Indian Road Sector Report

INDIANROAD SECTOR
Government Outlayisthe Key
EPCTender Awarding ShiftstoFast Gear
Divyata Dalal
divyatad@eisec.com 02261925338
Institutional Research March 11, 2013
Contents
Indian Road Sector: A Long Road Ahead .................................................................................................................................. 1 Widespread Road Network in India, but the path lacks quality .......................................................................................... 2 National Highway Development Programme - Ambitious plan but needs to be accelerated ........................................... 3 Phase wise implementation of NHDP - Status So Far ............................................................................................................ 5 Other Initiatives .......................................................................................................................................................................... 6 Attractive investment potential -State's outlay to see sharp jump ...................................................................................... 7 Private Capital - A Key Growth Driver ...................................................................................................................................... 9 Acceptance of Chaturvedi Committee Recommendations has been a Game Changer ..................................................... 11 Driving significant growth in project awards ....................................................................................................................... 12 Greedy Capital -> Aggressive Bidding -> Environmental Hurdles -> Slowdown ................................................................ 13 But all's not lost -> EPC to drive growth here on ................................................................................................................. 15 Policy focus on roads - A part of wider strategy for infrastructure development .......................................................... 17 OMT Concessions ...................................................................................................................................................................... 18 Risks to our Call ........................................................................................................................................................................ 18 Companies Covered Ashoka Buildcon Limited .................................................................................................................................................... 19-29 Sadbhav Engineering Limited ............................................................................................................................................. 30-41
Indian Road Sector Report
Indian Road Sector: A Long Road Ahead

Executive Summary:
India has a road network of over 4.32 mn kms, the second largest in the world. Government has been aggressively working since last two decades for development of highways and state roads by implementing programs like NHDP, Bharat Nirman , Central Road Fund Scheme etc. However, still a lot needs to be done to address hurdles encountered during execution regarding delays in environmental and forest clearance, issues of land acquisition and difficulties in achieving financial closure. Owing to these issues, developers have exited from few existing BOT road projects. After successfully awarding large number of highways projects under BOT model during FY09-FY12, the year to date awarding for FY13 has seen dismal response from developers owing to the reasons mentioned above. NHAI is now sorting out these issues pertaining to land acquisition and MoEF has clarified to de-link the environment and forest clearance. In order to rescue the sector from financial despair, the Government announced to roll out about 3000-4000 km highway projects on turnkey EPC basis with 100% financial support. Roads that are financially unviable on toll mode would be taken up under this scheme. We believe developers that have all clearances in place for BOT projects portfolio and have also raised funds through various means to execute and operate them, are positioned well compared to their peers. In the near to medium term we expect new contracts to be awarded as EPC and the construction of already awarded projects to pick up. BOT awarding activity will remain sluggish until the macro issues of clearances, land acquisition are settled and financing constraints ease out. The going has been good so far: Expansion of National Highways network (2% of the total road network) is pre-requisite for economic development as it carries 40% of the road-based traffic. To accelerate the pace of awarding, NHAI put in place the flagship NHDP Programme in 1998 under which all projects in Phase I and 83% of the projects in phase II have been successfully completed. 50% of the projects under Phase III and Phase V are under implementation, awarded under BOT model. Contribution by private sector is anticipated to go up from 20% of total investment in road & bridges in 11th Plan to 32% in the 12th plan. The way forward is execution/ EPC: Upcoming award activity will involve up gradation to two lane highways which fall under NHDP Phase IV where 82% of the projects are yet to be awarded. With the traffic density being less on these roads, most projects will be awarded under EPC mode.. Budget 2014 proposes to award 3000 km of road projects in first six months of 2013-14. This coupled with execution of BOT projects awarded at the end of 11th Plan will see improvement in construction activities. And the government is doing its bit: The recent clarification by the MoEF on de-linking the requirement of environmental (EC) and forest clearance (FC) will free up projects worth Rs.230 bn that were held for want of FC. The developers can now start construction on road project after obtaining EC leaving aside the portion where FC is awaited. Exemption from seeking consent of gram sabhas will also reduce the project clearance time. FM,in Budget 2014, proposed to set up regulatory authority for road sector .We believe this will help to clear the pending disputes and BOT project awarding and execution will gain traction. Well funded Balance Sheets to sail through: Portfolio buildup by the developers through aggressive bidding for projects in the past, are now facing difficulty in arranging equity and obtaining financial closure due to stringent norms by the lenders. In such a scenario, companies with strong cashflows and well funded balance sheets will have the ability to bid for new projects as well as execute existing ones. We are optimistic about the opportunity that the road and highway development sector provides and we initiate coverage on Ashoka Buildcon Ltd ( BUY) and Sadbhav Engineering (ACCUMULATE).
Widespread Road Network in India, but the path lacks quality

Development of India's extensive road network of about 4.24 mn kms is of prime importance for growth, as around 70% of freight and 85% of passenger traffic moves by road. According to the ministry's data, traffic on roads is growing at a rate of up to 10% per annum, while vehicular population growth is nearly 12% per annum. Thus rapid expansion and strengthening of the road network is imperative to provide improved accessibility and better connectivity to rural areas. Break up of Road Network in India
Major District Roads 7% State Highways 4% Other District Roads & Rural Roads 87%
A) Quality wise break up of National Highways (NHs)

Lanes Four Lane/Six lane/Eight Lane Double lane Single Lane/ Intermediate lane Total Length of NHs Quality Above required Standards Just meet Standards Intermediate Standard Share in NH Length in kms 24% 18436 53% 40714 23% 17668 76818
Only 24% of roads of the total National Highway network are above standard quality, thus creating huge opportunity for developers in highway improvement.
Source: Ministry of Road Transport and Highway (MoRTH) annual report, Draft document 12th five year plan
Other 95% National Highways 2%
B) The Secondary system - constitutes of State Highways (SHs) and Major District Roads (MDRs) Total length is estimated at 1,54,000 km for SHs and 3,00,000 km for MDRs Comprises about 13% of the total road length and carries 40% of the total road traffic State Roads carry medium to heavy traffic and adds significantly to the development of the rural economy and industrial growth of the country. C) The Tertiary level - constitutes of Other District Roads (ODRs) and the Rural Roads (RR) Carries 20% of the total road traffic and comprises 85% of the total road length. Once fully developed, these roads hold the potential to provide o Rural connectivity that is vital for generating higher agricultural incomes and o Productive employment opportunities.
2
National Highway Development Programme - Ambitious plan but needs to be accelerated

Taking into consideration the importance of National Highways in the framework of road network in India, NHAI initiated the largest and foremost infrastructure program - National Highway Development Programme (NHDP) in 1998. The program envisages widening, upgrading and rehabilitation of around 54,000 km of the highways in 7 phases with an investment of around Rs.2, 47,635 mn till 2015. Phase I and Phase II were launched in 1998 and were predominantly implemented under the EPC mode. From NHDP Phase III onwards, private sector participation was encouraged and most of the road projects were developed on PPP basis. Details of various Phases under NHDP: Phase I: Involves widening (to 4 lanes) and upgrading of 7,498 km of the national highway network and has four component packages: Golden Quadrilateral project - Highway network linking the four metropolitan cities in India i.e. Delhi- Mumbai-ChennaiKolkata, covering a length of 5,846 km. Highways along the North-South (NS) and East- West (EW) corridors, covering a length of 981km Port connectivity projects covering a length of 356 km; and Other highway projects, covering a length of 315 km Phase II: Involves widening and improvement of the NS-EW corridors (not covered under Phase-I) covering a distance of 6,647 km, besides providing connectivity to major ports on the east and west coasts of India and some other projects. Phase III: Launch of projects under Public, Private Partnership (PPP) via Built, Operate and Transfer (BOT) mode Involves up gradation of 12,109 km (mainly four- laning) of high density national highways. Subsequent to the Government decision of awarding all new projects under PPP, since April 2007 projects under this phase have been tendered out BOT basis over last two years. ~ 49% of the projects are under implementation. ~15% of the projects are yet to be awarded. Envisages upgrading of 20,000 km of highways into twolane highways, at an indicative cost of Rs.27800 mn The Government has already approved strengthening of 5,000 km to 2-lane paved shoulders on BOT (Toll/ Annuity) under NHDP-IV A at a cost of Rs. 69,500 mn ~ 18% of the projects from Phase IV are under implementation. Large portion of upcoming project for award will be from this phase.
Phase IV: Two laning of 20,000 km with paved shoulders
Phase V: Six laning of 6500 kms Involves 6-laning of the four-lane highways comprising the GQ and certain other high density stretches will be implemented under BOT basis. ~44% of the projects from this phase are under implementation and 37% of the projects are left for award.
Current status of NHDP
41%
34%
Phase VI: Development of 1000 km of expressways: The Government has approved 1,000 km of expressways to be developed on a BOT basis. Phase VII: Other Highways projects of 700 kms The development of ring roads, bypasses, grade separators and service roads are considered necessary for full utilization of highway capacity as well as for enhanced safety and efficiency. ~41% of the total length i.e. 22575 km under NHDP is yet to be awarded.
Completed Under execution To be awarded 25%
Phase wise implementation of NHDP - Status So Far

Total (in kms) Pref. Mode of Length EPC Approved Cost incurred Development project cost 31.10.2012 (Rs in cr) (Rs in cr) 30300 39171 Completed upto (in kms) 7503 Length Under implemen tation (in kms) 19 To be awarded (in kms) 0
Phases I*
Key projects
99.90% Completed 7,522 Golden Quadrilateral (GQ) 5846 North-South and East-West Corridors 981 Connectivity to Major Ports 356 Other Highways 339 % of total Phase I length II Widening of NS-EW corridors, Port Connectivity 6647 4/6-laning North South- East West Corridor 6161 Other Highways 486 % of total Phase II length III - Total Upgradation of High Density National Highways 12109 III A ^ Upgradation, 4/6-laning 4815 III B Upgradation, 4/6-laning 7294 % of total Phase III length IV Upgradation to 2-Lane Highways 20000 Approved on BOT 5000 Feasibility Studies in Progress 15000 % of total Phase IV length V 6-laning of GQ and certain High density streches 6500 Golden Quadrilateral 5700 Selected based on Predefined Eligibility Criteria 800 % of total Phase V length VI Expressways - to be developed on BOT basis 1000 % of total Phase VI length VII Development of Ring Roads, Bypasses and flyovers and other structures 700 % of total Phase VII length Total 54,478 As a % of total length
Source: EISEC Research, Guidelines for Investment in Road Sector, pib.nic.in press release- Jan'2013
EPC
34339
56561
99.7 5530
0.3 732
0 385
PPP
80626 33069 47557 27800
55482
PPP
1037
83 4362 3270 1092 36 18
11 5965 1554 4420 49 3653
6 1782 1782 15 16329
PPP
41210
19170
0 1197
18 2883
82 2420
PPP PPP
16680 16680 247,635
11 1290 172722
18 0 18 3 18628 34
44 0 23 3 13275 24
37 1000 100 659 94 22575 41
Other Initiatives:
A) Special Accelerated Road Development Programme in the North Eastern Region (SARDP-NE): The Ministry has taken up the (SARDP-NE) involving widening of 10,141 km of National Highways (4798 km) and State roads (5343 km) in three phases ensuring connectivity of 88 district headquarters in the North Eastern Region to the National Highways.
Phase A National highway State Roads Total (in km) km 2041 2058 4099 Phase B (preparation of DPR) 1285 2438 3723 (Implementation likely in 12th Plan) Arunachal Pradesh Package 1472 847
Total Length 5477 km 1126 km 4351 km Programme yet to be approved Total Length 8014 kms 107.0 Kms 701 National Highways State Road Phase II Rs mn 14110
B) Special Programme for Development of Roads in the Left Wing Extremism (LWE) Affected areas The Government has approved scheme for development of NHs and State roads in Left Wing Extremism (LWE) affected areas of 34 districts in 8 States of AP, Bihar, Jharkhand, Chhattisgarh, MP, Maharshtra, Orissa and UP at an estimated cost of Rs. 73000 mn.
Phase I Awarded in CY12 Completed upto Nov'2012 Kms 1080 Rs mn NA 53.8 Total Estimated fund requirement in 12th Plan (Rs bn) from GBS
2319 June 2015 Rs in bn 257.4 119.3 376.7
Target Completion Date
March 2015
Fund requirement from GBS i) Phase A including Arunachal package ii) Phase B Total fund requirement from GBS (i+ii)
Source: Report of the Working Group on Central Roads Sector for 12th Five Year Plan
C) In 2009, MoRTH had proposed National Expressway Grid of 18,637 km of access-controlled greenfield Expressways, out of which 13,411 km to be developed on DBFOT(Toll) basis by 2022 in 3 phases. This plan is currently under planning stage and MoRTH is working on suitable PPP structuring and toll policy for the same.
Attractive investment potential - State's outlay to see sharp jump

