCFE using 13% CoE 706 360 2

Total Value for ABL's Road Assets 3,214 2,692 14

NH-6 Bhandara Road 51% 31% FCFE using 14% CoE 1,354 691 421 2

NH-6 Durg Bypass - Maharashtra Border Road 51% 31% FCFE using 14% CoE 3,030 1,545 943 5

Jaora – Nayagaon Road 73% 45% FCFE using 14% CoE 6,620 4,846 2,956 16

NH-3 Pimpalgaon – Nashik – Gonde road 26% 16% FCFE using 13% CoE 1,332 346 211 1

NH-4 Belgaum-Dharwad Road 100% 61% FCFE using 13% CoE 3,333 3,333 2,033 11

NH-6 Sambalpur-Baragarh Road 100% 61% FCFE using 14% CoE (139) (139) (85) (0)

NH-6 Dhankuni to Kharagpur Section 100% 61% FCFE using 14% CoE 4,220 4,220 2,574 14

Chennai ORR 50% 31% FCFE using 13% CoE 5,232 2,616 1,596 9

Total Value for ACL's Road Assets 24,983 17,459 10,650 57

Construction & RMC Business 100% 15x FY18E EPS 30,624 30,624 164

Total Value for Construction Business 30,624 30,624 164

Ashoka Buildcon 58,821 17,459 43,966 235

Road Sector Update

IRB Infrastructure Developers – SoTP Valuation

SoTP Valuation of IRB Infra Developers IRB's Stake Valuation MethodEquity

ValueValue to IRB per share %

Projects % Rs. mn Rs. mn Rs.

Mumbai – Pune BOT, MPEW & NH4 100% FCFE using 14% CoE 25,210 25,210 72 40%

Surat – Dahisar Road, NH 8 90% FCFE using 14% CoE 5,290 4,761 14 5%

Bharuch – Surat BOT, NH 4 100% FCFE using 14% CoE 1,709 1,709 5 2%

Thane Ghodbunder Toll Road BOT 100% FCFE using 14% CoE 293 293 1 0%

Tumkur Chitradurg, NH 4 100% FCFE using 14% CoE 1,040 1,040 3 1%

Talegaon Amravati, NH 6 100% FCFE using 14% CoE 2,434 2,434 7 3%

Thane Bhiwandi Bypass BOT 100% FCFE using 14% CoE 3,903 3,903 11 4%

Pune – Nashik BOT, NH 50 100% FCFE using 14% CoE 2,248 2,248 6 2%

Pune – Sholapur BOT 100% FCFE using 14% CoE 1,043 1,043 3 1%

Pathankot Amritsar, NH 15 100% FCFE using 14% CoE 5,492 5,492 16 6%

Jaipur Deoli, NH 12 100% FCFE using 14% CoE 5,505 5,505 16 6%

Ahmedabad Vadodara -NH 8 & Ahmedabad Vadodara

Expressway100% FCFE using 14% CoE 3,107 3,107 9 3%

Goa/ Karnataka Border to Kundapur, NH- 17 100% FCFE using 14% CoE 8,674 8,674 25 9%

Omallur -Salem – Namakkal Section of NH-7 74% at investment value 1,300 962 3 1%

Solapur -Yedeshi section of NH-211 100% FCFE using 14% CoE 4,689 4,689 13 5%

Yedeshi Aurangabad section of NH-211 100% FCFE using 14% CoE 3,020 3,020 9 3%

Kaithal–Rajasthan Border section of NH 152/65 100% FCFE using 14% CoE 4,838 4,838 14 5%

Agra - Etawah 100% FCFE using 14% CoE 3,911 3,911 11 4%

Total Value Road Assets 83,706 82,839 236 99%

Other investments - Airports, Real Estate 100% at investment value 586 586 2 1%

IRB Infrastructure Developers 95,807 94,940 237 100%

Road Sector Update

PNC Infratech – SoTP Valuation

SoTP Valuation of PNC Infratech PNC's Stake Valuation Methodology Equity Value PNC's Share per share value %

