Indian Turnpikes (BOT Toll Roads)

29 April, 2011
RESEARCH
SECTOR REPORT
INDIAN TURNPIKES
We were not a wealthy Nation when we began improving our highways... but the roads themselves helped us create a new wealth, in business and industry and land values... So it was not our wealth that made our highways possible. Rather, it was our highways that made our wealth possible.
Thomas H. MacDonald - Chief, U.S. Bureau of Public Roads
Vinod Nair +91-22-6618 6379 vinod.nair@pinc.co.in
Subramaniam Yadav +91-22-6618 6371 subramaniam.yadav@pinc.co.in
RESEARCH
Contents
Executive Summary .................................................................................................. Indian Road Sector ................................................................................................... Opportunity galore USD60bn opportunity ............................................................... National Highway Development Project (NHDP) ........................................................ State highways provide USD10bn opportunity ........................................................... Financing in place ..................................................................................................... Density of vehicle in India amongst lowest ................................................................ The Catalyst - (BKC) ................................................................................................. High opportunityhigh competitionover the next three years ................................ A case study on Interstate Highway ..........................................................................
2 8 11 13 15 17 19 22 23 25 30
Annexures ...........................................................................................
Companies
Ashoka Buildcon Ltd (ABL). ............................................................................... IRB Infrastructure Developers Ltd. ....................................................................... IL&FS Transportation Networks Ltd. ................................................................... Sadbhav Engineering Ltd.. .................................................................................. 32 47 58 72
RESEARCH
Do you know?
Only ~12% of National Highways are tolled in India# The first toll road constructed in India based on the PPP model was commissioned in 1991 by IL&FS* The first toll bridge constructed in India based on PPP was commissioned in 2001 by IL&FS* (Noida Toll Bridge) First important divided highway in the US is the Pennsylvania turnpike that opened in 1940 In the US, the Interstate System (highway) accounts for about 1.1% of the countrys total public road mileage; it carries 24% of all highway travel. US Interstate highway has app. 14,750 interchanges, 55,512 bridges and 82 tunnels In France, roads and bridges were concessioned as early as the 16th century. Construction of Shanghai to Jiading (17km) expressway is recognized as the beginning of Chinas expressway programme. Malaysia was the first country in the Asian region to introduce toll roads, in 1966. Malaysias first mega project for the expressway development plan was the 848 km long North South Toll Expressway which was started in 1980
* Sizeable toll road, #FY10
Highways known in different countries as

Name Highways Motorways Interstate Highway Autobahns Autopista Autoroute Autostrada Expressway Freeway Kosokudoro Rodovia Source: PINC Research Country India UK, Ireland,Pakistan Unites States Germany, Austria, Switzerland Spain France Italy, Poland, Romania, Egypt Mainland China, Malaysia Canada, Taiwan Japan Brazil
Highway development programme of various countries

India China NHDP (National Highway Development Programme) NTHS (National Trunk Highway System) "5-7" Trunk Highway Network Plan "7-9-18" Expressway Trunk Development Plan South Korea United States of America Source: PINC Research NTNP (National Transport Network Plan) National systems of Interstate Highways
vinod.nair@pinc.co.in
subramaniam.yadav@pinc.co.in
RESEARCH
Executive Summary
National Highway provides USD 50bn opportunity NHAI is yet to award ~31,283km of projects, which forms 57.4% of the total NHDP plan, coupled with State Highways that are likely to award another 12,302km of orders, which together provide an opportunity of USD60bn (Rs2.7tn).
NH + SH opportunity
NHDP Phases Phase I* Phase II Phase III Phase IV Phase V Phase VI Phase VII Total USD Length (km) 20 424 4,980 20,000 4,200 1,000 659 31,283 Project cost (Rs bn) 1 22 335 1,100 487 167 157 2,269 50.4 USD bn Rs bn Source: NHAI, Planning commission, CRISIL, PINC Research State Highways RAJASTHAN MADHYA PRADESH KARNATAKA GUJARAT MAHARASHTRA ANDHRA PRADESH TAMIL NADU UTTAR PRADESH Total Length (km) 1,309 914 2,650 329 1,839 2,086 251 2,924 12,302 Project cost (Rs bn) 17 18 56 21 74 61 5 177 430 9.5 60 2,698
* Phase I includes port projects and other NH # as Oct10
New Minister, New Target Mr. CP Joshi, the new minister for Transport and Highway, targets to award c.7300km in FY12. In keeping with this, in Q1 FY12, GOI invited bids c.for 2000km and annual prequalification for 11,151km. NHAI awarded c.5100km for FY11, far below its revised target of ~9000km for the year.
Highway addition during Plan period

65,203 32,000 24,000 Length (km) 33,612 28,819 28,977 23,769 23,948 22,255 22,255 24,000 16,000 8,000 0 Inter period (1956-1961) (1966-1969) (1974-1978) (1980-1985) Inter period Pre (1947(1990-1992) (1997-2002) Plan (2007Eleventh IX Plan VI Plan 1951) II Plan V Plan 2012) 29,023 31,710 33,689 34,298 70,548 Length added (LHS) Total Length (RHS) 58,112 80,000 60,000 40,000 20,000 0
Source: NHAI, MoRTH, PINC Research
RESEARCH
NHAI awarding picks up
NHAI awarding since February