Investment Outlay for expansion of Road Network under 12th Five Year Plan
Particulars National Highways State Road and MDR Rural Roads Total Anticipated Investment ( Rs in trn) 4.83 5.22 1.99 12.04 % share 40 43 17 100.0
Private Funds 37% Public Funds 63%
Funding of National Highways under the 12th FYP
Source: Report of the Working Group on Central Roads and Rural Roads Sector for 12th Five Year Plan
A) National Highways to attract considerable Investment: Keeping in pace with the ongoing outlay since last couple of years, the 12th Five Year Plan (FYP) will require investments of Rs.4.81 trn in the national highway segment. Of this, NHDP projects will entail 67%, followed by 12% for non-NHDP national highways being developed by state public works departments. 8% for the Special Accelerated Road Development Programme in the North-East (SARDP-NE) including the Arunachal Pradesh Package.
Rs in mn NHDP Non- NHDP SARDP-NE Total Total 3237740 579988 386658 4833230
Estimated Surplus from Toll revenue 6%
Cess 11% External Assistance 2% Share of private sector 37% GBS 11% ABS for SARDP- NE & J&K 2%
% share 67% 12% 8%
The share of private sector participation in the national highways investment during 12th FYP is estimated to be at 37% (52% for NHDP projects) with the balance 63% being funded by budgetary sources, cess and toll revenue surplus.
ABS for Special Packages* 17%
IBER 14% Source: Report of the Working Group on Central Roads Sector for 12th Five Year Plan
B) State Roads - Development to continue: Investment of Rs.5.2 trn is anticipated in the development of secondary system during the 12th FYP. 75% of this will be spent towards development of core network of states (comprising state highways and major district roads with high traffic density). State road investment to be higher in Maharashtra, UP and Karnataka. Private sector investment is expected to be around 21%. For this purpose, PPP would be encouraged through Viability Gap Funding (VGF) window available with the Central Government.
Particulars Expected Investment (Rs in mn) 3942500 1260000 20000 5222500 Possible element of private finance 1083000 0 0 1083000
Public Funds 79%
Private Funds 21%
Source: Report of the Working Group on Rural Roads Sector for 12th Five Year Plan
C) Rural Roads: In order to enhance the rural connectivity in a more systematic way, Pradhan Mantri Gram Sadak Yojana (PMGSY) a centre-funded scheme was launched in Dec'2000. Pradhan Mantri Gram Sadak Yojana funding requirements
Particulars Expected Investment ( Rs in mn) Funds required for completion of works already sanctioned 342180 Funds required for balance sanctions 1854380 Total funds needed 2196560 Funds available in year 2011-12 200000 Net fund required during 12th FYP (at 2010-11 prices) 1996560
Development of Core Network including SHDP Other SHs and MDRs including SARDP-NE Training and Skill Development Total
SHDP - State Highway Development Programme
Targets for 12th FYP and Funding

State Highways Kms 2 - laning 4 - laning Strengthening IRQP 30000 5000 41500 50000 % of Existing/ Total Lengths 30 8 25 30 Major District Roads Kms 20000 1000 66500 80000 % of Existing/ Total Lengths 8.5 4 25 30
The 12th FYP aims to connect remaining habitations by constructing about 1, 58,000 km of new roads and upgrading 84181 km of existing roads The Planning Commission estimates a funding requirement of Rs.2 trn under the PMGSY. This includes Rs.60 bn for the launch of PMGSY-II towards the end of 12th FYP. Inspite of rising contribution by the private sector, financing the development of road network continues through public funds. For State road development, share of public financing accounts for 79% of the total financing requirement and rural roads are pre-dominantly funded through public channel. However the share of private sector funding is increasing in NHDP projects (63%) thereby providing significant opportunities for road developers and EPC contractors.
8
Private Capital - A Key Growth Driver

In order to reduce strain on the government finances and enable effective utilization of resources, dependence on public-private partnership projects for road development has increased. The NHDP has been one of the biggest PPP initiatives till date. Of the Rs295bn invested under the NHDP during FY11, about 52% came from the private sector. NHAI expects this contribution to increase to about 55% by FY13. As per report of the working group on Central road sector, 63% of the total NHDP funding requirements for 12th FYP are estimated to be funded by private sector funds. Use of standardized bidding documents providing clarity and founded on a well-defined policy framework has significantly enhanced the confidence of developers and financiers, and has encouraged private sector investments. PPP is gradually proving to be a successful mechanism for developing and maintaining the National Highways, as is evident from the increased private sector participation in projects till date.
PPP projects awarded by NHAI
60 50 40 30 20 10 0 48
Period from 1998-2004 involved projects in NHDP Phase I, II implemented largely on EPC basis. Award under PPP mechanism picked up from 7 projects in 2005 to 48 in 2012. 2008 saw a dip in project awards due to slowdown in financial markets
7000 6000 5000 4000 3000 2000 1000 0 1998 1 1999 18 2000 0 2001 2002 146 545 120 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
9
Awarding activity under NH PPP (km) 5363
6491
4865 2489 1678 1278 843 885
Source: NHAI
41 29 11 1 1998 1 1998 0 2000 0 2001 3 2002 2003 1 2004 7 2005 2006 2007 24 10 8 2009 2010
44
From 1998-2004, only 830 km was awarded under PPP. Project award picked up 3 fold to 2489 km in 2009, after slowing to 843 km in 2007 due to financial meltdown Length of 23892 km were awarded from 2005-2012, with ~ 72% awarded in last 3 years. More than 24000 km of road project have been awarded on PPP basis till March 2012.
Number
2008
2011
Source: Planning Commission
2012
Steps taken by Government to draw private sector funds: Providing capital grant of 40% of the project cost to enhance viability, if the project is not commercially viable through collection of tolls and other revenue mechanism. 100% tax exemption for 5 years and 30% relief for next 5 years, which may be availed of in 20 years. Concession period allowed up to 30 years In BOT projects entrepreneur are allowed to collect and retain tolls 100 per cent FDI under the automatic route for all road development projects Size of PPP opportunity for 12th FYP Overall Investment opportunity for the 12th FYP is pegged at Rs.12.0 trn, comprising of investment worth Rs.4.8 trn in national highways network and Rs.5.2 trn in state highways network. Of this, the investment prospects under PPP projects is expected to be at Rs.2.8 trn , containing 61% or Rs.1.7 trn for NHs and 39% or Rs.1.08 trn for SHs. BOT projects in limelight PPP Road projects in India adopted by the NHAI are implemented primarily on: Design, Build, Finance, Operate & Transfer (DBFOT) Contracts on Toll basis and DBFOT contracts on Annuity Till date, nearly 300 projects have been awarded on a PPP basis, covering more than 25000 km entailing a total investment of nearly Rs2.1trn. Of these, 70 projects (accounting for 4650 km and investment of Rs378 bn) have been completed.
Summary of BOT (Toll) and BOT (annuity) Projects under NHDP

Format No.of Projects Toll Awarded 186 Completed 51 Total (A) 237 Annuity Awarded 51 Completed 20 Total (B) 71 Total(A+B) 300 Length in km 17973 2948 20921 3547 1103 4650 25571 Cost (Rs in bn) 1576.5 199.2 1775.7 302.8 74.8 377.7 2153.3
Nearly 75% of the projects are awarded under BOT (Toll) format
Source: Guidelines for Investment in Road Sector (as on 31st Dec'2012)
As per the Government decision of April, 2007 all new projects under different Phases of NHDP will be taken up on Public private Partnership (PPP) by awarding them first on Built Operate and Transfer (BOT ) - Toll, failing which to be taken up on BOT (Annuity) and failing which through Engineering Procurement Construction (EPC) basis with the approval of the Government. BOT Toll Nearly 75% of the total projects awarded under the PPP model are in this format. Going forward too, the ministry plans to tender the maximum number of projects on a BOT (toll) basis in order to reduce the government's fiscal liability arising from annuity payments. The concessionaire bears the traffic/tolling risk in these contracts BOT Annuity Road projects are awarded on the BOT (annuity) basis where: i) Envisaged traffic density is below a certain threshold, and ii) Where the toll revenue generation opportunity is small, as in the states of Bihar, Jammu and Kashmir, Jharkhand, Orissa, West Bengal, and Uttar Pradesh The bidder quoting the lowest annuity is awarded the project. The annuities are paid semi-annually by NHAI to the concessionaire and linked to performance covenants. The concessionaire does not bears the traffic/tolling risk in these contracts
10
Acceptance of Chaturvedi Committee Recommendations has been a Game Changer

Adoption of the B.K. Chaturvedi report recommendations in Nov 2009 by NHAI has cleared the long pending issues related to Model Concession Agreement (MCA) & RFP, RFQ
Key Changes Bidding Method flow Measure Depending upon financial viability & threshold traffic volume, concurrent bidding in all modes (toll, annuity or cash contracting) is possible NHAI empowered to award single bid projects after examining its reasonableness Developers to be paid entire grant amount (40% of project cost) during construction period Concessionaires allowed to completely exit Impact Will cut procedural delays Re-bidding for projects not necessary Will enhance equity IRRs of developers Allows developers to exit projects at enhanced IRRs and recycle capital To encourage financial investors take up stake in operational projects, as the construction risk will be eliminated post-COD. Eases private sector concerns by providing downside protection To improve access to debt and marginally lower the borrowing rate To increase participation opportunities for developers and enhance competition Will save considerable time and effort
Single bid VGF extension Exit clause
projects two years after CoD Provisions relating to termination due to higher than capacity traffic eased Lenders allowed to create a charge on the project escrow account to afford them greater security Conflict of interest threshold increased to 25% from 5% earlier Pre-qualification to be made an annual exercise and not to be conducted for each project separately
Termination clause Security for lenders Conflict of Interest clause Pre-qualification criteria
Source: B. K. Chaturvedi recommendation report
11
Driving significant growth in project awards

Consequently, the road sector has seen increased private sector interest and a significant pick up in the awarding activity. As can be seen from the adjacent graph, 3360 km of new projects were awarded in FY09-10 compared to just 643 km in FY08-09. Most of the projects awarded were lucrative with high traffic density under NHDP Phase III
8000 7000 6000 5000 4000 3000 2000 1000 0
Significant Policy changes - drives awards
Giant Leap in awarding projects during FY12: The MoRTH along with NHAI, awarded the highest-ever 7,957 km of road projects in 2011-12 in 62 projects. Out of 49 bids awarded in NHAI 32 fetched premium. The total premium offered was about Rs 30 bn. In the Ministry out of 13 projects awarded, 5 fetched premium of a total of Rs 380 mn. Since the premium is payable yearly increasing by 5% every year, the Net Present Value (NPV) of the total premium offered is about Rs 304.0 bn over the concession period of 20 years. Significant aspect of the success story of FY 2011-12 has been the state agencies (PWDs and State Road Development Corporations) making a giant leap in awarding projects under public private partnership (PPP) under NHDP and Ministry of Finance's VGF scheme. From zero to 1466 km in two years is a remarkable achievement. The capacity building of the states in this field augurs well for the road sector.
7300 5059
4783 3360 1739 753 2005-06 635 2006-07 1682 1234 2205 643 2008-09 2009-10 2693
1784
2500
2007-08
2010-11
2011-12
Awarded Work (km)