Projects % Rs. mn Rs. mn Rs/ Share

Standalone EPC Business (a) 100.0% 15x FY18E EPS 29,222 29,222 570 88%

Road Assets

Gwalior Bhind Road 100.0% FCFE using 14% CoE 490 490 10 1%

Kanpur Kabrai Road 100.0% FCFE using 14% CoE 903 903 18 3%

Ghaziabad Aligarh Road 35.0% FCFE using 14% CoE 2,407 842 16 3%

Rae Bareli Jaunpur Road 100.0% FCFE using 14% CoE 536 536 10 2%

Bareilly Almora Road 100.0% FCFE using 14% CoE 412 412 8 1%

Industrial Estate Asset

PNC Delhi Industrialinfra Pvt Ltd 100.0% FCFE using 14% CoE 392 392 8 1%

Road Toll Collection Concession

PNC Kanpur Ayodhya Tollways Pvt Ltd 100.0% FCFE using 14% CoE 568 568 11 2%

Total Value for Assets (b) 5,708 4,143 81 12%

Total PNC Infratech (a) + (b) 34,929 33,365 650 100%

Road Sector Update

KNR Construction – SoTP Valuation

KNR Constructions - SoTP Valuation

Stake Method Project Equity Value Value for KNR per share %

BoT Projects

Patel KNR Infrastructures Ltd 40% FCFE with 14% CoE 363 145 5 1%

Patel KNR Heavy Infrastructures Ltd 40% FCFE with 14% CoE 290 116 4 1%

KNR Walayar Tollways Private Ltd 100% FCFE with 14% CoE (28) (28) (1) 0%

KNR Muzaffarpur Barauni Tollway Private Ltd 51% FCFE with 14% CoE 310 158 6 1%

Standalone/ EPC Business 100% 15x FY18E EPS 15,351 15,351 546 98%

Total Value for KNR Constructions 15,742 560 100%

Road Sector Update

Sadbhav Engineering – SoTP Valuation

SoTP Valuation Stake Valuation Method

Total

Equity

Value

SIPL ValueValue to

SELper share %

ProjectsSIPL's

stake

SEL's

stakeRs. mn Rs. mn Rs. mn Rs.

Sadbhav Engineering Standalone 100% 15x FY18E EPS 32,746 32,746 191 61%

Sadbhav Infrastructure Project Ltd (SIPL)

Aurangabad Jalna 100% 68% FCFE using 12% CoE 2,831 2,831 1,935 11 3%

Ahmedabad Ring Road 100% 68% FCFE using 13% CoE 4,232 4,232 2,892 17 4%

NH-7 Nagpur - Seoni 100% 68% FCFE using 13% CoE 128 128 87 1 0%

Maharashtra Border Checkpost 78% 53% FCFE using 13% CoE 12,636 9,856 6,737 39 10%

NH-13 Bijapur - Hungund 77% 53% FCFE using 13% CoE 10,188 7,844 5,362 31 8%

NH-202 Hyderabad Yadgiri 100% 68% FCFE using 13% CoE 3,841 3,841 2,625 15 4%

NH-3 Dhule - Palesnar 100% 68% FCFE using 13% CoE 2,171 2,171 1,484 9 2%

NH-71A Rohtak Panipat 100% 68% FCFE using 13% CoE 4,155 4,155 2,840 17 4%

Total Value for Operational Road Assets 40,181 35,058 23,962 140 36%

0%

NH-8 Shreenathji - Udaipur 100% 68% FCFE using 13% CoE 9,895 9,895 6,764 39 10%

NH-758 Bhilwara - Rajsamand 100% 68% FCFE using 13% CoE 4,924 4,924 3,365 20 5%

NH-7 Rohtak - Hissar 100% 68% FCFE using 13% CoE (263) (263) (179) (1) 0%

SH-3 Mysore Bellary 74% 51% FCFE using 13% CoE 1,512 1,119 765 4 1%

Total Value for Under Construction Road Assets 16,069 15,676 10,714 62 16%

0%

Less: Net Debt at SIPL standalone in FY16E 68% 9,369 9,369 6,404 37 9%

Total Value for SIPL 46,881 41,364 28,273 165 52%

Value of SIPL after giving holdco discount 25% holdco discount 35,160 31,023 21,205 124 39%