Projects Name khagaria - Purnea Barasat - Krishnanagar Krishnanagar - Berhampore Gopalganj-Chappra Dhankuni-Khargpur State Name Bihar West Bengal West Bengal Bihar West Bengal NH No 31 34 34 85 6 8 Length 140 84 78 92 111 102 TPC (Rs mn.) 6,640 8,670 7,022 3,250 13,962 36,000 NHDP Phase NHDP Phase III NHDP Phase III NHDP Phase III NHDP Phase III NHDP Phase V NHDP Phase V Concessionaire Punj Lloyd Infrastructure Ltd. Madhucon Projects Ltd. SEW Infra. Ltd. Abhijeet Infrastructure Ltd. Ashoka Buildcon Ltd. IRB Infrastructure Ltd. Funded By Annuity Annuity Annuity Annuity BOT- Toll BOT- Toll
Ahmedabad - Vadodara Exp. Gujarat Source: NHAI, PINC Research
Current NHDP status

NHDP Particulars GQ Total Length (km) 2/4/6/8 laned (Completed) By NHAI By MORTH (PWD) - Total till date (km) Under implementation (km) Letter of award issued/ agreement signed and work to be started (km) Length to be awarded (km) Financials (Rs cr.) - Awarded cost of contracts under implementation / BOT grant annuity payment Expenditure - Current Financial Year - Cumulative till date 969 30,498 8,431 45,262 9,010 23,194 28 28 4,129 7,933 2 2 0 0 22,569 106,917 620 9,074 23,189 115,990 5,821 5,821 25 5,560 5,560 1,161 288 421 2,135 2,135 5,669 4,145 4,305 765 765 14,034 490 490 1,922 1,377 4,088 1,000 41 22 659 14,006 14,006 9,583 6,597 24,507 306 306 74 30 932 932 431 418 20 15,244 15,244 10,088 7,045 24,527 5,846 NS&EW Ph. I & II Phase III Phase IV Phase V 7,300 12,190 14,799 6,500 Phase VI 1,000 Phase VII 700 Total 48,335 380 Port Conn. Other NHs 1,383 Total by NHAI 50,098
1,634
17,415
10,994
792
1,344
560
32,739
717
2,433
35,889
Source: NHAI, PINC Research * as on Feb11
RESEARCH
Increasing interest rate the highest risk for the sector
SBI PLR
Source: Bloomberg, PINC Research
Traffic growth not a concern- Density of vehicle amongst lowest in world, we are at early stage of motorization
Stage of development (Developed vs Developing)
India in 2008, is where US was in 1912...
Year Source: US Department of Energy Note: Above line indicates vehicles per 1000 ppl in US
RESEARCH
High opportunityhigh competitionover the next three years
NHAI awarding expected in next two years

Km (LHS) 10,000 7,500 Length (km) 305,415 5,000 5,208 2,500 FY09
Source: NHAI, PINC Research
Ex penditures (RHS) 520,000 560,000 8,000 6,500 600,000 450,000 300,000 150,000 (Rs mn)
349,393
129,210 979
3,216
FY10
FY11
FY12E
FY13E
Increasing competition visible in bidding
Panvel - Indapur project

1,500
0 (Rs mn) (1,500) 2 4 6 8 10 12 14
(3,000)
(4,500)
RESEARCH
Stick with the leader

Ashoka and IRB to witness the highest lane km growth over FY10-FY12E...
Increasing size of companies

1,200 1,000
Adj. length (km)
ITNL IRB
800 600 400 200 500 1,000

Total length (km) Sadbhav Ashoka
1,500
2,000
Ashoka - FY10 Ashoka - FY11 Ashoka - FY12 IRB - FY10 IRB - FY11 IRB - FY12 ITNL - FY10 ITNL - FY11 ITNL - FY12 Sadbhav - FY10 Sadbhav - FY11 Sadbhav - FY12
* size of bubble is project size
Operational + New project win (adj. length)

2,400 1,627 1,800 Length (km) 1,202 1,107 695 922 1,200 497 497 600 Ashoka
Source: PINC Research
2,187
FY09
FY10
FY11
FY12E 1,774
FY13E
993 610
1,086 782
1,129 1,454
IRB
ITNL
61
Sadbhav
238
238
498
778
6
RESEARCH
Our top picks are Ashoka and IRB

ASHOKA BUILDCON LTD, BUY, TP - Rs390 (50% Upside) ABL has a portfolio of 23 BOT projects of which 16 are operational. ABL has a strong understanding and history of performance in BOT. ABL handed over 4 BOT assets back to the Govt. The focus has been slow and steady with small-to-medium-sized projects at the regional level. But the emphasis is on cash generation, risk mitigation and securing a sustainable business model. Now the tone has changed towards aggressive growth. Hence this could catapult higher valuations for ABL over the next 2yrs bringing it more closer to the top leagues of IRB and ITNL. Currently, the stock is available at 1.3x P/BV FY12E.
IRB INFRASTRUCTURE DEVELOPERS LTD, BUY, TP - Rs253 (37% Upside) IRB's unique ability to win bids at competitive levels v/s L2 and L3 is a trademark. We understand that IRB identifies assets, and bids as per competitive and strategic value. This gives us immense confidence about IRB's business sustainability. Recent correction in the stock price makes IRB a valuable investment proposal at 2x P/BV FY13E.
IL&FS TRANSPORTATION NETWORKS LTD, HOLD, TP - Rs254 (17% Upside) ITNL's emergence as a leading player in BOT space is here to stay with likely 1000km of win over next 2yrs (+700km in FY10-FY11). In the medium term we would like to see and assess more the performance of its BOT assets, given that initial phase could be low in profitability (Consolidated project IRR), also EPC capability is low (outsourced model) leading to lower valuation multiple for the business. We recommend HOLD rating.
SADBHAV ENGINEERING LTD, HOLD, TP - Rs165 (18% Upside) Sadbhav Engg (SEL) has a well-established EPC division with healthy historical performance. In the last two years, SEL has added 9 BOT assets, we believe in the near term, valuations could be driven by the performance in these assets, which are likely to ramp up only post FY13E. With no BOT wins in FY11, the strategy that SEL would adapt in FY12&FY13 would be watched eagerly. Execution in FY12E could be flat due to a flatish opening order book. We recommend a HOLD rating given the price outperformance post Q4FY11 results and near term growth bottleneck.
RESEARCH
Indian Road Sector