Source: NHAI
Completed Work (km)
Projects awarded at premium/ Negative grant: After the resolution of policy issues in 2009-10, following the implementation of B.K.Chaturvedi Committee, awarding of national highways projects picked up pace in 2010-11. This continued in 201112, and as an outcome of competitive bidding process, many projects with high traffic volumes were awarded on premium basis
12
Greedy Capital -> Aggressive Bidding -> Environmental Hurdles -> Slowdown
Projects awarded on negative grant
Road Section Delhi-Gurgaon Rajkot Bypass-Jetpur Panipat Elevated Highways Salem- Karur Krishnagiri - Thopurghat Tindivanam-Ulundurpet Thirssur-Angamali Jalandhar- Amritsar Ambala-Chandigarh Dhule-Pimpalgaon Vadodara Bharuch Bharuch-Surat Total Length Estimated Cost Negative Grant (Km.) (INR mn) (INR mn) 28 7100 610 36 10 42 62 71 40 49 36 118 83 65 640 3880 2700 2530 3720 4800 3120 2630 2980 5560 6600 4920 50540 590 960 460 1400 1520 840 70 1060 590 4710 5040 17850 Constructed by Jaiprakash Industries -DS Construction Ltd West Gujarat Expressway Ltd. Larsen & Toubro Ltd MVR-MRK-JTEC. JV Larsen & Toubro Ltd GMR Energy Ltd-GMR Infrastructure Ltd consortium KMC- SREI JV IVRCL Infrastructure projects ltd GMR Energy Ltd-GMR Infrastructure Ltd consortium Ircon-Soma enterprises consortium Larsen & Toubro IDAA Infrastructure Ltd
Shift in Scenario - Slowdown in award activity YTD in FY13 Based on the success of projects awarded in FY12, NHAI set an elevated target of awarding 8800 km of projects for FY13 which was further revised upwards by the PMO to 9500 km (up ~15% yoy). Of this, around 5,000-6,000 km (50-55 projects) is to be awarded on BOT toll or BOT annuity basis. NHAI has awarded contracts for about 1000 km during 9MFY13, although it claims to be ready to bid out another 2,700 km over the next three months. The basis for such lesser award activity can be attributed to: 1) General slowdown in the economy 2) Poor Participation of developers in the BOT projects: a) Many of them have their plates full and are focused on commissioning and executing BOT projects that are already won. b) Less traffic density - phase IV projects are bided out that involve up gradation of single lane roads to two lanes thus eliciting poor response from developers. Expanding grants in NHDP-IV projects in the recent times
6% 6% 10% 5% 0% -5% -10% -15% -20% -25% 4% 4% 4% 2% 5% 7% -4% Dec- 11-IV Dec- 11-IV Sep-11- IV Sep-11- IV Nov-11-IV Mar-12-IV Mar-12-IV Mar-12-IV Mar-12-IV
Source: Guidelines for Investment in Road Sector
Further, under the revised MCA, projects under BOT/ DBFOT framework have also been awarded on revenue share / premium basis, where the bidder offering the highest revenue share / premium is awarded the project. These revenues are also ploughed back for the development and maintenance of National Highways. Projects Awarded on Revenue Sharing basis
Road Section Surat-Dahisar Gurgaon-Jaipur Panipat-Jalandhar Chennai-Tada Vijayawada-Chilkaluripet Krishnagiri-Walajhapet Total Source: Guidelines for Investment in Road Sector Length (Km.) 239 225 291 42 85 148 Estimated Cost (Rs in mn) 26,000 19,000 22,000 3170 11,730 12,500 94,400 Revenue Share (%) 38% 48% 20% 17% 2% 7% Constructed by IRB Infrastructure Ltd ETA-KMC consortium Soma - Isolex Rollways L&T IDPL IJM India Infrastructure L&T IDPL
1%
Premium / Gra nt a s a % of project cos t

13
May-12-IV
Jan-12-IV
-22%
Participation on the declining trend coupled with the trends of expanding grants in NHDP-IV projects are painting a grim outlook especially for this phase under the entire NHDP program. 3) Difficulty in achieving financial closure as bank lending to Infrastructure has reached the sector lending limits and developers have exhausted their equity.
60 Growth yoy (% 50 40 30 20 10 0 Nov-10 Nov-11 May-10 May-11 May-12 Nov-12
4) Some of the operational BOT projects have seen lower than estimated traffic thereby affecting their performance. This has added to the lenders concern and forced them to adopt a strict attitude funding road projects. 5) Land Acquisition - a big hurdle: Several projects have been stalled or delayed due to land acquisition issues. Resistance from local communities, disputes with regards to pricing offered and lack of wellplanned rehabilitation packages contribute to the delay. NHAI is required to hand over 80% of the land to the developer at the start of the project, but has often failed in doing so. The Finance Minister had reportedly cited that non-availability of 80% of land was one of the main reasons behind projects not getting requisite loans from banks and financial institutions. Banks and long term lenders like IIFCL have recently put in the condition of 100% availability of land with NHAI as a prerequisite for funding any highway project. 6) Delay in obtaining Environment and Forest Clearance: According to the road ministry and NHAI, out of 39 major projects - each worth over Rs 1,000 cr - 20 are stuck due to delays in forest (FC) and environment clearances (EC). Before April 2011, EC and FC were two separate requirements and work on stretches falling outside forest area could start, while construction on the remaining length could only begin after NHAI received the FC. Since then, the rules have been changed, and the MoEF gives EC only after FC is obtained. NHAI thus moved Supreme Court stating this as the root cause of delays of all highway projects. Recently GMR Infra and GVK Power exited BOT road projects citing delay in clearances. However, as per the latest development, MoEF has agreed out of court to de-link FC and EC and NHAI expects the issues to be resolved in a month.
Non-food Credit
Infrastructure
Roads
Some projects awarded in the last year are yet to achieve financial closure as the lenders are resorting to rigorous due diligence after aggressive bidding seen by developers to bag these projects. For example out of the 61 projects that were awarded in FY12, 10 projects have failed to achieve financial closure within the stipulated dead line of 180 days. Model concession agreements provide for an additional leeway of 120 days to complete financial closure before taking action against the developer. Two projects, worth about Rs 24.5 bn, awarded in 2012 to DSC Ltd and Gannon-Dunkerley Co Ltd were terminated after failure to achieve financial closure. The other 6 projects are still within the extension period of 120 days.
14
But all's not lost -> EPC to drive growth hereon

In spite of robust project awarding during FY10-FY12, the pace of execution on road construction front over the past three years has been a bit lower as execution depends on factors like land acquisition, environment clearance and financial closure. Thus, it lags project awarding by three-four years.
8000 7000 6000 5000 4000 3000 2000 1000 0 7300 4783 3360 1739 753 2005-06 635 2006-07 1682 1234 2205 643 2008-09 2009-10 2010-11 2011-12 2693 1784 2500 5059
Tendering through Engineering Procurement and Concession (EPC) is set to rise The ministry has decided to adopt the EPC mode of construction for roads that are not viable on PPP basis. The Ministry of Road and Transport Highway (MoRTH) has proposed to award contracts for about 20,000 km of road length under the EPC mode proposed to be developed as two lane highways in the 12th FYP. Cabinet approved the Model EPC model document in Aug'2012. Under the EPC agreement, the NHAI only specifies the required design and performance standards and allows the contractor to bring in innovation to optimize efficiency as against the item rate contract that relies on single design provided by the government. This move is expected to minimize the time and cost over-runs characteristics of the extant item rate contracts. This will also enable a faster roll-out of projects. The Contract Price is a fixed lump sum amount for construction of the project highway. The contract document, now, specifies a defect liability period of 2 years(the period till which a contractor is bound to maintain the road at his cost if the surface develops problems) on completion of road projects, while an additional defect liability period of 3 years for major bridges and structures As these projects are government funded without any private funding, contractors/developers show keen interest in a scenario where garnering funds for large projects is a challenge. NHAI has set a target to award 3000 km of road projects on EPC basis in remaining three months of FY13. We believe this could increase to 4000 km or more owing to addition of road projects that are not viable under BOT.
2007-08
Awarded Work (km)
Completed Work (km)
As seen from the above chart, completed work / execution touched a new high in FY10 following the impressive project award in FY06. On the down side, execution bottomed in FY07, three years post the low of project award in FY04. So tracking the pickup in project award activity in during FY10-FY12, we expect the road execution to pick up in the coming two years, FY13E and FY14E.
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NHDP Phase IV project awarding to dominate: Of the ~22575 km yet to be awarded under NHDP as on Oct'2012 end, more than 2/3rd of the projects fall under Phase IV. NHDP Phase wise: Projects yet to be tendered
Phase I , II, VI, VII 9% Phase V 11%
While phase III projects dominated project awards in FY10 and FY11, phase IV projects garnered the largest share in FY12. We expect the trend to continue in FY13. The outstanding projects could be taken up on EPC basis as these projects primarily comprise of up gradation of single lane roads to two lanes. Impact of dominance of phase IV projects: The fact that majority of future projects will come under phase IV (and thus will be in hinterlands) is likely to force developers who earlier had geographical concentration of projects to branch out.
Rajasthan Haryana Karnataka Andhra Bihar Chattisgarh Orissa
Phase III 8%
Phase IV 72%
Jharkhand
Phase wise break up of road project award
Maharashtra
Uttarakhand
Madhua Pradesh Tamil Nadu West Bengal Uttar Pradesh
As can be seen, the comparatively more economically developed states in India (Maharashtra, Andhra Pradesh, Tamil Nadu and Karnataka) have marginally more than a third of the share of future phase IV projects; the balance predominantly belong to Eastern and Central India, regions which are generally considered as less economically developed and hence having less traffic density.
16
Policy focus on roads - A part of wider strategy for infrastructure development

The Government will continue thrust on accelerating the pace of investment in infrastructure during the 12th Five Year Plan (FYP), as this is critical for sustaining and accelerating growth. Efforts to attract private investment into infrastructure through the PPP route have met with considerable success, not only at the level of the Central Government, but also at the level of the individual States. A large number of PPP projects have taken off, and many of them are currently operational in both the Centre and the States.
(Rs in bn at 2011-12 prices) Sectors Electricity (incl. NCE) Roads and Bridges Telecommunications Railways (incl. MRTS) Irrigation (incl. WD) Water Supply & Sanitation Ports Airports Storage Oil & Gas pipelines Total in US $ - Rs.55/$ Centre % of total State % of total Private % of total Total Investments Public % of total Private % of total Total 11th Plan 9053 5162 1.3 4792 2788 2794 1373 496 418 203 668 27747 504 9652 34.8 7683 27.7 10412 37.5 27747 17335 62.5 10412 37.5 2012-13 2793 1422 1.5 1052 730 719 341 186 72 57 120 7492 136 2467 33.0 1929 25.8 3084 41.2 7480 4396 58.8 3084 41.2 Twelfth Plan Projections 2013-14 3103 1603 1.6 1327 868 783 374 225 95 72 150 8601 156 2778 32.3 2103 24.5 3720 43.2 8601 4881 56.8 3720 43.2 2014-15 3451 1810 1.6 1676 1050 854 410 294 127 90 200 9962 181 3130 31.4 2294 23.0 4539 45.6 9962 5423 54.4 4539 45.6 2015-16 3843 2047 1.7 2116 1294 931 452 389 174 114 287 11645 212 3529 30.3 2501 21.5 5616 48.2 11645 6030 51.8 5616 48.2 2016-17 4283 2320 1.8 2672 1634 1014 500 522 242 144 445 13777 250 3981 28.9 2728 19.8 7068 51.3 13777 6709 48.7 7068 51.3 Total 12th Plan 175 9201 1.6 8842 5576 4301 2077 1606 710 477 1202 34166 621 15885 30.9 11554 22.5 24025 46.7 51464 27439 53.3 24025 46.7
From the above table, it can be seen that the total investment in infrastructure during the 12th FYP is projected at Rs.51.5 trn, up 85%, compared to Rs. 27.4 bn during the 11th FYP (at 2011-12 prices). Financing this level of investment will require larger outlays from the public sector, but this has to be coupled with rise in private investment. The share of public investment is projected to decrease to 53.3 % from a level of about 62.5% in the 11th FYP, while that of private and PPP investments is projected to increase to 46.7 % of the total investment as compared to 37.5 % during the 11th FYP. The investment in infrastructure, as % of GDP is expected to witness a steady increase, reaching to 10.4 % of GDP in the terminal year (2016-17) of the Plan. The average investment for the 12th FYP as a whole is likely to be about 9.1 % of GDP as compared to 7.2 % during the 11th FYP.
Projected Investment in Roads and Bridges during 12th Five Year Plan:
Total Rs in bn (at 2011-12 prices) Centre as a% of total States as a% of total Private as a% of total Total Investment GDPmp 10th Plan 2216 42.9 1915 37.1 1030 20.0 5162 384249 1.3 2012-13 577 40.6 446 31.4 399 28.0 1422 94757 1.5 2013-14 640 39.9 486 30.3 477 29.7 1603 102338 1.6 2014-15 710 39.2 530 29.3 570 31.5 1810 111548 1.6 2015-16 788 38.5 577 28.2 682 33.3 2047 121587 1.7 874 37.7 629 27.1 816 35.2 2320 132530 1.8 Total 2016-17 12th Plan 3588 39.0 2669 29.0 2944 32.0 9201 562760 1.6
GDPmp 384249 94757 102338 111548 121587 132530 562760 Investment as % of GDPmp 7.2 7.9 8.4 8.9 9.6 10.4 9.1 Source: Planning Commission Projections, Interim report of High Level Committee on Financing Infrastructure
total investment as a % of GDP
Source: Interim report of High Level Committee on Financing Infrastructure
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OMT Concessions The Cabinet Committee on Infrastructure, in Aug 2010, has approved the maintenance of national highways based on the Operate, Maintain and Transfer (OMT) mode. Till recently, the tasks of toll collection and highway maintenance were entrusted with tolling agents/operators and subcontractors, respectively. These tasks have been integrated under the OMT concession. Under the concession, private operators would be eligible to collect tolls on these stretches for maintaining highways and providing essential services (such as emergency/ safety services). Typical duration of such OMT concessions is between 4 to 9 years. The concessionaire is authorized through Government Gazette notification to levy, collect and retain user fee from road users. The concession period is so decided that the Concessionaire is required to maintain the stretch for a period almost equal to the life of the renewal work, before the necessity to upgrade such stretch so arises from 2 Lane to 4 Lane or 4 Lane to 6 Lane etc. Most projects are expected to be revenue positive and the concessionaire is required to pay annual premium of agreed amount during the process of bidding with the amount of annual premium being the bidding parameter. Work Plan for OMT projects: For 2012-13 6 projects with total length of 963 Kms have already been awarded. 2998 Kms of stretches have been identified to be undertaken during the year. For 2013-14 517 Kms have been identified to be undertaken during next year.
Risks to our call