Total Value for Sadbhav Engineering 67,906 53,950 315 100%

Road Sector Update

Valuation Matrix

Company Revenues, Rs.mn EBITDA, Rs.mn PAT, Rs.mn RoE

Standalone Numbers FY15 FY16E FY17E FY18E FY15 FY16E FY17E FY18E FY15 FY16E FY17E FY18E FY15 FY16E FY17E FY18E

Ashoka Buildcon 19,667 20,731 23,382 26,607 2,498 2,614 2,806 3,251 1,422 1,587 1,691 2,048 14% 12% 10% 11%

IRB 21,084 21,847 33,247 30,601 2,301 1,894 2,436 2,310 1,925 2,022 2,868 2,360 7% 7% 9% 7%

KNR Constructions 8,761 8,694 11,245 13,526 1,262 1,480 1,508 1,811 730 1,308 746 1,023 13% 21% 10% 13%

PNC Infratech 15,610 19,238 22,626 27,232 2,166 2,542 3,009 3,559 1,004 1,243 1,595 1,948 15% 13% 12% 13%

Sadbhav Engineering 29,698 31,795 36,335 41,321 3,002 3,514 4,081 5,112 1,137 1,212 1,541 2,183 10% 9% 11% 14%

Company Revenues, Rs.mn EBITDA, Rs.mn PAT, Rs.mn RoE

Consolidated Numbers FY15 FY16E FY17E FY18E FY15 FY16E FY17E FY18E FY15 FY16E FY17E FY18E FY15 FY16E FY17E FY18E

Ashoka Buildcon 23,197 23,197 23,197 23,197 5,110 6,833 7,316 8,828 815 887 1,085 1,886 6% 5% 5% 9%

IRB 38,475 45,026 59,107 63,052 22,117 28,067 32,155 36,680 5,429 6,729 6,122 4,142 13% 14% 14% 11%

KNR Constructions 9,312 8,844 12,095 14,461 1,268 1,481 2,202 2,585 697 1,025 265 601 10% 12% 3% 7%

PNC Infratech 18,609 23,104 28,500 33,213 2,799 3,864 5,820 6,376 912 646 980 1,345 12% 6% 7% 9%

Sadbhav Engineering 34,480 37,467 44,891 53,116 5,867 6,992 9,973 13,833 (1,758) (599) 573 1,835 -13% -3% 3% 9%

Company CMP Shares M.Cap Net Debt to Equity (x) P/E (x) Price / BV (x)Target

PriceRating

Consolidated Numbers Rs. (mn) Rs. bn FY15 FY16E FY17E FY18E FY15 FY16E FY17E FY18E FY15 FY16E FY17E FY18EPrice

(Rs.)

Ashoka Buildcon 186 187 34.8 2.0 1.3 1.3 1.1 44.5 40.9 33.4 19.2 1.9 1.5 1.5 1.4 235 Buy

IRB 225 351 79.0 2.8 2.6 3.0 3.1 14.8 12.6 13.9 20.6 1.8 1.7 1.5 1.4 237 Add

KNR Constructions 508 28 14.2 0.8 0.6 0.6 0.4 18.2 12.4 48.1 21.1 1.6 1.4 1.4 1.3 560 Buy

PNC Infratech 481 51 24.7 1.9 1.4 1.3 1.1 29.2 41.3 27.2 19.8 3.1 1.9 1.8 1.7 650 Buy

Sadbhav Engineering 252 171 43.1 3.8 3.1 3.3 2.7 NM NM 89.7 28.0 3.0 2.5 2.4 2.2 315 Buy

Road Sector Update

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Interpretation

BUY Stock expected to provide positive returns of >15% over a 1-year horizon REDUCEStock expected to provide returns of <5% – -10% over a 1-year

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Road Sector Update

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Road Sector Update - Spark Capital

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