Meet the Indian Road SystemNational Highways constitutes only 2% Indian Road Network
Type of Roads Expressway National Highways State Highways Major district roads Rural and other roads Total Source: NHAI, PINC Research Length (km) 200 70,934 131,899 467,763 2,650,000 3,320,796 * as on FY10 Length (%) 0.01 2.1 3.9 14.1 79.8 100.0
Status of National Highways

Lane Status* 6 lane and above 4 lane (2 lane dual carriageway) 2 lane (7 meters) Single/Intermediate lane Total length of National Highway Length in km 731 14,584 37,488 18,131 70,934 Length (%) 1.0 20.6 52.8 25.6 100.0
The arterial network of roads, the National Highway (NH), which carries about 40% of road traffic, forms only 2% of the total network of roads. Only 1% of 70,934 km roads are sixlaned and ~20.6% roads are four-laned and the remaining ~78% roads are two-laned or one-laned. Of the total National Highway network, State PWDs develop and maintain ~35,979km, the NHAI maintains 28,126km, Border Road Organization maintains ~3565km and balance 3,264km is yet to be entrusted to any agencies.
The Importance of Roads

Roads play a pivotal role in economic development of a country and make trade and commerce possible. They also provide last mile connectivity and act as a feeder service to other modes of transportation. Roads play a much greater role in India as other modes of transportation have not yet developed extensively vis--vis roads. As a result, Indian road network, which is the second-largest in the world, is 3.3mn km of length, carries ~ 85% of passenger and ~ 60% of freight traffic. Government of India (GoI) announced schemes to improve the quality of existing roads and increase road length in the hinterland of India to achieve inclusive growth. GoI initiated programs such as National Highway Development Project (NHDP) and Pradhan Mantri Gram Sadak Yojna (PMGSY). The NHAI is mandated to develop National Highways under the NHDP program in seven phases, of which Phase I is almost complete. The schemes would provide better connectivity, faster movement of cargo, reduction in vehicle operating costs and reduction in fuel consumption.
Indias success of the Five year plan programme

Through its Five-Year plans, India increased the length of National Highways from 21,378 km during the late 1940s when it achieved independence to 70,934km now. The IXth Plan has seen the highest addition of 23,814km highways. State Highways on the other hand consist of 4% of network. State authorities have shown renewed interest in recent times to upgrade the network and have announced favourable policies to attract developers and investors. The most active among the State governments are Rajasthan, Madhya Pradesh, Maharashtra and Uttar Pradesh.
RESEARCH
Planwise addition of NH
28,000 23,814 21,000 Length (km) 14,000 8,642 7,000 815 Inter period (1966-1969) Inter period (1978-1980) Inter period (1990-1992) Fifth Plan (1974-1978) Fourth Plan (1969-1974) Eighth Plan (1992-1997) First Plan (1951-1956) Pre First Plan (1947-1951) Ninth Plan (1997-2002) Second Plan (1956-1961) Tenth Plan (2002- 2007) Eleventh Plan (2007-2012) Third Plan (1961-1966) Sixth Plan (1980-1985) Seventh Plan (1985-1990) 1,514 179 52 4,819 158 46 5,345 2,687 1,902 77 609
Source: MoRTH, Crisil, PINC Research * XI plan till FY10
Tolled roads in India (NH)

Public funded 6,000 4,417 SPV 5,240 BOT 5,498
Toll collection in India (NH)

Public funded 100% 13.11 3.95 19.69 5.33 19.78 5.90 SPV 19.86 6.45 5.36 BOT
29.79 52.46
3,066
3,467
4,500 Length (km)
75%
2,677
1,815
3,000
50% 82.94 74.98 74.32 73.69 64.85
3.68 43.86
154 464
142 369
242 470
877
1,500 112 209
25%
328
242
FY05 FY06 FY07 FY08 FY09 FY10
0% FY05 FY06 FY07 FY08 FY09 FY10
Source: NHAI, MoRTH, PINC Research
Toll collection & tolled Km (NH)

Public funded 10,000 7,500 2,677 877 5,000 369 2,500 209 1,815 FY05 3,066 FY06 3,467 FY07 4,417 FY08 5,240 FY09 5,498 FY10 464 15,000 470 30,000 SPV BOT
Total Toll collection (RHS)
60,000 45,000
Length (km)
Source: NHAI, MoRTH, PINC Research vinod.nair@pinc.co.in subramaniam.yadav@pinc.co.in 9
(Rs mn)
RESEARCH
India needs better roads - WEF

Although India targets double-digit growth the prevailing deficit in infrastructure would make it difficult to achieve this. Infrastructure development is one of the biggest challenges for GoI to sustain the current growth rate. Years of apathy and under-investment are responsible for the current dire state of the road sector. In its recent Global Competitiveness Report, the World Economic Forum (WEF) ranked India 51. One of the indicators that composes the index is quality of roads, in which it ranked India 90, well behind China and even Sri Lanka and Pakistan. GoI recognizes Indias infrastructure deficit. The 2011 Economic Survey has called for rapid growth in infrastructure through a judicious mix of policy interventions that balances the objectives of growth and stability.
Quality of roads
5 4 3 2 1 0 China (53) Sri Lanka (55) Pakistan (72) India (90) Bangladesh (100) Nepal (130) 4.3 4.2 3.8 3.3 3.0 2.3
Source: WEF, PINC Research Note: Scale of 1-5, 5 represents good
10
RESEARCH
Opportunity galore USD60bn opportunity