Projects execution risks: Over last two years, developers and contractors have faced - trouble in getting right of way for project sites, delay in getting various clearances due to bureaucracy and difficulty in achieving financial closure of their projects. These have acted as impediment in smooth execution of projects and in some cases have stalled the projects. Change in government policy might affect order inflows: Majority of orders for road and highway development are awarded by NHAI and States bodies. Any cut in the budget outlay for the road development may lead to reduction in contracts tendered and in turn will dry down the order pipeline for developers.
Road Infra Valuations - Coverage Universe
Ratings Market Cap (Rs mn) Price (Rs) on 07/03/2013 Target Price (Rs) Target PE (x), FY14E based Upside (%) P/E(x) FY12 FY13E FY14E FY15E CAGR FY13-FY15E (%) Revenue EBIDTA PAT Ashoka Buildcon Buy 10896 200 291 10.0 46 8.7 9.9 7.1 5.3 25.6 24.2 37.0 Sadbhav Engineering Accumulate 16801 112 134 22.2 20 12.0 22.9 18.6 15.6 36.0 36.0 21.0
Key Estimates for Road Companies under coverage

EPS FY13E Ashoka Buildcon Sadbhav Engineering 20.9 4.9 FY14E 29.2 6.0 FY15 39.2 7.2 EV/EBIDTA FY13E FY14E 7.4 14.9 6.2 8.9 P/BV FY13E FY14E 0.2 2.0 0.2 1.9 ROCE FY14E 7.7 14.3 ROE FY14E 10.9 10.0
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Ashoka Buildcon
Recommendation CMP Target Upside(%) Rs. 200 Rs. 291 46
BUY
Potential to Build On
Nashik based Ashoka Buildcon Ltd is amongst top 3 road and highway developers having 16 years of experience in executing EPC and BOT projects. The Company was awarded first BOT road project in Maharashtra in 1997. Since then the Company has created a portfolio of 18 assets from projects awarded by National and State highways authorities along Western and Central India. Till date, ABL has executed ~3100 lane kms of own and third party road projects. ABL's EPC segment and operating road assets have been generating steady cash flows while the assets under development offer good growth potential. ABL trades at 9.6xFY13E and 6.9xFY14E consolidated earnings of Rs.29.2 and Rs.39.2 respectively and EV/EBIDTA of 7.3xFY13E and 6.1xFY14E. We estimate CAGR of 25.6% and 37.0% in consolidated revenues and PAT respectively during FY13E-FY5E. Unexecuted EPC order backlog at Rs.40.7 bn, provides revenue visibility The recent association with SBI- Macquarie secures funding for undeveloped and future projects. Toll collections from BOT assets under ACL to witness CAGR of 200% over FY13E-FY15E. We initiate coverage with BUY recommendation with SOTP based price target of 291.
Share Holding (%) Promoter Institutions Public 67.4 18.4 14.1
Key Data Average Vol ( 6m) in '000 FV Beta Mcap (Rs Mn) 52 week H/L Bloomberg Group Sensex/Nifty 10.33 10 0.49 10530 283/181 ASBL IN B / BSE Small Cap 19683/5945
Risks to our call: Lesser than estimated traffic movement on BOT toll roads to mar revenue growth Pune-Shirur and Sherinallah Bridge face the risk of early termination similar to that of Ahmednagar-Karmala
Particulars (Rs mn) FY11
Revenue 13031 15000 17597 22041 27752
PAT 1008 1248 1099 1536 2063
EPS 19.2 23.7 20.9 29.2 39.2
EBIDTA Margin (%) 19.4 21.7 21.6 20.8 21.1
P/E 10.4 8.4 9.6 6.9 5.1
P/BV 0.2 0.2 0.2 0.2 0.1
EV/EBIDTA 11.0 8.6 7.3 6.1 4.7
ROE(%) 11.3 12.1 9.3 10.9 11.7
ROCE(%) 8.7 9.0 9.2 7.7 7.5
Stock Performance (%) Abs(%) 3M 1Y Sensex -0.1 13.2 ABL -1.5 5.5
FY12 FY13E FY14E FY15E
Ashoka Buildcon Ltd
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Our Investment Case:

EPC business, Operational assets to generate steady cash flows: Outstanding order backlog of ABL as on 31st Dec'2012 at Rs.40.7 bn, 3.6xFY12 EPC revenue EPC revenue, renders revenue visibility for next 2-3 years. ABL has better control on execution due to backward integration and is well positioned to bag additional third party projects in this space. We believe the revenue stream for this segment will be steady with CAGR of 18% during FY13E-FY15E. The 13 operational road BOT assets are performing well with some of them passing through the industrialized zones. We estimate these assets to generate 31.6% CAGR in FCFE during FY13E-FY15E. Dominant position on National Highway (NH) 6: Nine projects, of ABL's total portfolio of eighteen BOT assets are present on NH6 making it the largest player with market share of 24%. NH6 is the one of the busiest highway connecting 6 states on the east-west corridor and witnesses' healthy movement of industrial traffic. This ensures strong visibility for the revenue stream of assets operation under this belt. Partnership with SBI-M ensures security and scalability: Private equity funds managed by SBI-M have committed to invest Rs.7.0 bn in Ashoka Concessions Ltd. (ACL- formed by transferring 7 projects from ABL) for at least 34% stake in ACL with the provision of investing additional Rs.1.0 bn in above projects. This secures availability of funds for equity portion of projects under development in ACL. In order bid for and win new BOT projects, SBI-M has agreed to invest further Rs.6.5 bn for their share of equity. Toll collections on ACL assets to drive growth: Four of the seven projects under ACL are in various stages of development and will become operational over next 20 months. These projects are awarded by NHAI and have strong traffic density. Once operational, we believe toll collections for these projects will pick and are likely to see 200% CAGR in revenues (net of NHAI share) over FY13E-FY15E. On a consolidated basis, we expect toll revenues CAGR of 53% for ABL over FY13E - FY15E.
Indian Road Ashoka Buildcon Sector Ltd Report
Outlook:
ABL is an integrated road and highway developer having rich experience in undertaking EPC and BOT based projects. From being a regional player confined to Maharashtra, ABL has evolved and now boasts of a portfolio of 1526 lane kms spread across Madhya Pradesh, Orrisa and Karnataka. With presence in 4 out of 6 states on NH6, ABL commands a market share of around 24% on NH6. Current EPC order backlog is well funded and provides visibility of revenues. With monetary backing from SBI-M, ACL is secured funds to execute current projects and bid for newer BOT projects, in turn providing orders for ABL's EPC segment.
Valuation:
We value ABL using SOTP methodology. The EPC business is valued at 5xFY14E Core EPC earnings translating into Rs.76/share. The BOT assets are valued on DCF basis at equity discount rates of 14-16% leading to BOT segment value at Rs.272/share. After accounting for standalone debt at Rs.57/share, we arrive at SOTP price target of Rs.291/share. We initiate coverage with "BUY" recommendation on ABL.
Risks:
Regulatory Threats: The PWD, Maharashtra notified early termination of Ahmednagar - Karmala road project of ABL Ltd in Nov '2012, citing reduction in interest rates by RBI as the reason. The concession agreement for the said project was to end in Nov'2015. Two other projects: Pune - Shirur and Sherinallah Bridge are based on similar terms and can be at risk of early termination. Discontinuity in toll collection: In several instances in the past, ABL has been unable to collect toll on Pune-Shirur and Ahmednagar Karmala due to resistance from user to pay toll. Going forward, continuity of such protests/agitation will lead to loss of cash flow for the Company.
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And why we think so..

Superior EPC execution track record: The EPC segment engineers and designs, procures the raw material and equipment and constructs roads, bridges and undertakes repairs for in-house BOT projects and third party projects. Over the last 16 years, ABL has constructed 60 roads and bridges and 12 projects in power transmission and distribution under EPC business segment. Backward integration into owning fleet of equipments, manufacturing of ready mix concrete and bitumen processing facility, ABL has better control over execution. Revenue for this segment has registered CAGR of 43.5% over FY10-FY12 with operating margins in the range of 11-13%. The outstanding order book as on 31st Dec'2012 is at Rs.40.7 bn, comprising 9% of third party T&D projects and remaining are captive road projects. Outstanding orderbook as on Dec'2012
Dhankuni 16260 39%
Focus on core EPC business lends visibility: At book to bill ratio of 3.6xFY12 revenues, the current order book provides strong visibility of revenues. Execution is on track for construction of captive road projects namely Belgaum-Dharwad (60% completed by Dec'2012), Dhankuni-Kharagpur (20% completed by Dec'2012) and SambalpurBaragarh (37% completed by Dec'2012). Around 65% (Rs26.5 bn) of the order backlog is on schedule for completion in next 20 months. These projects are well funded with equity, internal accruals and money raised through SBI-Macquarie. Accordingly, we estimate revenue CAGR of 18% over FY13E-FY15E for the EPC business. EPC Business Performance:
(Rs in mn) Revenue EBIDTA PAT EBIDTA Margin (%)
Source: EISEC Research
FY13E 13679 1573 547 11.5
FY14E 17564 2073 796 11.2
FY15E 20006 2401 647 12.0
Power T&D 3540 9% Others 1210 3%
Cuttack 10000 25%
Sambalpur 6330 16% PNG 780 2% Belgaum 2600 6%
Source: EISEC research
Pioneers in BOT space: ABL was awarded the first BOT project, Dhule bypass in Maharashtra in 1997. Since then ABL has executed maximum number of BOT projects in the State and all over India. The company has successfully completed and handed over three BOT projects back to the government. The company is now known as one of the largest player in BOT road development with 18 projects under its domain. The portfolio consists of balanced mix of operating and underdevelopment projects offering steady revenue stream and growth potential. 16 projects in the portfolio are currently generating revenue (comprising 2 are under-construction projects). CAGR in consolidated toll revenues during FY10-FY12 stands at 26%.
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Backward integration to support EPC activities: ABL began manufacturing ready mix concrete (RMC) in fiscal year 2000 for in house use by the EPC division and extended it to third party sales from 2002. The Company has 14 RMC plants with a total production capacity of 650 cubic metres per hour, 86 concrete transit trucks and 19 concrete pumps. This division also sells and processes bitumen to a higher grade for use in road projects and supports the EPC division. A plant is set up in Pune for the processing of bitumen with a capacity of 60 metric tonnes per day. Lucrative asset portfolio: ABL's portfolio of 18 projects consists of 4595 lane kms (excluding the 2 projects where it is L1). The road projects connect and run across various industrial zones in the country and offer high traffic potential. A) Operational assets to generate steady cash flows: Out of the 18 projects in its portfolio, 13 projects are fully operational. The projects are part of the state and national highways and have seen good growth in revenues in the past. Some of the projects are towards the end of concession period. Not long ago, ABL commissioned operations of DurgChattishgarh (ABL's stake - 51%) and Bhandara (ABL's stake - 51%) projects on the NH6. These projects were bagged in consortium with IDFC and PRIL respectively. NH6 passes through the industrialized areas consisting of power plants, steel plants, mining and minerals and engineering companies and also connects tourism centers. This offers good potential for movement of commercial and passenger vehicles traffic. We estimate 31.6% CAGR in FCFE from these projects during FY13E-FY15E.
1200 1000 800 (Rs mn) 600 400 200 0 -200 -78 FY12
FCFE
781 639
1106
FY13E
FY14E
FY15E
Details of Commissioned Projects

