Hyderabad Metro

Project Appraisal and Finance

Group 9

A009 VN Raghuveer
A013 Pranita Bubna
A025 Pratik Jain
A039 Prachi Khaitan


Acknowledgement
We would like to thank our professor Dr. Anupam Rastogi for giving us the opportunity to undertake
the financial modelling of Hyderabad Metro and for providing us his esteemed guidance and the
needed reference models

We would also like to thank all our classmates who helped us in understanding the subject through
their valuable piece of advice.



Table of Contents
Hyderabad Metro Rail Overview .............................................................................................................. 1
L&T Overview ...................................................................................................................................... 1
Project details...................................................................................................................................... 2
Salient Features of the Project ............................................................................................................. 2
Fare structure ...................................................................................................................................... 3
Advantages of the Project .................................................................................................................... 3
PPP structure of the Project..................................................................................................................... 4
Construction Schedule ......................................................................................................................... 4
Current status of the Project ................................................................................................................ 4
Bidding Process ....................................................................................................................................... 5
Initial Bidding ...................................................................................................................................... 5
Rebidding Process ............................................................................................................................... 6
Performance Guarantee agreement .................................................................................................... 7
Viability Gap Funding ........................................................................................................................... 7
Golden share ....................................................................................................................................... 7
Deal structure ...................................................................................................................................... 8
Project Financial Details: Assumptions ..................................................................................................... 9
Assumptions & Inputs used in the Financial Model .............................................................................. 9
Calculation of WACC .............................................................................................................................. 10
Estimation of Beta ............................................................................................................................. 10
Estimating the Average Lease Rental prices ....................................................................................... 11
Debt Schedule ....................................................................................................................................... 12
Incorporating the New Land Acquisition Policy into the financial model ................................................ 13
Compensation: .................................................................................................................................. 13
Concern due to land acquisition......................................................................................................... 13
Sensitivity Analysis ................................................................................................................................ 15
Revenue sensitivity ............................................................................................................................ 15
Cost sensitivity .................................................................................................................................. 16
Scenario Analysis ................................................................................................................................... 17
Risks involved in the project .................................................................................................................. 18
References ............................................................................................................................................ 19


Page | 1

Hyderabad Metro Rail Overview
Transportation in a metro city is a major issue for the Government of Andhra Pradesh, and Hyderabad is
not an exception to this rule. Keeping this in view, the Hyderabad Metro Rail is undoubtedly one of the
largest modern transport systems in the world based upon the PPP model. Forecasting the requirements
of ensuring a well-modulated transport system, the Government of India has in its futuristic reform
document focused upon a strategy that would promote fast- paced growth that would bring about
equitable and sustainable improvements in the overall living standards of the citizens.

Hyderabad is a growing city that covers 625 square kilometres of municipal corporation area and 6,852
square kilometres of metropolitan area. It is a hub for Information Technology / Information
Technology Enabled Services (IT/ITES), Biotech and Pharmaceutical sectors along with being a tourist
attraction.
The burgeoning population has put Hyderabads transportation system under immense pressure. The
city requires a robust, dependable, comfortable, affordable and sustainable transportation system.
Metros and MRTS (Mass Rapid Transport System) are emerging as a major area for infrastructure
development in major cities with high population (around 8 Million). Thus, the Government of Andhra
Pradesh (GoAP) has planned a Mass Rapid Transit system (MRTS) covering three high traffic density
corridors of Hyderabad. The project is planned to be developed on a PPP basis through the Design
Finance Build Operate Transfer (DBFOT) mode.

The main idea behind the concept of Metro Rail is to make sure commuters reach on time to work and
not delayed on account of lack of rapid transport. Growing urbanizations has led to innumerable
problems for commuters who are delayed on account of traffic jams. Metro Rail will allow them to
bypass these traffic congestion barriers. The driving force for conceptualizing Metro Rail in Hyderabad is
on account of a dire need for an eco-friendly, solid and quick transport that would withstand the
growing demands of an urban city like Hyderabad which is on the way of becoming a popular global
destination.

The Metro Rail Project, once completed will transform Hyderabad as the preferred city in India; with
integrated urban transport planning using inter modal connectivity and convenient sky-walks, which will
mark the beginning of an era of seamless commuting in India.