National Highway provides USD50bn opportunity
As per the NHDP program, NHAI is yet to award ~31,283km of projects, which forms 57.4% of the total NHDP plan, coupled with State Highways that are likely to award another 12,302km of orders, which together provide an opportunity of USD60bn (Rs2.7tn). These orders are likely to be tendered in the next 2-4 yrs to achieve the planned targets. Phase I and II are almost complete and going forward, the emphasis is on Phase III and V. In FY11, about 86% of the projects have been awarded on Phase III and V.
NH + SH opportunity
NHDP Phases Phase I* Phase II Phase III Phase IV Phase V Phase VI Phase VII Total USD Length (km) 20 424 4,980 20,000 4,200 1,000 659 31,283 Project cost (Rs bn) 1 22 335 1,100 487 167 157 2,269 50.4 USD bn Rs bn Source: NHAI, Planning commission, CRISIL, PINC Research State Highways RAJASTHAN MADHYA PRADESH KARNATAKA GUJARAT MAHARASHTRA ANDHRA PRADESH TAMIL NADU UTTAR PRADESH Total Length (km) 1,309 914 2,650 329 1,839 2,086 251 2,924 12,302 Project cost (Rs bn) 17 18 56 21 74 61 5 177 430 9.5 60 2,698
* Phase I includes port projects and other NH # as Oct10
New Minister, New Target

Mr. CP Joshi, the new minister for Transport and Highway, targets to award ~7300km in FY12. In keeping with this, in Q1FY12, GOI invited bids for ~2000km and annual prequalification for 11,151km. NHAI awarded ~5100km for FY11, far below its revised target of ~9000km for the year. However, the new minister is upbeat and is formulating favorable policies. Further, the recent decision for annual Request for Qualification (RFQ), would expedite the process. Of the annual RFQs for 100 projects, 15 projects fall in Phase III of NHDP, 57 under Phase IV and 27 under Phase V and one project under SARDP-NE (Special Accelerated Road Development Programme - North eastern region). If NHAI is able to achieve its new target we believe it would be able to catch up with the earlier target of constructing 20km/day of roads, which seemed farfetched until recently.
Execution and awarding trend

Completed Length in Km 6,000 6.4 4,500 Length (km) 4.6 3,000 1,500 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 1.3 1.1 3.6 2.1 0.7 1.7 6.0 4.5 6 4 2 0 km/day Aw arded Length in km 7.4 km/day 8
Highway addition during Plan period

32,000 Length (km) 33,612 23,769 23,948 22,255 22,255 24,000 29,023 31,710 28,819 28,977 33,689 34,298 24,000 16,000 8,000 0 Pre (1947-1951) 58,112 65,203 70,548 2012)
11
Length added (LHS)
Total Length (RHS)
80,000 60,000 40,000 20,000
II Plan (1956-1961)
Inter period (1966-1969)
Inter period (1990-1992)
0 IX Plan (1997-2002) Eleventh Plan (2007-
Source: NHAI, MoRTH, PINC Research vinod.nair@pinc.co.in subramaniam.yadav@pinc.co.in
VI Plan (1980-1985)
V Plan (1974-1978)
RESEARCH
NHAI awarding picks up

Awarding of new road projects had suffered for a brief period of seven months(June-December 2010) due to several factors: 1) delay in appointment of a new chairman of NHAI; 2) CBI raids on NHAI officials; and 3) Issues of corruption that rattled the country for a few months. However, awarding by NHAI picked up and since February it sanctioned projects worth Rs33.3bn. Following the cabinet reshuffle and taking of charge by the new minister who put in place schemes to fight corruption, NHAI seems better placed to speed up awarding of projects and meet its targets unhindered. The recent award momentum and newer achievable targets give us more confidence.
NHAI awarding since February

Projects Name Khagaria - Purnea Barasat - Krishnanagar Krishnanagar - Berhampore Gopalganj-Chappra Dhankuni-Khargpur State Name Bihar West Bengal West Bengal Bihar West Bengal NH No 31 34 34 85 6 8 Length 140 84 78 92 111 102 TPC (Rs mn.) 6,640 8,670 7,022 3,250 13,962 36,000 NHDP Phase NHDP Phase III NHDP Phase III NHDP Phase III NHDP Phase III NHDP Phase V NHDP Phase V Concessionaire Punj Lloyd Infrastructure Ltd. Madhucon Projects Ltd. SEW Infra. Ltd. Abhijeet Infrastructure Ltd. Ashoka Buildcon Ltd. IRB Infrastructure Ltd. Funded By Annuity Annuity Annuity Annuity BOT- Toll BOT- Toll
Ahmedabad - Vadodara Exp. Gujarat Source: NHAI, PINC Research
12
RESEARCH
National Highway Development Project (NHDP)

The National Highway Development Project (NHDP) initially included Golden Quadrilateral (GQ) and North-South and East-West corridor (NSEW) was later expanded to 54,454km in seven phases. Of the total, the program has been currently implemented in four phases I, II, III, and V along with port projects covering total length of 34,218km. Of this, 43% is already four-laned and six-laned, 26% is under implementation stage, and 30% is yet to be awarded. Until date, NHAI has expended Rs1159.9bn on all the phases.
Phases of NHDP program

Phase I II III IV V VI VII Km 7,498 6,647 12,109 20,000 6,500 1,000 700 Description Widening and upgrading to 4 lanes of highways, it includes majorly GQ, some part of NSEW, Port connectivity and other projects Widening and improvement of NSEW and port projects not included in Phase I Upgrading of high density NH, carrying high volume of traffic, connecting state capitals, and places of economic, commercial and tourist importance Upgrading NH to two-laning with paved shoulders to ensure minimum benchmark for Highways Six-laning of existing four lane highways, comprising of GQ and other high density stretches Development of 1000km of expressways, particularly located within few hundred km of each other. Development of ring roads, bypasses, grade separators and service roads.
Current NHDP status