Projects Indore-Edalabad Ahmednagar-Aurangabad Ahmednagar-Karnala* Dewas Bypass Katni Bypass Pune Shirur Wainganga River Bridge Nashirabad Road Sherinnallah Bridge Bhandara- NH6 Durg- NH6 Jaora-Naigaon ABL Client Stake 99.7% MPRDC 100.0% PWD, Maharashtra 100.0% PWD, Maharashtra 100.0% MPRDC 99.9% PWD- MP 100.0% PWD, Maharashtra 50.0% MoRTH 100.0% MoRTH 100.0% PWD, Maharashtra 51.0% NHAI 51.0% NHAI 37.7% MPRDC Concession period ends Apr-17 Sep-16 Nov-15 Aug-15 Sep-18 Oct-15 Feb-18 Nov-18 Jun-15 Feb-28 Jul-28 Feb-33 Lane FY12 Revenue Escalation in toll rate kms (Rs mn) 203 168 160 40 35 216 26 8 7 377 368 340 648 7% every year 164 19.5% every 3 years 253 19.5% every 3 years 193 25% every 3 years 188 15% every 2 years 208 19.5% every 3 years 213 Every year at WPI 66 No increase 41 19.5% every 3 years 445 3%+40% of WPI 76 3%+40% of WPI 647 7% every year
Source: Company, EISEC research
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B) Excellent portfolio of under-developed projects: Currently, five projects aggregating to 2602 lane kms are at various stages of implementation. Four of these projects are under various stages of completion at 20%88%. Two of them are part of the NH3 and NH4 respectively which connect the northern - western and southern regions of India and are part of the GQ. Remaining two projects fall under NH6 which is one of the busiest highways in India connecting state along the East-West corridor and offering sound traffic potential owing to adjoining
Projects under implementation
Projects Sambalpur-Baragarh Belgaum-Dharwad Pimpalgaon-Nasik* Dhankuni-Kharagpur Cuttack - Angul** Chennai - ORR MudholMaharashtra border
Source: Company, EISEC research
industrialized area. ABL with its 9 BOT projects is present in 4 out of 6 states on NH6, making it the largest player on this route with market share of 24% through PPP route. The fifth project, Cuttack-Angul on NH-42 is awaiting environment clearance form MoEF (likely by March 2013). We expect construction on this project to start by Q1FY14. Recently ABL emerged as the lower bidder for two annity projects - the Mudhol-Maharashtra border project and Chennai Outer Ring Road (ORR) Phase II project.
Client NHAI NHAI NHAI NHAI NHAI TNRDC
ABL Stake (%) 100 100 26 100 100 50
Length (kms) 88 79 113 112 112 32
Start of toll collection May-14 Oct-13 Apr-14 Oct-14 Apr-16 FC pending
Concession Period (yrs) 30 30 20 25 23 20
Escalation in toll rate 3%+40% of WPI 3%+40% of WPI 3%+40% of WPI 3%+40% of WPI 3%+40% of WPI Annuity based
Grant/Revenue Share 1st Year- Rs.13.3mn, 5% increment yoy 1st Year- Rs.310.0 mn, 5% increment yoy 6.19% of revenue, 1% increment pa 1st Year- Rs.1260.6 mn, 5% increment yoy 2nd Year- Rs.611.0 mn, 5% increment yoy Payment of Rs1.4bn during construction + semi-annual payments of Rs395m during O&M
Partner NA NA L&T - 74% NA NA GVR Infra projects (50%) GVR Infra projects (49%)
KSHIP
51
108
FC pending
10
Annuity based
23
Well Capitalized Balance Sheet via recent PE funding

Backing from the SBI-Macquarie PE funds: SBI-Macquarie (SBI-M), private equity funds jointly managed by SBI and Macquarie Group, have committed to invest Rs.7.0 bn in Ashoka Concessions Ltd (ACL). ABL would transfer 7 of its road BOT projects with a total cost of Rs.76.8 bn in ACL. These seven projects consist of 3 operational, 3 partially operational and under development and one fully under development projects. The deal gives clear visibility on the funding mechanism by ABL for these projects. SBI -M have further agreed to invest Rs.1bn to meet contingencies in these projects, in pro-rata with ABL. Additionally, SBI-M has made commitment towards investing Rs.6.5 bn as their share of equity in new projects bid and won by ACL. Cuttack - Angul road project, being in the initial stages of development will remain under ABL's portfolio. Salient features of the deal: ACL will now be the exclusive bidder for BOT road projects for both ABL and SBI-M ABL can continue to bid for small (<Rs.2 bn in size) and state projects ACL can utilize the technical points of Macquarie for qualifying in NHAI's projects ABL to be the exclusive EPC and O&M contractor for all ACL projects ABL can continue to bid for EPC contracts for other developers and NHAI as well as operated its own RMC division. Latest Company Structure:
Ashoka Buildcon Limited (ABL-ListCo.)

EPC & RMC Business Owned BOT Projects Portfolio
BOT Projects Sheri Nallah Bridge ABL Stake 100.0%
Ashoka Concessions Limited (ACL)

BOT Projects Belgaum Dhanwad Road Sambalpur Baragarh Road Dhankuni Kharagpur Road Bhandara Road Durg Chattisgarh Road Joora-Nayagaon Road Pimpalgaon-Nasik-Gonde Road ACL Stake 100.0% 100.0% 100.0% 51.0% 51.0% 37.7% 26.0%
Ahmednagar Aurangabad Road 100.0% Nashirabad Railway-over Bridge 100.0% Pune-Shirur Road Dewas Bypass Ahmednagar Karmala Road Katni Bypass Dhule Bypass Indore Edalabad Road Wainganga Bridge Anawali Kasegaon Cuttack Angul Road Source: Company, EISEC Research 100.0% 100.0% 100.0% 99.9% 99.9% 99.7% 50.0% 5.0% 100.0%
6 Foot Over Bridges in Mumbai 100.0%
SBI Macquarie to invest Rs. 700 Crs + Rs. 100 Crs in ACL Additional Rs.650 Crs commitment towards new BOT projects
Partnership with SBI-M gives scalability: SBI-M has committed to invest Rs.7.0 bn for a 34%-39% stake in ACL. Their exact stake is contingent upon the performance of Sambalpur-Baragarh road project in FY15. With this, the equity requirement for the above 7 projects is taken care of. Assuming SBI-M's stake at 34%, ABL has to invest Rs.8.5 bn for their share. They have already invested Rs.7 bn till date and will invest further only after SBI-M meets their share. SBI-M's additional commitment of Rs.6.5 bn will enable ACL to scale up the business to higher level by bidding and executing projects in range of Rs.55.6 - Rs.63.7 bn in future.
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Extent of scalability:
Deal Parameters Investment commitment by SBI-M SBI-M's stake ACL's implied equity commitment Equity share Total Bidding Capability
Source: EISEC research
Well-laid growth path

(Rs in mn) 6500 34% 19118 30% 63725 6500 39% 16667 30% 55556
Toll collections to increase 3 fold over FY13-FY15:

Except Cuttack-Angul road project, all toll projects owned by ABL are operational and generate revenues. We estimate moderate CAGR of 7.2% in revenues from developed projects over FY13E-FY15E due to early termination of the Ahmednagar - Karmala project by Maharashtra PWD (Revenue Rs.253 mn in FY12) Three BOT projects under-implementation in ACL are likely to be operational by Oct'2014. Existing toll collections for the developed portion of Belgaum-Dharwad and Dhankuni - Kharagpur are on track and lend revenue visibility. Led by ramp up in toll collections, we estimate ACL's projects to see CAGR of 200% in revenues (net of NHAI share) over FY13E-FY15E. On a consolidated basis, we expect CAGR of 53% for toll revenues of ABL over FY13E - FY15E.
5000 4000 Rs mn 3000 2000 1000 0 FY13E ABL projects
Better cash flow for EPC projects: ABL's EPC order backlog consists of road projects which are under ACL. SBI-M deal makes funds easily available for ACL projects. This will enable smooth flow of funds for EPC projects and execution will be on track. ACL obtains first tranche of investment worth Rs.1.5 bn: SBI-M has disbursed first tranche of Rs.2.4 bn towards commitment in ACL. The funds will be utilized as equity in its various projects under consideration. The balance amount will be disbursed over a period of five quarters upto June'2014 as and when the amount is required towards construction of the projects.
BOT Toll Revenues
4676
1750 1151
1788 1653
2013
FY14E ACL projects
FY15E
Overall, ABL's consolidated revenue will see CAGR of 25.6% over FY13EFY15E led by robust execution in EPC and BOT segment.
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Earnings growth to catch up with a lag:

On an operating level, we expect the consolidated EBITDA to grow at compounded rate of 24.2% during FY13E-FY15E to Rs.5.9 bn driven by 24.7% growth in BOT toll segment and 23.5% growth in EPC segment. With commissioning of 4 BOT assets under ACL, the interest expense and depreciation cost will rise significantly during next 20 months. This along with higher tax rate (40%-45%) will exert pressure on the net profits. After taking into account the minority interest and share in associates, we estimate the consolidated net profit to go up by 37% yoy to Rs.2.1 bn.
Recent projects wins to add to EPC order book:

ABL recently emerged as L1 in two annuity projects - the MudholMaharashtra border project (ABL's stake 51%) and Chennai Outer Ring Road (Chennai ORR - ABL's stake 50%). These projects have been bagged in consortium with GVR Infra Projects that holds the remaining stake.
Project Details Client Total Project ABLs Cost stake Rs.3.2 bn 51% Funding Length Concession Support (km) Period Asian 108 Development Bank Grant / Annuity Scope of project upgrading existing stretch of 108km on SH-18 to two-lane standards, and O&M of the road Greenfield development
Lower leverage and growing cash profits - distinct compared to peers:

Driven by steady execution in EPC business and commissioning of new BOT projects, we expect ABL to register cash profits CAGR of 36.7% over FY13E- FY15E. Consequently, the leverage levels too are expected to remain moderate (Consolidated D/E at 2.5x for FY15). This distinguishes ABL from other players in the industry who are burdened with debt and poor cash flows.
20.0 15.0 10.0 4.7 5.0 0.0 Ashoka Buildcon GMR L&T D/E (x)
MudholKarnataka Maharashtra State border Highways project Improvement Project - II
10 years Payment of (includes Rs1.4bn 24 months during construction construction period) + semiannual payments of Rs.395m during O&M 20 years (includes 30 months construction period)
Chennai Tamil Nadu Outer Ring Road Road (ORR) Development Company (TNRDC) source: EISEC Research
Rs.9.9 bn
50%
30.5
17.1
7.8 1.6 3.4 4.0 1.6 1.0 1.3 ITNL 2.4 3.7 4.0
As of today, these projects will be under ABL and the broad equity requirement for the Company will be around Rs.4.0 bn. At a later date, if these projects go under ACL then equity commitment will spilt in ratio of 66:34. The EPC component for both these projects together will be in range of Rs.10.0 bn, enhancing the order backlog once added.
IRB
JPA
Net Debt/EBIDTA (x)
26
Attractive Outlook and Valuation

After consolidating its position in core EPC business, ABL is moving ahead to execute large ticket size state and national highway road BOT projects. ABL's EPC segment and operating road assets generate steady cash flows while the assets under development offer growth potential. We estimate CAGR of 25.6% in consolidated revenues and 37.0% in consolidated net profits during FY13E-FY15E. We value ABL using SOTP methodology. The EPC business is valued at 5xFY14E Core EPC earnings translating into Rs.76/share. The BOT assets are valued on DCF basis at equity discount rates of 14-16% leading to BOT segment value at Rs.272/share. After accounting for standalone debt at Rs.57/share, we arrive at SOTP price target of Rs.291/share. We initiate coverage with "BUY" recommendation on ABL.
SOTP Valuation Table:

Projects Length Net Present (km) Value (Rs mn) ABL's stake ABL's value (Rs mn) Cost of Equity (%) Value per share of ABL (Rs.) 12.3 31.5 43.0 29.7 16.4 16.4 60.6 210.0
Projects under ACL Bhandara Durg Jaora-Naigaon Sambalpur Baragarh Belgaum Dharwad PNG Dhankuni Kharagpur Total Projects under ABL Indore-Eblabad Ahmednagar-Aurangabad Dewas Bypass Katni Bypass Pune Shirur Wainganga River Bridge Nashirabad Road Dhule Bypass Sherinnallah Bridge FOBs- Eastern Expressways Cuttack Angul Total P/E multiple EPC business Less: Standalone Debt SOTP based Target Price 5 203 42 20 18 54 13 5 6 4 11 112 1464 309 322 831 427 487 158 52 75 52 (855) 3524 FY14E Net Profit 793 3980 (2990) 76.0 (57) 291 99.7% 100% 100% 99.9% 100% 50% 100% 100% 100% 100% 100% 1460 309 322 830 427 243 158 52 75 52 (855) 3276 14% 14% 14% 14% 14% 14% 14% 14% 14% 14% 15% 29.9 6.2 6.5 15.8 9.0 4.6 3.0 1.0 1.4 1.0 -16.2 62.2 83 77 80 88 79 113 112 982 2512 3413 2373 1309 1310 4830 16747 66% 66% 66% 66% 66% 66% 66% 648 1658 2264 1566 864 864 3188 11053 14% 14% 14% 16% 14% 14% 14%
27
Key risks:
Slowdown in traffic volume: Some of the existing road BOT projects are witnessing lower traffic movement than estimated at the time of bidding owing to slowdown in industrial growth at the ground level. Toll collection for operational portion of Belgaum-Dharwad project has been impacted due to mining ban by the Court. A few projects are suffering due to poor due diligence and relying too much on overoptimistic traffic consultants. Regulatory Risks: The PWD of Maharashtra prematurely terminated ABL's Ahmednagar-Karmala road concession agreement on 17th Nov '2012 which was to expire on November 4th, 2015. The terms of concession of this project were computed taking into consideration RBI base rate prevailing at that time. However, the PWD cut the tenure citing reduction in interest rates by RBI as the reason. ABL has filed a writ petition against this termination. We do not factor any contribution from this project in our target valuation. Two other projects of ABL - Pune Shirur (concession till July-15) and Sherinallah Bridge (concession till June-15) are based on similar terms as Ahmednagar - Karmala and can be at risk of early termination. These projects together contribute Rs.9.5/share to our SOTP based price target of Rs.291/share for ABL. Non-collection of toll due to law and order issue: Over the last few years, there have been several instances where road operators have faced resistance from users, protesting against toll collection. ABL too has faced such resistance in two of its road projects - NagarKarmala and Pune-Shirur. In the Nagar-Karmala project, toll collection had to be temporarily suspended while in the Pune-Shirur project, toll collection had to be discontinued at one of the two toll plazas. Such agitations/ resistance lead to loss of cash flows for the company. Captive dependant EPC order book: The current outstanding order backlog of ABL is dominated by the captive road EPC orders. Any delay in execution of these projects or early execution of the backlog will dry up cash flows for the EPC segment.
28
Financials (Consolidated)
Income Statement (Rs mn)
March Year end Total revenues % growth Operating expenses EBITDA % growth Depreciation EBIT Interest Other Income Exceptional items PBT Tax Reported PAT Minorities Int/Share of Assoc Consolidated PAT Adj. PAT % growth Diluted EPS (Rs) FY11 13,031 10,497 2,533 690 1,843 716 329 1,072 2,528 424 2,104 (24) 2,080 1,008 19.2 FY12 15,000 15.1 11,750 3,250 28.3 850 2,401 1,144 354 0 1,610 451 1,159 89 1,248 1,248 23.8 23.7 FY13E 17,597 17.3 13,793 3,804 17.0 960 2,843 1,438 211 0 1,616 727 889 210 1,099 1,099 (12.0) 20.9 FY14E 22,041 25.3 17,454 4,587 20.6 1,048 3,539 1,693 264 0 2,110 844 1,266 270 1,536 1,536 39.8 29.2 FY15E 27,752 25.9 21,884 5,867 27.9 1,786 4,081 3,753 278 0 606 242 363 1,700 2,063 2,063 34.3 39.2
Balance Sheet (Rs mn)

March Year end Share Capital Reserves & Surplus Shareholders funds Minority Interest Total Debt Deferred tax liabilities Other non-current liabilities Current Liabilities & Prov Total Liabilities Net Fixed Assets Investments Other non-current assets Inventories Sundry Debtors Cash and Bank Other current assets Total Assets FY11 631 8,299 8,930 1,112 12,196 16 619 3,701 26,574 16,245 1,384 2,124 2,413 2,077 711 1,620 26,574 FY12 701 9,640 10,341 630 16,266 10 21,337 5,154 53,738 43,038 1,686 2,503 2,770 1,467 500 1,774 53,738 FY13E 552 11,257 11,809 0 19,054 10 83,777 5,978 120,628 97,112 1,855 3,377 2,652 1,687 679 13,266 120,628 FY14E 552 13,476 14,028 0 31,650 10 83,606 4,166 133,460 104,299 2,133 7,494 3,321 2,114 447 13,652 133,460 FY15E 552 17,053 17,605 0 36,823 4,608 82,539 4,484 146,059 128,905 2,347 6,600 2,661 2,661 858 2,027 146,059
Cash Flow (Rs mn)

March Year end PBT Depreciation Less: Other income Net Interest Paid Net working capital Minority Interest Total Tax paid Operating cash flow Capital expenditure Investments Other investing activities Investing cash flows Change in borrowings Equity raised/(repaid) Other financing activities Financing cash flow Net change in cash Closing cash balance FY11 2528 690 (116) 716 (2013) (26) (439) 1339 (4880) 281 283 (4316) 1501 2067 (716) 2852 (125) 546 FY12 1610 850 (110) 1144 21595 86 (456) 24719 (27632) (893) 308 (28217) 4238 (43) (1144) 3051 (447) 101 FY13E 1689 794 (211) 1540 61021 (683) (760) 64215 (66394) (169) 211 (66352) 2788 1469 (1540) 2717 580 679 FY14E 2278 1046 (264) 1547 (3062) (930) (911) (2109) (8233) (3421) 264 (11390) 12595 2219 (1547) 13267 (232) 447 FY15E 2883 1562 (278) 1762 827 (2028) (1153) 3893 (20167) 1420 278 (18469) 13174 3577 (1762) 14989 413 858
Ratio Analysis (%)

March Year end EBIDTA margin Net profit margin Return on equity ROCE Inventory (days) Payable (days) Receivables (days) Debt to equity (%) Valuation parameters Dil. No. of Shares (mn) Diluted EPS (Rs) P/E (x) P/BV (x) EV/ EBIDTA (x) EV/Sales(x) FY11 19.4 7.7 11.3 8.7 40 26 34 1.4 FY11 53 19.2 10.4 0.2 11.7 2.3 FY12 21.7 8.3 12.1 9.0 36 91 19 1.6 FY12 53 23.7 8.4 0.2 9.1 2.0 FY13E 21.6 6.2 9.3 9.2 55 90 35 1.6 FY13E 53 20.9 9.6 0.2 7.8 1.7 FY14E 20.8 7.0 10.9 7.7 75 60 35 2.3 FY14E 53 29.2 6.8 0.1 6.4 1.3 FY15E 21.1 7.4 11.7 7.5 50 60 35 2.1 FY15E 53 39.2 5.1 0.1 5.0 1.1
29
Sadbhav Engineering Ltd.

Recommendation CMP Target Upside(%) Rs.112 Rs.134 20
Accumulate
Highway to long term gains

Sadbhav Engineering Limited (SEL), established in 1988 by Mr. Vishnubhai Patel, is among top 5 infrastructure companies of India with over two decades of experience in road construction segment. The company is primarily into EPC & BOT segments and depending on the size and scale, SEL bids for projects either on its own or through a joint venture. Sadbhav has exemplary track record for timely completion of projects. The EPC division also has presence in mining and irrigation segment and has successfully executed long term projects in these segments. Current EPC order book stands at Rs.87.5 bn - 3.3xFY12 revenues. SEL trades at 22.9xFY13E and 18.6xFY14E earnings of Rs.6.0 and Rs.7.2 respectively and EV/EBITDA of 14.9xFY13E and 8.9xFY14E.We estimate CAGR of 36% in revenues and 21% CAGR in consolidated net profits during FY13E-FY15E. Diversified order book with 68% comprising of orders from road sector and 16% each from mining and irrigation segment. Execution of order backlog will drive standalone revenues, to grow at CAGR of 36% during FY13E-FY15E. Low debt/equity ratio at standalone level sets SEL apart from its peer companies which are cash-strapped and highly levered. We initiate coverage with "ACCUMULATE "recommendation with price target of Rs.134/share.
Share Holding (%) Promoter Institutions Public 47.3 42.7 10.0
Key Data Average Vol ( 6m) in '000 FV Beta Mcap (Rs Mn) 52 week H/L Bloomberg Group Sensex/Nifty 180.4 1 0.68 16801 165/104 SADE IN B / BSE 500 19683/5945
Risks to our call:

Any delay in obtaining clearances for recently bagged BOT projects will hamper the execution and stretch FY14E revenues. Due to financial constrains, if the JV partner/sub-contractor is unable to continue with projects execution, the project may get delayed or stalled.
Particulars (Rs mn) FY11 Revenue 22094 26755 15763 26428 29352 PAT 1196 1406 737 909 1081 EPS 8.0 9.3 4.9 6.0 7.2 EBIDTA Margin (%) 10.8 10.8 9.8 9.8 9.8 P/E 14.0 12.0 22.9 18.6 15.6 P/BV 2.7 2.2 2.0 1.9 1.7 EV/EBIDTA 9.7 7.9 14.9 8.9 8.0 ROE(%) 19.1 18.4 8.9 10.0 10.7 ROCE(%) 21.4 22.6 7.9 14.3 14.1
Stock Performance (%) Abs(%) 3M 1Y Sensex -0.05 13.2 SADE -14.0 -17.6
FY12 FY13E FY14E FY15E
Sadbhav Engineering Ltd.
30
Our Investment Case

Dominant player in road construction and development: SEL undertakes road construction on EPC basis for own BOT projects as well as projects from NHAI and state development bodies. State-of -the-art construction equipment manned by skilled workers and engineers along with two decades of experience has enabled SEL to successfully construct and complete projects before time. Revenues for this segment have compounded at 43% during FY09-FY12.In 2007, Sadbhav Infrastructure Pvt Ltd (SIPL) was incorporated as an asset holding company for road BOT projects and currently has 12 BOT projects via SPVs under its ambit. Recent Budget announcement for awarding 3000 kms of road contracts through EPC route in first six months of 2013-14, creates an opportunity for SEL to bid and win cash contracts. Robust and diversified order book with presence in mining and irrigation: SEL's outstanding EPC order backlog stands at Rs.87.5 bn with 68% comprising of road projects, and 16% each of mining and irrigation projects and providing revenue visibility for 3-3.5 years. SEL has successfully executed 5 year project for GIPCL involving excavation of overburden and lignite at Vatsan mines. The irrigation segment has capabilities to construct dams, canals and siphons and holds a track record of executing a major portion of world's largest Narmada Main Canal. Projects worth Rs.11.1 bn consisting of 3 tenders in mining and Rs.71.6 bn for 2 tenders in irrigation are in pipeline for which SEL has already submitted bids. JVs and partnerships with other construction companies ensure timely project completion: SEL has partnered with peer companies like Gammon Infra, GKC etc to gain pre-qualification strengths for large-ticket projects. On a standalone basis also SEL, has sub-contracted the EPC works to players like KNR construction, HCC etc to complete projects on time. For early completion of the projects, SEL had earned bonus of Rs. 180 mn for Dhule - Palesnar and Rs. 915 mn for Bijapur-Hungund in the past. Low Leverage on standalone books: Bidding for BOT projects via JV helps SEL to keep its debt equity ratio at < 1. In order to finance various under development BOT projects in SIPL, SEL raises funds by securitizing the operational BOT projects. Thus no additional debt is drawn in SEL books for investing in or advancing loan to any BOT Special Purpose Vehicle (SPV). Standalone revenues to pick up from FY14E onwards: SEL's FY13E revenues will decline sharply as certain road EPC projects scheduled for completion in FY13E were executed in FY12. Lack of clearances for new BOT projects in FY13E has also resulted in commencement delays. This can be seen from 9MFY13E results where revenues were down 37.4% yoy to Rs.11.1 bn. We expect revenues to pick up from FY14E onwards with execution of new road BOT projects like ShreenathjiUdaipur, Solapur-Bijapur, Chhindwara road EPC project and recently won mining EPC projects.
Outlook & Valuation:

At a time when infrastructure developers are reeling under huge debt and negative cash flows, SEL with its financial prudence, JV and sub-contracting based model has succeeded in maintaining its debt/equity ratio at <1. We value SEL using sum-of the-part methodology. The standalone construction business is valued at 8xFY14E earnings of Rs.6.0, translating into Rs.51/share. The 9 BOT projects, operational and under construction, under SIPL are valued by calculating the Net Present Value of each BOT asset to arrive at SEL's share of Rs.83/share. We have not considered the recently bagged BOT assets in our calculation as they are in initial stages and are yet attain environment clearances. Thus we arrive at SOTP based price target of Rs.134/share of SEL.
Indian Road Sadbhav Engineering Sector Report Ltd.
31
And why we think so