L&T Overview
L&T Metro Rail (Hyderabad) Limited is a subsidiary of L&T Infrastructure Development Projects, an
Infrastructure Development arm of L&T. L&T is one of the largest and most respected companies in the
private sector, known for its project management and execution capabilities of large infrastructure
projects in the domestic and international arena.

A strong customer-focused approach, the constant quest for top-class technology and quality, backed
with a commitment to nation building have enabled L&T to attain and sustain a leadership position in its
major lines of business over the past seven decades and become a premier institution in engineering
and construction.
(Ref: http://en.wikipedia.org/wiki/Hyderabad_Metro_Rail)
Page | 2

Project details
The Hyderabad Metro Rail Network will cover a total distance of around 72 Km across three corridors:

Corridor 1: Miyapur L.B.Nagar (29 Km)
Corridor 2: Jubilee Bus Stand - Falaknuma (15 Km)
Corridor 3: Nagole Shilparamam (28 Km)


The Project will be integrated with existing railway stations, suburban railway network (MMTS) and bus
stations to ensure seamless and comfortable travel. There will be three depots, one for each Corridor,
located at Miyapur, Falaknuma and Nagole. Corridors 1, 2 and 3 will be designed for peak hour peak
distribution traffic (PHPDT) of 50,000, 35,000 and 50,000 respectively. The speed of the system would
vary from 34 kmph to 80 kmph and the trains would have a frequency of 3 to 5 minutes.
Salient Features of the Project
It is an elevated metro rail, with two tracks (up and down lines) on a deck erected on pillars
generally in the central median of the road, without obstructing the road traffic
Stations are located at an average interval of 1KM elevated stations with passenger access through
staircases, escalators and lifts
Adequate parking space and circulating areas are being provided for multi modal integration at the
stations
Page | 3

With a frequency of 3 to 5 minutes during peak hours, the system is expected to carry about 17 lakh
passengers per day by 2017 and 22 lakh by 2024
With a maximum speed of 80 kmph, the average speed of the trains will be 34 kmph an
international standard for MRT systems
Travel time on account of Metro will be reduced as below:

Using Bus Using Metro Rail
Corridor I
(Miyapur-L.B.Nagar 29 Kms)
1 hr 50 minutes 45 minutes
Corridor II
(Jubilee Bus Station-Falaknuma -15 Kms)
1 hr 10 minutes 22 minutes
Corridor III
(Nagole-Shilparmam- 27 Kms)
1 hr 30 minutes 39 minutes

Fare structure
Distance (km) Metro Fare ( )
0 2 09.00
2 6 10.00
6 10 12.00
10 14 14.00
12 15 16.00
15 18 17.00
> 18 19.00
Advantages of the Project
Low energy consumption 20% per passenger km in comparison to road-based system
Greater traffic capacity carries as much traffic as 7 lanes of bus traffic or 24 lanes of car traffic
(either way)
Very low ground space occupation 2 metres width only for elevated rail
Hi-capacity carriers very high volumes of peak hour peak direction trips
Eco-friendly causes no air pollution, much lesser sound pollution





Page | 4

PPP structure of the Project
Hyderabad Metro Rail Ltd, a fully owned Public Sector Undertaking of GoAP is currently
implementing the Hyderabad Metro Rail Project.

Developed under a concession agreement on DBFOT basis for a period of 35 years, including a
construction period of 5 years

Under the concession agreement, the operator has to design, finance, construct, operate, and
maintain the 3 corridors and transfer the assets at the end of the concession period.

The assets of the project include the viaduct, stations, bridges, depots, rolling stock, signaling
system, traction systems, communications systems, track work, fare collection system, etc.

The assets would be constructed or procured through contractors and equipment suppliers.

In addition, the operator would also have access to the commercial development of land available at
the depots (212 acres) and 10% of the carpet area of the station sites identified in the concession
agreement. This aggregates to a cumulative maximum of 12.5 million square feet in the case of
depots and a cumulative maximum of 6 million square feet in the case of stations.

The SPV would also be allowed to undertake real estate development over the parking and
circulation areas at stations.