NHDP Particulars GQ Total Length (km) 2/4/6/8 laned (Completed) By NHAI By MORTH (PWD) - Total till date (km) Under implementation (km) Letter of award issued/ agreement signed and work to be started (km) Length to be awarded (km) Financials (Rs cr.) - Awarded cost of contracts under implementation / BOT grant annuity payment Expenditure - Current Financial Year - Cumulative till date 969 30,498 8,431 45,262 9,010 23,194 28 28 4,129 7,933 2 2 0 0 22,569 106,917 620 9,074 23,189 115,990 5,821 5,821 25 5,560 5,560 1,161 288 421 2,135 2,135 5,669 4,145 4,305 765 765 14,034 490 490 1,922 1,377 4,088 1,000 41 22 659 14,006 14,006 9,583 6,597 24,507 306 306 74 30 932 932 431 418 20 15,244 15,244 10,088 7,045 24,527 5,846 NS&EW Ph. I & II Phase III Phase IV Phase V 7,300 12,190 14,799 6,500 Phase VI 1,000 Phase VII 700 Total 48,335 380 1,383 50,098 Port Conn. Other NHs Total by NHAI
1,634
17,415
10,994
792
1,344
560
32,739
717
2,433
35,889
Source: NHAI, PINC Research * as on Feb11
13
RESEARCH
Cumulative exp till Feb11

500 400 305 (Rs bn) 300 200 100 0.3 0 Phase III Ph. I & II Phase VII Phase IV Phase VI Phase V Others GQ 79 0 0 91 232 453
Cumulative exp for FY11 till Feb11

100 84.3 80 60 (Rs bn) 41.3 40 20 0 GQ 9.7 0.3 Phase III Ph. I & II Phase IV Phase V 0.0 Phase VI 0.0 Phase VII 90.1
6.2 Others
Avg cost per km has been increasing over years

Phases GQ NSEW Phase III Phase V Source: NHAI, PINC Research Cost/km (Rs mn) 51.5 75.8 95.4 140.3 Description Four-laning Four-laning Majority four-laning Four to six-laning
Historically success ratio of large projects is lower than small ones.
Achievement rate of Ministry of Road Transport against its target of widening to four lane
Achivement rate vs target

Widening to 2-Lanes (km) Strengthening w eak 2 lane (km) 250% 200% 150% 100% 50% 0% (2002-03) (2003-04) (2004-05) (2005-06) (2006-07) (2007-08) (2008-09) 88% 86% 72% 36% 96% 49% 84% 86% 81% 97% 88% 61% 25% 106% 211% 158% 103% 59% 143% Widening to 4-Lanes (km)
Widening to 4 lane
Target 4,000 2,885 2,203 (km) 2,000 1,683 3,520 Achiev ement 3,165 2,693
3,000
98% 63%
1,000
FY08 FY09 FY10
Source: MoRTH, PINC Research
Source: Planning commission, PINC Research
14
RESEARCH
State highways provide USD10bn opportunity

As economic activity gains momentum, state governments are also looking at PPP model to develop state highways. States such as Maharashtra, Madhya Pradesh, Rajasthan, Karnataka, Uttar Pradesh and Andhra Pradesh are aggressively pursuing the Build Own Transfer (BOT) model for awarding road projects. These states already completed ~3200 km of highways under the PPP mode and ~6300km are under implementation. In the next 2-3 years, these states are likely to tender projects worth USD10bn covering ~12,302km.
PPP State road projects

Completed Length (km) RAJASTHAN MADHYA PRADESH KARNATAKA GUJARAT MAHARASHTRA ANDHRA PRADESH TAMIL NADU UTTAR PRADESH Total 416 1,629 63 507 403 45 113 3,176 Project cost (Rs million) 1,200 14,200 1,900 32,600 25,000 2,100 600 77,600 Length (km) 352 974 238 644 2,267 655 52 1,117 6,299 Ongoing Project cost (Rs million) 6,600 24,900 5,800 29,300 50,500 55,900 15,000 400 188,400 Upcoming Length (km) 1,309 914 2,650 329 1,839 2,086 251 2,924 12,302 Project cost (Rs million) 17,200 17,700 56,430 21,300 74,200 60,900 5,000 177,000 429,730
Source: Planning Commission, State PWD, CRISIL, PINC Research
Private sector investment in state

State Est. Pvt. Sector participation in last 5 yrs (Rs bn) 399 75 39 35 18 15 8 7 596
Over/under achievement of capex on roads

15 12 11
Uttar Pradesh Maharashtra Madhya Pradesh Gujarat Andhra Pradesh Tamil Nadu Karnataka Rajasthan Total Source: MORTH, PINC Research
10 5 (%)
1 Andhra Pradesh Gujarat -1 Tamil Nadu -8

15
Uttar Pradesh
0 Karnataka Maharashtra -5 Madhya Pradesh
-10
Source: Planning commission, PINC Research
Favourable policies attract developers