Leading private sector player with focus on roads: SEL is among the leading top 3 players in the road construction and development space with well over two decades of experience. The EPC segment with strong capabilities and large fleet of equipments has successfully constructed more than 4200 lane kms of roads & highways for NHAI and State Government bodies. SEL's focus on road EPC, one of the fastest growing segments in the construction space, has enabled it to grow segment revenues at 3 year CAGR of 43% during FY09-FY12. Road segment contributed 84% to the standalone revenues in FY12. SEL undertakes construction of own BOT road projects as well as external EPC contracts. Order book for this segment as on 31st Dec'2012 stands at Rs.59.6 bn comprising 63% of own BOT projects and remaining 37% of cash contracts.
9MFY13 Order book Break up - Roads
Foray into Mining and irrigation offers diversification: In addition to roads, SEL has diversified its business and undertakes EPC for mining and irrigation segment. A) Mining Projects: SEL executed first mine excavation project in 1992-93 and since then it is involved in excavation of over burden to removal of lignite and coal for number of mines. Mining team executes 200,000 cubic meter of overburden per day. Major projects included removal of overburden at Bina OCP at Uttar-Pradesh for NCL and a 7-year repeat contract from GIPCL for excavation of overburden & mining of lignite at Vastan Mines, Gujarat. For FY12, mining activities accounted for 10% of order inflows and 8% of revenues. SEL in JV with Annapurna and Vishnusiva respectively in Oct'2012 is successful bidder for two projects for bids invited by Bharat Coking Coal Ltd aggregating to Rs.6820 mn. The mining order book stands at Rs.13.6 bn as on 31st Dec'2012 translating to 6.3x times FY12 segment revenues. SEL has submitted 3 bids almost worth Rs.11.1 bn and anticipates Coal India to come up with larger size and longer duration contracts. We estimate 3 year CAGR of 29% in revenues during FY12-FY15E.
16000 14000 12000 10000 8000 6000 4000 2000 0 12900 9958 13520 13890
37%
(Rs in mn)
63%
Own BOT
Source: EISEC Research Company
Cash Contracts
2140
2697
3380
4630
FY12
FY13E Order book
FY14E Revenues
FY15E
32
B) Irrigation Projects: SEL has undertaken construction of earthen dams, canal siphons, remodeling and improvement of canals. Rich experience and strong execution capabilities have enabled the Company to participate in various phases of construction of the Narmada Main Canal (NMC), the world's largest concrete lines canal. It has executed 4 out of 9 canal siphons on NMC across different rivers. Robust order book at Rs.14.3 bn as on 31st Dec'2012 translates into 6.7x FY12 segment revenues thereby providing revenue visibility. We estimate 3 year CAGR of 32% in revenues during FY12-FY15E
20000 16000 (Rs in mn) 12000 8000 4000 0 FY12

Source: EISEC Research , Company
Irrigation Projects
15846 13859 11594
17463
2140
3142
3961
4925
FY13E Order book
FY14E Revenues
FY15E
Robust Order Book: Current order stands at Rs.87.5 mn and is to be executed over 30-36 month. Orders are skewed towards transport segment, comprising 68% of the total order book. Mining and Irrigation orders are at 16% each of the order book. Book-to-bill ratio stands at 3.3x FY12 revenues, hence, providing revenue visibility. Outstanding Order Book
FY12 - Rs.75.5 bn
Q3FY13- Rs.87.5 bn
13% 15% 72%
16% 16% 68%
Transport
Irrigation
Mining
Transport
Irrigation
Mining
Source: EISEC Research, Company
33
Climbing up the ladder - from Road contractor to BOT Developer

In 2006, SEL entered in ownership of road projects via BOT route. In 2007, SEL incorporated Sadbhav Infrastructure Project Limited (SIPL), as a subsidiary, as an asset holding company for Road & Other Infrastructure BOT Projects. Over the years, SIPL has built portfolio of BOT assets and currently has 13 projects with a combination of developed and under-developed assets. Leveraging the Joint venture / partnership mode for bidding: Over 2007-09 , SIPL has partnered with other contractors/ developers like Gammon Infra, HCC, GKC projects etc to be able to bid and gain prequalification strengths for large ticket size BOT projects. Bidding for BOT projects in partnership with others has also enabled the company to maintain a low debt-equity ratio at standalone level.
16000 14000 12000 10000 8000 6000 4000 2000 0 MBCPNL DPTPL BHTPL RPTPL BRTPL MNEL SBTPL SUTPL ARRIL AJTL NSEL HYTPL 120 100 80 60 40 20 0
Sub-contracting of EPC works ensures timely completion: Unlike other EPC contractors-turned -developers, who have focused more on boosting their construction revenues (through in-house execution of their entire captive orders), SEL has focused on timely completion of project to avoid cost over runs. SEL has sub-contracted EPC works either to subcontractors such as KNR Constructions (Bijapur-Hungud) or to other JV partners such as GKC Projects (Hyderabad-Yadgiri). Furthermore, the company is incentivizing the sub-contractors (by offering bonus payments) for early completion of the project. The Company has even sub-contracted a part of its large EPC contracts to subcontractors (for example, a part of the Chhindwara EPC contract worth ~`18bn is partially outsourced to KNR Constructions) in order to ensure timely project completion. Table1: Details of SEL's JV partners for various road BOT and EPC contracts
Project Ahmedabad Ring Road (ARRIL) Mumbai-Nashik Expressway (MNEL) Nagpur-Seoni Expressway (NSEL) Dhule-Palasner Tollway (DPT) Maharashtra Border Check Post Bijapur- Hungund Tollway Hyderabad-Yadgiri Tollway EPC Chhindwara EPC FY13 FY13 51% KNR Construction HCC 1411 3190 EPC turnkey contract of terminal facilities for passenger water transport EPC Source: Company, EISEC research Type Year of Award BOT BOT BOT BOT BOT BOT BOT FY07 FY06 FY08 FY09 FY09 FY10 FY10 Sadbhav's stake 80% 20% 51% 40% 90% 77% 60% Partner Patel Infra Gammon Infra SREI Infra Finance HCC SREI Infra Finance GKC projects Project Cost (Rs in mn) 5150 7945 2780 14200 14700 4802 Status Operational Operational Operational Operational Operational Operational Operational
(Rs in mn)
Monte Carlo Construction 13226
Project cost ( LHS) Sadbhav's share in project (%) (RHS)

Source: EISEC research, Company
SIPL equity needs (LHS)
34
Geographical diversification of BOT asset portfolio further de- risks the Company's business model.
Table 2: Sadbhav Infrastructure Pvt Ltd (SIPL) BOT asset details (Rs in mn)
Projects Length (Kms) Lane (kms) SIPL Stake Type Project Cost Concession Period (years) Assets 20 23.5 20 20 18 SIPL equity share 592 830 187 545 959 Equity yet to invest NA NA NA 170 Project Details
Ahmedabad Ring Road (ARRIL) Aurangabad - Jalna (AJTIL) Mumbai - Nasik (MNEL) Nagpur - Seoni (NSEL) Dhule - Palesner (DPTPL)
76 69 100 56 97
304 276 400 112 388
Operational 80% Toll 5150 100% Toll 2770 20% Toll 7945 51% Annuity 2780 40% Toll 14200
Fully operational since June 2008 Operational since July 2009 Semi-Annual Annuity of Rs.354 mn Toll collection began from 10th June '2012 for 75% of project. Received Rs.182.3 mn bonus for early completion. Awaiting fee validation for balance 25%, subsequently daily toll collection to increase. Early completion of construction in Dec-2011 against original completion of March -2013. Bonus received - Rs.915 mn Toll collection commenced from 2nd May'2012 Actual toll collection started from Dec-2012 Total check post -22 nos; Awaiting fee collection certificate for 3 completed check posts. Remaining posts at various stages of construction Revenue sharing with government - Rs.450 mn, 5% increase yearly. Scheduled completion date - Oct,2014 Early completion by July'2014 Environmental clearance pending Environmental clearance pending Financial closure pending Won Sadbhav- GKC JV ; eligible for fixed grant of Rs.2392 mn from World Bank.
Bijapur - Hungund (BHTPL)
97
389
77%
Toll
13226
20
1559
NA
Hyderabad - Yadgiri (HYTPL) Maharashtra Border Check post (MBCPNL)
36 NA
400 NA
60% 90%
Toll 4802 23 Under construction assets Toll 14700 24.6
600 2960
60 540
Rohtak - Panipat (RPTPL)
80
320
100%
Toll
12136
25
2428
790
Solapur-Bijapur section (SBTPL) Gomti ka Chauraha (SUTPL) Bhilwara -Rajsamand (BRTPL) KSHIP Total Indian Road Sadbhav Engineering Sector Report Ltd.
111 79 872 193
442 317 -
100% 100%
Recently won BOT projects Toll 20 Toll 27 Toll 7200 30 Annuity 7372 10
3620 3730 1330 NA 19340
3620 3730 1330 NA 10240
35
State -wise diversification of BOT assets

Length in km 9% 4% 2% Maharashtra Gujarat Andhra Pradesh 16% 51% Karnataka Maharashtra - MP border Haryana 8% 4% 6%
Equity commitment for new BOT assets to be funded by mix of securitization & subsidiary's internal accruals: As can be seen from table 2, over next four years the total funds requirement stands at Rs.10240mn. Of this, SIPL needs Rs.8900 mn over FY14E-FY17E to fund its equity commitment for under construction and recently won and BOT assets. In addition, SIPL will invest Rs.1200 mn in the current quarter - Q4FY13 towards equity of recently won BOT projects by availing the sanctioned debt at SIPL level. The management has devised the following funding mechanism which will result in availing no additional debt at the parent level for financing their share of equity.
Mechanism Method Projects Nagpur-Seoni by Apr'2013 Securitization of BOT Ahmedabad Ring projects Road by May'2013 Bijapur-Hungund Internal accruals Aurangabad Jalna Bijapur- Hungund Money lying in Debt Rohtak - Panipat Service Reserve Account MBCP and contingency Hyderabad- Yadgiri Obligation of SIPL to get listed by Sept'2014 as per shareholders' agreement with PE players
Maharashtra - Karnataka Rajasthan
Likely Fund generation ( Rs in mn)
Use Period
Capital raising via monetization of subsidiary protects balance sheet: SEL's strategy to maintain debt /equity ratio at lower than 1x, unlike other EPC players who raised great deal of debt in FY09-FY12 to grow their construction business, forced the Company to look for other avenues to generate funds for SIPL's BOT assets. IN FY11, SEL divested 20% stake in its subsidiary SIPL in favor of PE investors Norwest Ventures Partners and Xander Group Inc. for consideration of Rs.40 bn. (At that time the infrastructure portfolio was valued at Rs.18.5 bn). The company also resorted to dilution of its stake at the parent level with rights issues in FY11. This enabled SEL to raise resources to the extent of Rs.6000 mn to fund their share of equity for existing projects.
3800
FY14E and half of FY15E Continue to utilise as and when basis
2250 Demerger of SEL and SIPL - shareholders of SEL will get proportionate share in SIPL
Can be utilized over period of 1.5-2 years at SIPL level. Expect to raise some money by way of equity and OFS by PE investors
36
FY13E revenues to be subdued due to early completion of old road projects, delay in clearances of new projects: SEL's standalone revenues for 9MFY13 were down 37% yoy to Rs.11.1 bn. This can be attributed to a) Early completion of construction work of BOT projects from order backlog i) Construction of Bijapur - Hungund tollway was completed in Dec'2011 against expected completion of Mar'2013. ii) Construction of Dhule - Palesnar tollway was completed 12 months in advance against scheduled completion date. iii) Hyderabad - Yadgiri tollway was completed 6 months in advance. b) Delay in obtaining clearances for recently won BOT projects The standalone revenues for 9MFY13 were also impacted as SEL could not start construction work on the new BOT projects as these projects are yet to receive appointed date which is held back due to lack of clearances, mainly environment related. For instance, Gomti ka Chauraha - Udaipur project is likely to receive its environmental clearance in the last week of Feb'2013 versus initial expectation in Oct'2012 and Solapur- Bijapur is expected to receive the same by end of FY2013E versus initial estimate of Nov'2012. We expect the above projects to contribute marginally to the revenues in Q4Fy13E. Greater part of the execution will however come in only FY14E and FY15E. Construction revenues to improve sharply from FY14E: Apart from the two road BOT projects mentioned above, number of projects in the cash projects in the road and mining segment will come in for execution from Mar-Apr'2013. After lower than expected implementation in the Chinndwara road EPC project in Q2FY13, the project's execution has picked up in Q3FY13 and will continue in FY14E and FY15E. The transport order worth Rs.3500 mn from Maharashtra State Road Development
Corporation will start generating revenues from Mar'2013. SEL will commence execution for recently won mining contracts from Bharat Coking Coal Ltd in Mar'2013 and these two will generate continuous revenue for next 2-3 years. We thus expect SEL's standalone revenues to grow at CAGR of 36% during FY13-FY15E.
35000 30000 (Rs in mn) 25000 20000 15000 10000 5000 0 FY13E FY14E FY15E
- 36% CAGR
Revenues
26428
29352
15763
Revenue Break up
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 8% 8% 17% 20% 13% 15% 16% 17%
84% 63%
72%
67%
FY12
FY13E
Transport Irrigation
FY14E
Mining
FY15E
37
Entry into a new segment for the EPC contracts: To reduce dependence on the roads segment, Sadbhav is pursuing orders in other segments (such as urban infrastructure, marine transportation and railways/ metros). However, given that the company lacks prequalification capabilities in these new segments, it is forming JV with other construction companies in order to bid for new projects. Sadbhav has recently won a marine transportation contract in a JV with HCC (project cost worth Rs.3.2bn). Any material pick-up in order flow from these segments can drive revenues and margins (new segments are higher EBITDA margin segments compared to roads segment) over the next 2-3 years. SEL's profits to grow at 21% CAGR during FY13E- FY15E: With bulk of projects coming for execution in FY14E, we estimate the working capital requirement to increase marginally which will be funded through debt. We estimate the debt/equity ratio to scale up although with 1. Interest cost and depreciation cost will rise up owing to increased execution. Thus we expect profits to grow at 21% CAGR to Rs.1081 bn during FY13E-FY15E.
1200 1000 (Rs in mn) 800 600 400 200 0 FY13E
30 20 10 (%) 0 -10 -20 -30 -40 -50 FY12