All the real estate development related assets created under the project would also be considered
the assets of the SPV which would be handed over to the Government at the end of the concession
period of 35 years.
Construction Schedule
Stage Target section Distance (km) Corridor
Stage I Nagole to Mettuguda 8 Corridor III
Stage II Miyapur to Ameerpet 11 Corridor I
Stage III Mettuguda to Ameerpet 10 Corridor III
Stage IV Ameerpet to Shilparamam 9.51 Corridor III
Stage V Ameerpet to L.B.Nagar 17.87 Corridor I
Stage VI JBS to Faluknama 14.78 Corridor II
Current status of the Project
As of August 2013 end The Construction on line 3 is 50% completed and on line -1 Construction of pillars
kicked-off in full swing. The construction of the entire 71.16 km has been split into 6 stages with the first
stage scheduled to be completed by June 2014 with the entire project scheduled to be completed by
July 2017
Page | 5

Bidding Process
Initial Bidding
The project was approved by the GoAP and global bids were invited through an Expression of Interest-
cum-Request for Qualification (EoI-cum-RFQ) in November 2005. The EOI-cum-RFQ had stringent
technical and financial criteria. The following seven consortia submitted their EOI along with their bids
for pre-qualification.
Essar Constructions (Mumbai), Srei (Kolkata), SembCorp, STE (Singapore) and Singapore MRT;
Magna Allmore (Malaysia), Siemens AG (Germany), ETA (Dubai) and NCC (Hyderabad);
Reliance Energy (Mumbai) and Bombardier (Canada);
Metrail (Switzerland), Macquarie Bank (Australia) and MMC (Malaysia);
GVK (Hyderabad), Gammon India (Mumbai), Alstom (France) and IDFC;
Maytas (Hyderabad), Navabharat (Hyderabad), ItalThai (ITD-Thailand)
ITD cem (Delhi); and IVRCL (Hyderabad), Hitachi (Japan) and BHEL.

Five of these consortia were pre-qualified by the GoAP, with the Metrail and ITD Cem consortia not
qualifying. The Government of India considered the project for financial assistance under the VGF
scheme and then allowed the GoAP to proceed with the RFP Process.
The RFP document, including the model concession agreement, manual of specifications and standards
as well as the state support agreement, was issued to all the pre-qualified bidders in May 2007
Consortia Bid Terms
Maytas (Hyderabad), Navabharat (Hyderabad), ItalThai
(ITD-Thailand)
Pay Rs 30,311crores to the
government concession period 35
years
Magna Allmore (Malaysia), Siemens AG (Germany), ETA
(Dubai) and NCC (Hyderabad)
Pay Rs 250 crores to the government
Reliance Energy (Mumbai) and Bombardier (Canada) Sought VGF grant of Rs 2,811 crore
Essar Constructions (Mumbai), Srei (Kolkata), SembCorp,
STE (Singapore) and Singapore MRT
Sought a grant of Rs 3,100 crore
GVK (Hyderabad), Gammon India (Mumbai), Alstom
(France) and IDFC
No bid submitted

During the concession period of, while the agreed to pay Rs 250 crore to the government. The two
other bidders--Reliance sought a VGF grant of Rs 2,811 crore from the government and Essar sought a
grant of Rs 3,100 crore respectively. The GVKled consortium did not submit a financial bid. Based on
these bids, the Maytas consortium was awarded project. The Maytas-led consortium agreed to pay Rs
30,311crs to the government during the concession period of 35 years, while the Magna Allmore led
consortium agreed to pay Rs 250 crs to the government.



Page | 6

Sector PPP
Project
Structure
State and Year PPP
Contract Signed
Government
/ Public
Sector Entity
/ Entities
Private Sector
Promoter / Sponsor /
Consortium Members
Project
Cost
Concessi
on
Period
Urban
Infrastructure
Mass Rapid
Transport
DBFOT Andhra Pradesh
2008
(Subsequently
cancelled in 2009)
GoAP Maytas Infrastructure,
GoAP, Nav Bharat
Ventures, IL&FS and
Ital-Thai
Rs.
11,814
crore
35 years