State highways are increasingly gaining prominence among developers as they offer favorable concession, bidding and tolling policies. Further, the most crucial factor inspiring their confidence is the state governments commitment to highway development. For instance, Rajasthan assures 100% land within 90 days from issue of Letter of Award; also provides 40% viability gap funding during the construction period like NHAI projects. States like Karnataka require minimum net worth of 15% of project cost for bidding, some states require 25% net worth. In terms of tolling, Rajasthan, Karnataka, and Andhra Pradesh provide higher toll rates and Madhya Pradesh and Karnataka provide better rate and frequency of revision.
vinod.nair@pinc.co.in subramaniam.yadav@pinc.co.in
Rajasthan
Gujarat Madhya Pradesh Rajasthan Karnataka Tamil Nadu Uttar Pradesh Andhra Pradesh max. 40% of project cost, 100% grant payment during construction period min. 50% of land from min. 80% of land given 100% of land LoA at time of work order acquisition within issue 90 days 100% of land within 365 days from start max. 40% of project cost, 100% grant payment during construction period max. 40% of project cost, 100% grant payment during construction period max. 40% of project cost, 100% grant payment during construction period max. 40% of project cost, 100% grant payment during construction period max. 20% of project cost, 100% grant payment during construction period max. 40% of project cost, 100% grant payment during construction period 80% of land acquisition 160 days from LoA Minimum networth should be 26% of project cost Minimum networth should be 25% of project cost Minimum networth should be 15% of project cost Minimum networth Minimum networth should be 25% of should be 25% of project cost + average project cost cash accrual of last 3 yrs should be 10% of the project cost 100% of project cost No cap on shortlisting 200% of project cost Minimum networth should be 25% of project cost 100% of project cost No cap on shortlisting No cap on shortlisting 100% of project cost 100% of project cost 100% of project cost 100% of project cost 6 pre-qualified bidders 5-6 pre-qualifie are shortlisted d bidders 7 pre-qualified bidders 5-6 pre-qualified are shortlisted bidders decided depending upon the project 0.3 every year base rate x 100% change in WPI base rate x 10% once in 2 years 0.6 base rate x 100% of WPI every year 0.7 Base rate x 40% of change in WPI every year base rate x 100% of WPI once in 2 years 0.6
Statewise Policies
RESEARCH
Policy
Maharashtra
Concession Policy
Viability gap funding
max. 40% of project cost, 100% grant payment during construction period
Land Acquisition
Bidding Policy
Financial capacity
Minimum networth Minimum networth should be 25% of should be 25% of project cost + average project cost cash accrual of last 5 yrs should be 20% of the project cost
Technical Capacity
50% of project cost
Shortlisting
No cap on shortlisting
Tolling Policy
Revision of rates
base rate x 6%
Revision frequency
once in 3 years
Toll rates 2010-11 (Rs/PCU/km)
0.4
Source: State PWD, CRISIL, PINC Research
16
RESEARCH
Financing in place
Historically central and state governments have undertaken funding for roads and the share of private sector in road capex has been about 16.5% over the past five years.
Funding for Roads

X Plan (Projection) Road&Bridges Centre States Private % share of private sector Source: Planning Commission, PINC Research 1,449 X Plan (Actual) 1,271 505 674 92 7.3 XI Plan (Original ) 3,142 1,074 1,000 1,068 34.0 FY08 (Actual) 427 130 228 70 16.4 FY09 (Actual) 481 149 257 76 15.7 FY10 (RE/BE/Proj) 546 174 282 90 16.6 FY11 (BE/Proj) 632 218 310 104 16.4 FY12 (Proj) 700 239 342 119 17.0 XI Plan (Revised ) 2,787 909 1,419 459 16.5
Funding support to such private players has come primarily from the Indian Banking system. Private players have done relatively well, given Reserve Bank of Indias (RBIs) tight liquidity management and external funding restrictions. Since CY2000, banking credit grew at more than 50% for the total infrastructure sector and at 40% for the road and port sectors.
Funding available at a costthe crowding off effect

The Indian banking system funds the major portion of the private sector capex. In the XIth plan, private sector capex is slated to touch 30% of the planned outlay and eventually to 50% of the XIIth plan. Given the restrictions and limitations of external funding, this has led to an increase in cost of funds. Moreover, the road sector also suffers with crowding out of funds from heavy capacity expansion programs in sectors like power.
Infrastructure funding
Pow er 100% 23.4 75% 26.8 50% 57.2 52.8 48.4 53.3 50.9 46.3 46.1 49.5 20.8 22.0 24.6 22.6 18.4 19.9 17.5 16.4 17.4 13.6 16.8 18.5 17.4 18.6 19.2 15.6 Telecommunications Roads and ports
Infra Share in Bank funding

16.0% 11.5% 9.5% 8.0% 3.5% 4.2% 6.9% 7.5% 7.3% 8.5%
12.0%
25%
49.8
4.0%
2.3%
0% 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: RBI, PINC Research
0.0% 2002 2003 2004 2005 2006 2007 2008 2009 2010
17
RESEARCH
Infra credit requirement outpacing credit growth rate
Crowding out leading to higher cost of funding for infrastructure developers
Growth in lending to road sector

Total bank credit grow th Road lending grow th 240% 180% 120% 60% 15% 0% 2003 2004 2005 2006 2007 2008 2009 2010 58% 58% 67% 78% 42% 16% 31% 112% 36% 43% 31% 27% 27% 29% 38% 36% 43% 24% 32% 18% 41% 17% 55% Infra lending grow th
SBI PLR
14 13 (%) 12 11 10 Dec-02 Apr-99 Apr-05 Sep-07 Sep-01 Feb-04 Nov-08 Feb-10 0 Total Roads Apr-11 200 239 165 150 128 100 50
18
Source: Bloomberg, PINC Research
Recent funding initiatives