EPS growth
17
23 19
-48 FY13E FY14E FY15E
Growth in Revenue and EBIDTA for SIPL's BOT projects to follow: Apart from the existing operational BOT assets, road projects which that commenced operations during FY13 namely Dhule Palesnar Tollway, Hyderabad - Yadgiri tollway and Bijapur-Hungund tollway will see full year of operations in FY14E. Thus we expect BOT revenues and EBIDTA to witness CAGR of 62% and 59% during FY12-FY15E BOT TOLL Revenues & EBIDTA
12000 10000 (Rs in mn) 8000 6000 4000 2000 0 FY12 FY13E Revenue
PAT
- 21% CAGR
9821 7695 5356 4132 2324 1940 3477 7840
1081 909 737
FY14E EBITDA
FY15E
FY14E
FY15E
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Return ratios to decline in FY13E, to stabilize FY14E onwards: The fall in operating and net profit will exert pressure on the return ratios in the near term. We expect improvement in these ratios once the execution of order book picks up from FY14E onwards.
25 22.6 20 15 (%) 10 5 0 FY12 FY13E ROCE
Key risks:
Dismal performance of mining and irrigation segment: Unlike the road segment where revenues have grown at a CAGR of 43% during FY09FY12, revenues for mining and irrigation segment have grown at a moderate rate of 13% each over the same period. This indicates that revenue profile of SEL is skewed towards roads segment. Any slowdown revenue growth for this segment will bring down the overall revenues for the Company, a scenario foreseen in FY13E. Inability to pass through the bulk diesel prices may put pressure on margins: The recent government notification regarding hike in prices of bulk diesel may lead to increase in cost of transporting raw materials which SEL may not be able to pass on in case of fixed price EPC contracts. The management has stated that most of their trucks have registration with RTO and will come under retail usage on diesel. Any decision by the government to categorize them as wholesale users will put pressure on operating margins. Underutilization of mining gross block: Out of the total gross block of Rs.3.7bn at the end of FY12, ~40% (Rs.1.5bn) is the mining equipment. However, the asset turnover ratio for this segment is poor. As can be seen for the last two years; the revenues in the mining segment have been at Rs.2.7 bn and Rs.2.2 bn respectively. This highlights underutilization of the standalone gross block.
Return Ratios
18.4 14.3 14.1 8.9 7.9 10.0 10.7
FY14E ROE
FY15E
Peer Comparison
Companies Sadbhav Engineering Ashoka Buildcon ITNL IRB Infra Madhucon Projects Lane kms under BOT 3348 4789 6300 7479 3477 Ranking 5 3 2 1 4 Mkt.Cap. (Rs bn) 15.7 10.7 37.6 38.5 1.9 FY13E 21.4 9.8 7.1 7.4 5.6 P/E FY14E 17.4 7.0 6.5 7.3 4.9
FY15E 14.6 5.2 6.2 6.5 1.9
FY13E 1.9 0.2 1.2 1.2 0.3
P/BV FY14E 1.7 0.2 1.0 1.0 0.3
FY15E 1.6 0.1 0.9 0.9 0.2
EV/EBIDTA FY13E FY14E FY15E 14.2 7.4 7.9 5.9 3.5 8.5 6.1 6.9 5.1 3.1 7.7 4.8 6.3 4.5 2.1
FY13E 8.9 9.3 17.3 16.9 4.4
ROE (%) FY14E 10.0 10.9 16.2 14.5 5.5
FY15E 10.7 11.7 15.8 14.5 12.5
Source: EISEC research, estimates for ITNL, INR Infra and Madhucon Projects are taken from Bloomberg.
39
Valuation & Outlook:

With over two decades of experience and having requisite skill and capabilities SEL is well placed to capitalize on opportunities in the roads, mining and irrigation segment. Owing to financial prudence, SEL has one of the lowest debt equity ratios amongst its peers. The new and under construction BOT projects under SIPL have funding mechanism in place and will not draw additional debt from SEL to fund its projects. We believe that SEL, being a mid-sized player, can be valued using the sum-of the-part methodology. The standalone construction business is valued at 8xFY14E earnings of Rs.6.0, translating into Rs.51/share. SEL holds 80% stake in SIPL, where we calculate the Net Present Value (NPV) of each BOT project using the DCF methodology. The NPV specifically captures the value generated and the risk associated with each asset. We have not included the new projects: Shreenathji-Udaipur, SolapurBijapur and Rajasmand - Bhilwara for calculating the BOT value as they yet to achieve environmental clearance. SEL's share in 9 BOT projects of SIPL is valued at Rs.83/share. This we arrive at SOTP based price target of Rs.134/share of SEL. At the target price, SEL trades at P/B of 2.2xFY13E and 2.0xFY14E and EV/EBIDTA of 10.2xFY13E and 9.2xFY14E. We initiate coverage with "ACCUMULATE" recommendation on SEL.
SOTP valuation table:

Projects Length Net Present (km) Value (Rs in mn) Ahmedabad Ring Road 76 2599 Aurangabad- Jalna 69 1756 Mumbai- Nashik 100 5725 Nagpur - Seoni 56 425 Dhule-Palesnar 97 3104 Hyderabad- Yadgiri 36 1488 Rohtak - Panipat 80 3717 Bijapur - Hungund 97 3422 Maharashtra Border Check Post NA 2480 Total SEL's stake in SIPL - 80% EPC business valuation SOTP SIPL's share (%) 80% 100% 20% 51% 27% 60% 100% 77% 90% SIPL's value (Rs mn) 2079 1756 1145 217 838 893 3717 2635 2232 Cost of NPV/share equity ( Rs ) 14% 14% 14% 14% 14% 14% 14% 14% 14% 14 12 8 1 6 6 25 18 15 103 83 51 134
8.5
6.0
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Financials (Standalone)
Income Statement (Rs mn)
March Year end Total revenues % growth Material consumed Construction Expenses Employee Benefit expenses EBITDA % growth Depreciation EBIT Interest Other Income Exceptional Income PBT Tax Reported PAT % growth Diluted EPS (Rs) FY11 22,094 75.8 1,603 17778 336 2,377 73.4 269 2,109 541 190 1,757 562 1,196 83.5 8.0 FY12 26,755 21.1 3,297 20156 400 2,903 22.1 274 2,628 651 108 2,086 680 1,406 17.5 9.3 FY13E 15,763 (41.1) 1,892 11934 394 1,543 (46.8) 369 1,174 687 0 610 1,097 360 737 -47.6 4.9 FY14E 26,428 67.7 3,171 20014 661 2,582 67.3 403 2,179 827 0 1,353 444 909 23.3 6.0 FY15E 29,352 11.1 3,522 22228 734 2,868 11.1 443 2,425 815 0 1,610 528 1,081 19.0 7.2
Balance Sheet (Rs mn)

March Year end Share Capital Reserves & Surplus Shareholders funds Total Debt Deferred tax liabilities Other non-current liabilities Current Liabilities & Prov Total Liabilities Net Fixed Assets Investments Other non-current assets Inventories Sundry Debtors Cash and Bank Loans& Advances Other current assets Total Assets FY11 150 6,108 6,257 3,608 161 878 9,010 19,914 2,298 3271 655 692 6,638 846 5,323 192 19,914 FY12 150 7,473 7,623 4,028 235 772 8,736 21,394 2,881 3287 1,167 884 7,474 563 4,923 215 21,394 FY13E 150 8,132 8,282 6,542 235 786 7,652 23,497 2,862 5574 935 1,512 6,478 355 5,614 167 23,497 FY14E 150 8,945 9,095 6,174 235 786 11,874 28,165 2,959 6019 1,074 1,810 8,689 206 7,241 167 28,165 FY15E 150 9,912 10,063 7,140 235 786 12,304 30,526 3,016 6464 1,112 2,010 9,650 65 8,042 167 30,526
Cash Flow (Rs mn)

March Year end PBT Depreciation Tax paid Net interest paid Chg in Def. Tax Liability Net working capital Other Operating cash flow Capital expenditure Chg in Investments Other investing activities Investing cash flows Change in borrowings Issuance of equity Dividend paid Other financing activities Financing cash flow Net change in cash Closing cash balance FY11 1757 196 (562) 541 20 1061 (190) 2823 (393) (1830) 190 (2033) (1438) 1251 (105) (541) (833) (43) 846 FY12 2086 137 (680) 651 74 (890) (108) 1270 (720) (16) 108 (628) (491) 65 (105) (651) (1182) (540) 563 FY13E 1097 369 (360) 687 0 (1360) 0 433 (350) (2055) 0 (2405) 2527 0 (78) (687) 1762 (210) 355 FY14E 1353 403 (444) 827 0 87 0 2226 (500) (584) 0 (1084) (368) 0 (96) (827) (1291) (149) 206 FY15E 1610 443 (528) 815 0 (1533) 0 807 (500) (483) 0 (983) 965 0 (114) (815) 36 (140) 65
Ratio Analysis (%)

March Year end EBIDTA margin Net profit margin Return on equity ROCE Inventory (days) Payable (days) Receivables (days) Net debt to equity (%) Valuation parameters Dil. No. of Shares (mn) Diluted EPS (Rs) P/E (x) P/BV (x) EV/ EBIDTA (x) EV/Sales(x) FY11 10.8 5.4 19.1 21.4 11 27 110 0.58 FY11 150 8.0 14.0 2.7 9.7 1.0 FY12 10.8 5.3 18.4 22.6 12 26 102 0.53 FY12 150 9.3 12.0 2.2 7.9 0.9 FY13E 9.8 4.7 8.9 7.9 35 27 150 0.79 FY13E 150 4.9 22.9 2.0 14.9 1.5 FY14E 9.8 3.4 10.0 14.3 35 26 120 0.68 FY14E 150 6.0 18.6 1.9 8.9 0.9 FY15E 9.8 3.7 10.7 14.1 25 26 120 0.71 FY15E 150 7.2 15.6 1.7 8.0 0.8
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Stock rating (1 year target scale) < 0% 0-10% 10-30% >30% Sell Reduce Accumulate Buy
DISCLAIMER This document has been prepared by the investment research department of East India Securities Limited (EISEC), for the purpose of information only. This document is not to be reproduced, copied, redistributed or published or made available to others, in whole or in part without prior permission from EISEC. This document should not be construed as a solicitation, to any person, to buy or sell a security. Recipients of this document should be aware that past performance is not necessarily a guide for future performance. Although the information contained in this document has been obtained from reliable sources, its accuracy or completeness has not been fully verified by EISEC independently and cannot be guaranteed. Neither EISEC nor any of its affiliates, its directors or its employees accepts any responsibility, of any nature, for the information, statements and opinion given or expressed herein or for any omission or for any liability arising from the use of this document. Opinions expressed are our current opinions as of the date appearing on this material and are subject to change without notice. EISEC directors, employees and its clients may have holdings in the stocks mentioned in the report.
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Indian Road Sector Report - 11th March&#39;2013

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