The project was to achieve financial closure by March 17, 2009.
Major milestones achieved in the development phase are presented below:
The SPV was incorporated in September 2008.
Signing of the Concession Agreement and Shareholders agreement took place on September 18,
2008.
Extension granted for financial closure and performance guarantee on March 17, 2009.
The Concession Agreement with Maytas Metro was eventually cancelled on July 7, 2009 due to the
failure of MML in arranging the Performance Security and achieving financial closure for the project
Due to the large differences between the bids submitted by each of the consortia the GoAP took the
decision to re-bid the project.
Rebidding Process
The RFQ for the new process was released on July 16, 2009 and the date for the submission of the RFQ
was January 16, 2010. 8 bidders qualified for the RFP process and were asked to submit financial bids for
the project. The bidders were as follows:
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

In the fresh bidding process, L&T bagged the deal. It has bagged the project amidst stiff competition
seeking least viability gap funding of Rs. 1,458 crore.
The Hyderabad project achieved financial closure in record six months despite a tough business
environment. A consortium of 10 banks, led by the State Bank of India, sanctioned the entire debt
requirement for the project. The equity component of the project will be infused by the L&T group. The
project has a viability gap fund support from the Centre and the State.

The State Government has provided 269 acres of land, which includes space for two major terminal
points and depots. It has also decided to pitch in with about Rs 2,000 crore for related infrastructure.
Page | 7

The metro project will include around 18.5 million sq ft of transit-oriented development. As per
projections, the project is expected to trigger robust economic activity.
Of the 269 acres allocated, 57 acres and 18.5 million sq. ft. of built-up space are available for commercial
exploitation. The project could enjoy lease rentals for 30 years, extendable by another 30 years, after
which it would have to be handed over to the government.

Sector PPP Project
Structure
State and Year PPP
Contract Signed
Government
/ Public
Sector Entity
/ Entities
Private Sector
Promoter /
Sponsor /
Consortium
Members
Project
Cost
Concessi
on
Period
Urban
Infrastructure
Mass Rapid
Transport
DBFOT Andhra Pradesh,
2010
Government
of Andhra
Pradesh
L&T Ltd

Rs.
14132
crore
35 years

Performance Guarantee agreement
L&T Metro Rail (Hyderabad) Limited has already submitted a Performance Guarantee for Rs.360 crore to
GoAP underlying its clear intent to execute the prestigious project in the stipulated time frame. As per
the Provisions of Concession Agreement, construction will have to be completed in 5 years.
Viability Gap Funding
VGF is typically provided in competitively bid projects. Under VGF, the Central government meets up to
20 per cent of capital cost of a project being implemented in public private partnership (PPP) mode by a
Central Ministry, State government, statutory entity or a local body. The State government, sponsoring
ministry or the project authority can pitch in with another 20 per cent of the project cost to make the
projects even more attractive for the investors.
The India Government on May 6, 2013, approved final approval for viability gap funding of Rs.
1,458 crore (12.35 percent of Total Project Cost of Rs. 11,814 crore) under the Viability Gap Funding
Scheme to the project from Government of Andhra Pradesh for development of Hyderabad Metro
Rail on DBFOT basis.
Golden share
L&TMRHL handed over a special Golden Share of the company to the Andhra Pradesh Chief Secretary,
Mr Pankaj Dwivedi. Golden Share is a non-transferable special equity share with a face value of Rs. 10
but gives powers to the State as if the Government holds 26 per cent shares in the SPV, without
investing that amount. The Golden Share entitles the Government to nominate one director on the
board of L&TMRHL and he will have veto powers on important matters as per the concession
agreement. Thus, it ensures that the Government has a say in all major decisions taken by the private
concessionaire company. It also ensures that the Governments rights are irrevocable and are not
adversely affected in any manner. Some of the special powers that accrue to the Government due to
Golden Share include power to veto, to purchase the companys own shares, and reduce the companys
Page | 8

share capital among others. As per the Indian Companies Act, only those shareholders who have more
than 26 per cent of the equity share capital have the right to block resolutions in board meetings and
these powers accrue to the Government with the Golden Share.
(Ref: http://www.thehindubusinessline.com/companies/lt-metro-rail-hands-over-golden-share-to-
andhra-pradesh-govt/article2882253.ece)