The Union Budget of FY12 had to some extent addressed the longstanding demand of infrastructure companies for long-gestation loans. The Budget increased FII investment limit in infrastructure corporate bonds to USD25bn from USD5bn. We view this development as a positive for the sector as it will address a number of issues faced by road developers: a) Long-term funding; b) Increasing the scope for SPV-level companies for external fund raising; c) Funding in domestic currency unlike in ECBs that carry currency risk. Although appetite for such papers is increasing, we believe currently the takers are limited to companies with AAA or AA+ rating in the road sector. Investors seem to prefer annuity projects to toll road projects and this move would benefit larger and quality companies in infrastructure space rather than smaller players.
IIFCL Sanctions & Disbursement

Net Sanctions 300 240 (Rs bn) 180 120 60 0 95 97 42 Amount Disbursed No of projects (RHS)
Source: Company, PINC Research
* till Dec.2010
Jul-00
Jul-06
RESEARCH
Density of vehicle in India amongst lowest in the world - adresses traffic growth concern
Lower penetration of vehicles in India...
Latest data from SIAM (Society of Indian Automotive Manufacturers) shows that of every 1000 person in India, only 10 own cars, which is among the lowest in the world. In countries like China and Brazil, the number is 27 and 124 respectively per thousand people. In terms of total vehicles owned, it is 13 per thousand people in India compared with 36 and 140 in China and Brazil respectively.
Ownership of cars per thousand

600 450 300 150 10 0 India Indonesia China Brazil Thailand Japan US Germany 18 27 57 124 451 453 565
Vehicles per 1000 people

800 600 400 200 0 Central & South America Asia, Middle East Asia, Far East Europe, West Africa India Indonesia Europe, East Pacific China Brazil Canada
19
623 563 593 300 13 27 35 36 54 103 132 140
Stage of development (Developed vs Developing)
India in 2008, is where US was in 1912...
Year Source: US Department of Energy vinod.nair@pinc.co.in subramaniam.yadav@pinc.co.in Note: Above line indicates vehicles per 1000 ppl in US
RESEARCH
Phases of Motrisation
500
Theoretical Saturation Level
400
Motorisation Cars / 1,000 persons
Most developing countries are still at the bottom of this growth curve or only just entering the steeper central section of the curve...
300
200
100
Initial growth Source: ADB, PINC Research
Explosive growth
Mature growth and eventual saturation
20
RESEARCH
SIAM projects 12-15% CAGR in automobiles

SIAM, in its recent annual conclave, has projected a five-year CAGR of 14-16% for passenger cars and 10-14% for MHCV until 2016.
India Automobile growth

Particulars Car Sales UV LCV MHCV Buses FY10 1.53 0.42 0.25 0.20 0.08 FY11 YTD 1.60 0.44 0.25 0.21 0.07 FY16E 3.98 0.76 0.47 0.13 FY12 gr. 14-16% 11-15% 18-21% 13-16% 8-10% FY11-16 CAGR 14-16% 11-13% 18-21% 10-14% 8-10%
Traffic growth to rise ahead

Considering the early stage of motorisation in India, we believe traffic growth would not only sustain but will show an uptick in the coming years underpinned by favourable demographics, higher disposable income and economic activity, and lower penetration level of automobiles will be key catalysts for higher traffic growth. Hence, we have considered traffic growth of 6-8% for companies under our coverage.
Passenger cars growth

4.0
1 11FY 6P
Utility vehicles
3.5 3.0 2.6 Units ('000s) 2.3 420 245 226 273
T
GR
560
3.0 mn units
1% 15. 1.5
CA
2.0 1.0
1.7
2.0
6P 518 1-1 467 FY1 R G 421 CA 379 11 % 341 308
0.0 FY11P FY12P FY13P FY14P FY15P FY05 FY06 FY07 FY08 FY09 FY10
FY11P
FY12P
FY13P
FY14P
FY15P 369 FY15P
LCV growth
1,000
RF Y11 16P
MHCV goods growth

500 819 677 Units ('000s) 560 462 382 400
T
5% 13. CA GR 11 FY -16 P
750 Units ('000s)

8% 20.
G CA
325 286
300 200 100 0
500 250
247 234 149
100 121
168 188 174
252
318
173 179
202
222
252
0 FY11P FY12P FY13P FY14P FY15P FY16P FY05 FY06 FY07 FY08 FY09 FY10
FY11P
FY12P
FY13P
FY14P
Source: Company, PINC Research vinod.nair@pinc.co.in subramaniam.yadav@pinc.co.in
Source: Company, PINC Research 21
FY16P
FY05
FY06
FY07
FY08
FY09
FY10
FY16P 418
FY05
FY06
FY07
FY08
FY09
FY10
280 140
0.8 0.9
1.2 1.1 1.2
176
195
220
RESEARCH
The Catalyst
BKC Report paving way for growth of road sector
The B K Chaturvedi committee was set up to resolve procedural impediments to the NHDP program and to arrive at a financial plan for the program. Acceptance of the B K Chaturvedi Committees recommendation has been a blessing for the road sector and for developers since most projects had no takers during the period of economic slowdown. The revised concession agreement and regulations generated rejuvenated interest from investors and developers. This has resulted in NHAI awarding 5100km in FY11, which is highest in its history.
B K Chaturvedi committee recommendations