Deal structure







Page | 9

Project Financial Details: Assumptions
The nature of the project is such that to maintain the lower cost of travel for passengers, the revenue
Mix of the project when fully Operational is made up of:
Ridership Revenue- 55 %
Advertising revenue - 5%
Leasing Revenue 40%
Assumptions & Inputs used in the Financial Model

Average riders per day(FY15-16) 421500
Average riders per day(FY18 onwards) 1500000
Average WPI inflation 7%
Average fare Increae(50% of inflation) 9%
Average ridership increase/year till 2025 6.00%
Lease Occupany in the 1st Year 5%
Lease Occupancy in the 2nd Year 15%
Lease Occupancy in the 3rd Year 30%
Lease Occupancy in the 4th Year 100%
Lease Occupancy in the 5th Year 100%
Lease Occupancy from the 6th Year 100%
Increase in Rental till 2020 6%
Increase in Rental after 2020 4%
Increase in Operating Expense/Year 5%
Operating & Maintenance Expense(2017) 240.00
Operating & Maintenance Expense(2021) 407.00
Operating & Maintenance Expense(2031) 821.00
Operating & Maintenance Expense(2041) 1521.00
Depreciation SLM
Annual Operating Expense(Source: DMRC)(In Rs crs) 90
Avg Rate of Interest(Base Rate(SBI)+225 basis points) 11.00%
Initial Fare for Metro 12
SBI Base rate Assumption (historic average) 8.75%
Area available for Lease(Sqft) 18500000

The following assumptions/inputs were used in the construction of the model
Ref: 1. http://businesstoday.intoday.in/story/hyderabad-metro-revenue-nvp-reddy/1/191778.html
2 http://www.inflation.eu/inflation-rates/india/historic-inflation/cpi-inflation-india.aspx

Page | 10

Calculation of WACC
Estimation of Beta
As 40 % of revenues is from leasing of commercial spaces, and 60 % or revenues is estimated for
passenger fares. We have taken two set of proxy companies:
Real Estate companies involved in Commercial leasing and
Infrastructure companies involved in Large infrastructure projects
We have calculated the average unlevered Beta of both the set of companies and then calculated the
unlevered Beta for the SPV based on the proportion of revenue contribution. We have then re-levered
the beta of the SPV to reflect the Debt/Equity structure of the project.

Real Estate Companies Beta D/E Unlevered
DLF 1.34 0.81 0.87
Sobha Developers 1.1 0.63 0.77
DB Realty 1.9 0.08 1.80
Godrej Properties 0.9 0.26 0.77
Omaxe Ltd 1.46 0.45 1.12
Average

1.06
Fig: Companies involved in Real estate construction and Leasing

Infrastructure Companies Beta D/E Unlevered
L&T 1.6 1.5 0.80
Punj Llyod 1.9 1.96 0.82
IRB Infra 1.9 2.43 0.72
JP Associates 2.1 1.52 1.04
Asset Beta

0.85
Fig: Companies involved in large scale Infrastructure projects (source: www.moneycontrol.com)

Hence the Beta of the Project/SPV was:
Unlevered Beta of Project Levered Beta
1.082 1.98











The Calculation for WACC was done as follows:
Page | 11

Particulars % Amount(In Rs. Crores)
Debt 70% 11478
Equity 21% 3440
Viability Gap Funding 9% 1458
Total 16376

Riskfree Rate(Bond Yield of Indian Bonds) 9.00%
Market Risk Premium(Damodaran) 6.50%
Equity Beta 1.98
Interest Rate 11.00%

Ke(Cost of Equity) 21.86%
Kd(Post tax cost of debt) 7.37%
Tax Rate 30.00%
WACC 10.96%

Estimating the Average Lease Rental prices
The lease rental prices per sq.ft was calculated on the basis of average rate/month/sqft in three areas
where the stations would be located .
Locality Area(sq ft) Lease rental
Ameerpet 9000 270000
Panjagutta 3500 420000
Gachibowli 28000 1037000
Average 40

This is the current rate prevalent in the Hyderabad real-estate market .Based on the assumptions of 6%
annual increment in Lease rentals, in FY15 the lease rentals were calculated as Rs. 46/month/sq.ft.
(Ref: http://rentals.sulekha.com/search?rental=1&primarytag=commercial-showrooms-
shops&city=hyderabad&locality=madhapur&pricetype=lakhs&)














Page | 12

Debt Schedule
The SPV has achieved financial closure for the project in 2011.The details of the financing are as follows:

No. of Participating banks 10 nos.
Tenure 15 Years

The total Debt approved for the project is Rs 11478 cr. The debt is assumed to have a moratorium
period of 3 years. The start date for Tenure of the loan is assumed to be in FY12.There is also the DSCR
support fund of around 500 cr. to cushion the DSCR in the initial years of the commencement of
operation. The Debt Schedule for the project is as follows:


How will the concessionaire manage the DSCR of less than 1 in the 1
st
three years?

As seen in the above table, initial 3 years, the DSCR is below one. It is advised that L&T uses its equity/
Viability Gap fund or bring its own funds to pay the interest part during these 3 years and then the
revenues should be adequate to service debt.
L&T has been reported to list L&T IDPL, the concessionaire on Singapore stock exchange and raise
money which can be used in the initial debt coverage.

(Ref: http://www.indiainfoline.com/Markets/News/LandT-plans-to-sell-26-percent-stake-in-Hyderabad-
Metro-project/5786056892








Particulars 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Openi ng Bal ance 11478.0 11144.4 10774.1 10363.0 9906.8 9400.3 8838.2 8214.2 7521.6 6752.7 5899.4 4952.1 3900.6 2733.5 1438.0
Add: Debt drawal 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Less: Pri nci pal Repayment (333.61) (370.31) (411.04) (456.26) (506.44) (562.15) (623.99) (692.63) (768.82) (853.39) (947.26) (1,051.46) (1,167.12) (1,295.50) (1,438.01)
Cl osi ng Bal ance 11144.4 10774.1 10363.0 9906.8 9400.3 8838.2 8214.2 7521.6 6752.7 5899.4 4952.1 3900.6 2733.5 1438.0 0.0
Interest 1262.6 1225.9 1185.1 1139.9 1089.7 1034.0 972.2 903.6 827.4 742.8 648.9 544.7 429.1 300.7 158.2
Interest to P&L 1262.6 1225.9 1185.1 1139.9 1089.7 1034.0 972.2 903.6 827.4 742.8 648.9 544.7 429.1 300.7 158.2
Accrued i nterest 1262.58
DSCR 0.03 0.13 0.20 1.11 1.16 1.25 1.31 1.42 1.49 1.60 1.67 1.79 1.85 1.98 2.05
Supported DSCR 0.03 0.13 0.20 1.17 1.22 1.31 1.37 1.48 1.49 1.60 1.67 1.79 1.85 1.98 2.05
Page | 13

Incorporating the New Land Acquisition Policy into the
financial model
Compensation:
1. Market value of the land:
a) the minimum land value,
b) the average of the sale price for similar type of land
whichever is higher:

2. Value of the assets attached to land: Building/Trees/Wells/Crop etc as valued by relevant govt.
authority;

Total compensation = 1) + 2)

3. Solatium: 100% of total compensation. This is to ameliorate the pain of forcible acquisition.

Retrospective operation: Bill applies retrospectively to cases where no land acquisition award has been
made. Also in cases where the land was acquired five years ago but no compensation has been paid or
no possession has taken place then the land acquisition process will be started afresh in accordance with
the provisions of this act.

Land acquisition being a major cause of concern for the Andhra Pradesh government, about Rs.2000
crores has been set aside for expenses associated with acquisition of 269 acres of land that would be
needed for the completion of the project. In this regard, the government has been successful in
acquiring large portions of land at critical points. However, the major concern at the moment is with
regards to acquiring properties along some busy commercial roads, with many establishments likely to
be effected in the process. This is a cause of grave concern to the government, more than for the
developer, as the progress of the project would be jeopardised if this issue is not resolved adequately.
The project was effectively delayed by 4 months due to problems in securing land for development.

Concern due to land acquisition
In the busy corridor that heads towards the IT hub of Hyderabad, land acquisition in the Ameerpet
stretch and in the corridor passing through the Old City that touches the busy market junction of Sultan
Bazar, have been troublesome. The local traders are against the project. To add to these issues, there
are a few religious structures, including an Iskcon temple, which need to be acquired.

Members of the Secunderabad unit of International Society for Krishna Consciousness (Iskcon) have
decided to launch a protest movement against the proposal to acquire 1,600 square yards of the temple
land.

With metro barricades being erected at more busy junctions for construction of piers, restricting
pathways, the traffic movement, too, has been adversely affected. The monsoon has further added to
the commuters woes. However, no escape route from these problems is likely to emerge for the next
two years.

Estimates to calculate cost due to the land acquisition bill
Page | 14

Total Land
acquired 269 acres

Population density of Hyderabad 18480 per Km
2


1 Km2 247.11 acres

Total Populationaffected by Metro 20117.03
Average number of Persons per
household 4

Number of House Hold Affected 5029.26


Minimum Compensation To be borne by Concessionaire

Subsistence Allowance 36000 for the first year

Livelihood compensation 24000
per year for 20
years

Transporaton allowance 50000 for the first year

Upfront Resettlement allowance 50000 for the first year


Also,
if the land is acquired for urbanization,

20% of the developed land will be reserved subsequent development
and offered to land owning families, in proportion to their land acquired
and at a price equal to cost of acquisition plus cost of subsequent development
(This will have no impact on revenue of project)

As the land is being acquired by GHMC , the increase cost of land acquistion will be
borne by GHMC and not the SPV and hence will not affect the cost of the project

So, the following cost estimates should be taken as contingency provisions
year 1: 80.47 crore; year 2 to 20: 12 crore.
No bill Impact due to the bill
NPV
2024.00 1917.00
Project IRR
13.03% 12.91%
Equity IRR
11.83% 11.82%
AVG DSCR
1.31 1.12

(Ref:
http://en.wikipedia.org/wiki/The_Right_to_Fair_Compensation_and_Transparency_in_Land_Acquisition
,_Rehabilitation_and_Resettlement_Act,_2013)



Page | 15

Sensitivity Analysis
Revenue sensitivity
Major inputs to the revenue estimation are:
i. Average ridership per day initially
ii. The subsequent growth rate of the ridership
iii. Occupancy rate of the space available for lease
iv. Growth in the lease rentals

Average passengers per day Sensitivity

Ridership growth rate sensitivity

Lease rental growth rate sensitivity

Lease occupancy after coming into operation


1500000 1400000 1300000 1200000
NPV 2024.00 1987.00 1914.00 1865.00
Project IRR 13.03% 12.62% 12.26% 11.66%
Equity IRR 11.83% 11.22% 10.68% 9.80%
AVG DSCR 1.31 1.27 1.23 1.18
6% 5% 4% 3%
NPV
2024.00 1769.00 1511.00 1277.00
Project IRR
13.03% 12.71% 12.45% 12.20%
Equity IRR
11.83% 11.35% 10.98% 10.61%
AVE DSCR
1.31 1.28 1.25 1.22
6% 5% 4% 3%
NPV
2024.00 3488.00 2983.01 2507.97
Project IRR
13.03% 12.29% 11.89% 11.50%
Equity IRR
11.83% 10.75% 10.15% 9.57%
AVE DSCR
1.31 1.26 1.2 1.15
100% 80% 60% 40%
NPV
2024.00 1056.00 413.00 -886.37
Project IRR
13.03% 11.38% 9.95% 8.37%
Equity IRR
11.83% 9.36% 7.21% 4.89%
AVE DSCR
1.31 1.14 0.97 0.8
Page | 16

As can be seen from the analysis above, the most uncertain and thus sensitive parameter among the
revenue estimate inputs is the Lease Occupancy. This has a high probability of missing estimates and if it
does, it impacts the revenues and thus the IRR, NPV and DSCR ratios significantly.
Cost sensitivity
The inputs to the cost sensitivity estimation are:
i. The operating and maintenance cost estimate
ii. Interest rate (SBI base rate + 225 basis points)

Escalation in annual operating & maintenance expenses

Average SBI base rate during the loan tenure
8.75% 9.25% 9.75% 10.25%
NPV
2024.00 4063.10 3658.29 3274.31
Project IRR
13.03% 13.03% 13.03% 13.03%
Equity IRR
11.83% 11.83% 11.83% 11.83%
AVE DSCR
1.31 1.28 1.24 1.21

As seen from the analysis, adverse movements in both the inputs affect the project performance but the
most uncertain input here is the interest rate. As it is a floating rate loan, it is exposed to interest rate
risk. For instance a 1% rate hike by RBI and a subsequent hike by SBI will erode approximately 800 crore
of the project NPV






5% 10% 15% 20%
NPV
2024.00 1823.00 1645.00 1476.00
Project IRR
13.03% 12.81% 12.70% 12.59%
Equity IRR
11.83% 11.50% 11.34% 11.17%
AVE DSCR
1.31 1.28 1.27 1.25
Page | 17

Scenario Analysis
While the sensitivity analysis contained the effect of change in one input when the others are kept
constant, scenario analysis is more dynamic. There are three cases taken:
1. Optimistic case
2. Base case
3. Pessimistic case
Optimistic Base Case Pessimistic
NPV
3653.903 735 -2453
Project IRR
0.139883 11.74% 7.61%
Equity IRR
12.75% 9.89% 3.75%
Avg DSCR
1.49 1.28 0.65
Assumptions
Initial rider-ship per day 1700000 1500000 1200000
Ridership growth/year 7% 6% 4%
Lease occupancy 100% 80% 50%
SBI average base rate 8% 8.75% 10.50%
Contents

The optimistic case
is relatively
comfortable in the
sense that it has
sufficient IRR
cushion and a
comfortable DSCR of
1.5 on an average


The base case just
manages to be on
the borderline. If any
of the risk factors
changes adversely,
the base case would
be under stress


The pessimistc case
suffers
unfavourable
numbers in all
categories and is
the least desirable


Page | 18

Risks involved in the project
1. Price risk is minimal as the Fare structure is pre-determined at a given growth rate (5% + 50% of
WPI inflation)
2. Demand risk is the biggest risk;
i. If the ridership of the Metro misses the estimate of 15 lakhs per day initially and
25 lakhs in 10 years, the project IRR and NPVs are significantly impacted as seen
in the sensitivity analysis
ii. The lease space demand is the most uncertain estimate and perhaps the biggest
risk; (Enter as many pre-contracts as possible)
3. New land acquisition bill: The new land acquisition bill which is going to be enacted from 2014,
can delay the project significantly due to the Rehabilitation and Resettlement clause. Any delays
would add up the interest cost. All the land should be attempted for acquisition as soon as
possible to reduce this risk.
4. Bifurcation of the Andhra Pradesh state is expected to reduce the population growth in the long
run and thus the rider-ship growth estimates go off the expectations.
(Ref: http://www.railnews.co.in/?p=12819)
























Page | 19

References
http://www.livemint.com/Home-Page/ekcMLnIP7QkMuYzD7QsV0H/Maytas-loses-Metro-project-in-
Hyderabad.html
http://www.infrastructure.gov.in/pdf/Hyderabad-Metro-Rail-RFP.pdf
http://hmr.gov.in/PDF/mss.pdf
http://en.wikipedia.org/wiki/Hyderabad_Metro_Rail
http://www.larsentoubro.com/lntcorporate/common/ui_templates/HtmlContainer.aspx?res=P_ME
T_BHYM_EPFS
http://www.larsentoubro.com/lntcorporate/common/ui_templates/HtmlContainer.aspx?res=P_ME
T_BHYM_BMPU
http://infrapppworld.com/2013/05/viability-gap-funding-approved-for-hyderabad-metro-rail-
project.html
http://www.thehindubusinessline.com/companies/lt-metro-rail-hands-over-golden-share-to-
andhra-pradesh-govt/article2882253.ece
http://hyderabadmetrorail.com/highlights.html
http://www.inflation.eu/inflation-rates/india/historic-inflation/cpi-inflation-india.aspx
http://www.railnews.co.in/?p=12141
http://www.livemint.com/Politics/FXZ9CrJApxRowyzLd8mb2O/All-you-wanted-to-know-about-new-
land-acquisition-Bill.html
http://indiaratings.co.in/showDetails.jsp;jsessionid=F0624BBB3E4CA72BCE68DF6823CB6D16?fileNa
me=/upload/sectors/pressReleases/ratingsRelated/2013/7/18/indra18Metro.htm