Issues Single bid VGF for Six laning of four laning under Phase V Termination clause Existing regulation Projects with single bid are rejected & re-tendered Policy restricted overall cap of 5% & individual project at 10% on VGF for Phase V Contract would be terminated, if avg. daily traffic exceeds designed capacity for three consecutive years, unless highway is augmented Revised regulation Board is empowered to accept single bids after examining the reasonableness of the project Overall VGF cap raised to 10% & individual project to 20% with approval from CCI If traffic exceeds, then DPR is prepared & based on that extension (max 5 yrs) is allowed at 15% IRR on incremental investment PINC view Would save time & speed up awarding activity would encourage participation, as projects become more viable Assured 15% IRR is positive & lend comfort to developer Would free up capital for developer & allow to explore further opportunities Would help developer attract PE investors & infrastructure funds Would financially aide the project, as developer contribution reduces Would encourage wider participation from developers Would help developer save time
Exit policy
Winning bidder must hold 51% stake till CoD, Minimum 51% stake till CoD, thereafter 26% till thereafter 33% for next 3 yrs in operation & finally next two years, & then allowed to completely 26% till end of concession exit A bid is rejected, in case a bidder holds above 5% in other bid across the same project 40% grant was distributed during construction (20%) & during O&M (20%) A disqualified / non-responsive bid would result in forfeiture of entire bid security amount of 1-2% of project cost Pre qualifcation is done for individual project or a set of three Priority given to BOT Toll project, in case of poor response, it is converted to BOT Annuity basis, & then further to EPC Crossholding of stake raised to 25% Now the entire 40% is available during construction phase Only disqualification due to Conflict of Interest criteria would result in forfeiture of 5% of bid security amount Pre-qualification would be an annual exercise, valid for 12 months or till 30th September, whichever is earlier Concurrent evaluation of all three modes of awarding
Conflict of interest Grant Forfeiture of bid security
Pre - Qualification
Award Mechanism
Would speed up awarding
Source: BKC Committee Report, PINC Research
Recent policy changes

Issues Pre-qualification Existing regulation Revised regulation PINC view This move would save time both for developers and NHAI and inturn result in quicker awarding of projects Individual projects are evaluated each time for Now a developer would be annually appraised bidding for prequalification for a particular size of project Irrespective of project size, a consortium should have networth of 25% of project cost
Networth requirement
- Upto project cost of Rs20bn, a consortium Definitely benefit large developers, should have networth of 25% of project cost as for large projects, it will reduce - From Rs20bn-Rs30bn, a consortium should competition from smaller & non have networth of 25% of Rs20bn + 50% of serious developers. incremental cost - For Rs30bn & above, a consortium should have networth of Rs10bn + 100% of incremental cost over Rs30bn Now, developers would be ineligible for bidding Would again save time, as developers if three or more projects are not financially closed would prioritise to achieve financial closure as soon as possible to bid for another projects against waiting for better cost of funding and delaying projects. Now, scores are assigned proportionately to equity participation in the consortium This will put a check on the 'Name lending' practice by which smaller developers used to get qualified
Financial closure
No criteria of Financial closure
Technical & financial score Scores were assigned to consortium, irrespective of their stake in JV
Source: Media, PINC Research vinod.nair@pinc.co.in subramaniam.yadav@pinc.co.in 22
RESEARCH
High opportunityhigh competitionover the next three years

We foresee a strong business opportunity for strong players in the Road BOT segment based on the assumption that NHAI tenders 6500km in FY12 and 8000km in FY13. Following the acceptance of BKC recommendations, we have seen higher competition in road bidding, with high divergence in bidding prices.
NHAI awarding expected in next two years

Km (LHS) 10,000 7,500 Length (km) 305,415 5,000 5,208 2,500 FY09
Ex penditures (RHS) 520,000 560,000 8,000 6,500 600,000 450,000 300,000 150,000 (Rs mn) 7
349,393
129,210 979
3,216
FY10
FY11
FY12E
FY13E
Intense competition...leading to irrational bidding Panvel - Indapur project

1,500
Jetpur - Somnath project

1,500
0 (Rs mn) (1,500) 2 4 6 8 10 12 14 (Rs mn)
0 (1,500) 1 2 3 4 5 6
(3,000)
(3,000)
(4,500)
(4,500)
Dhankuni - Kharagpur project

4,000
Tumkur - Chitradurga project

1600
2,000 (Rs mn)
1200 (Rs mn)

0 2 4 6 8 10 12 14
800
400
(2,000)
0
(4,000)
Source: NHAI, PINC Research vinod.nair@pinc.co.in subramaniam.yadav@pinc.co.in
10
12
Source: NHAI, PINC Research 23
RESEARCH
The competition is likely to be lower for high value projects like mega projects. But such bidding certainly brings in the risk of irrational project win, thus increasing risk of project failure in year to come. The best solution would be to invest in companies which have shown the background to manage bidding phase well, generated high project RoEs and have seen the complete project cycle.
Ashoka and IRB to witness the highest lane km growth over FY10-FY12E......
Increasing size of companies

1,200 1,000
Adj. length (km)
ITNL IRB
800 600 400 200 500 1,000

Total length (km) Sadbhav Ashoka
1,500
2,000
Ashoka - FY10 Ashoka - FY11 Ashoka - FY12 IRB - FY10 IRB - FY11 IRB - FY12 ITNL - FY10 ITNL - FY11 ITNL - FY12 Sadbhav - FY10 Sadbhav - FY11 Sadbhav - FY12
* size of bubble is project size
Operational projects (adj. length)

FY09 2,000 1,500 Length (km) 782 803 1,000 481 481 500 Ashoka IRB ITNL * Sadbhav 481 591 591 610 839 839 994 1,007 FY10 FY11 FY12E 1,664 675 675 FY13E
* Includes Chhattisgarh in FY13, excluding it 1,158km
Operational + New project win (adj. length)

2,400 1,627 1,800 Length (km) 1,202 1,107 695 922 1,200 497 497 600 Ashoka
Source: PINC Research vinod.nair@pinc.co.in subramaniam.yadav@pinc.co.in 24
2,187
FY09
FY10
FY11
FY12E 1,774
993 610
1,086 782
1,129 1,454
61
FY13E
95
114 238
143 498
238 61
IRB
ITNL
Sadbhav
778
189
RESEARCH
A case study on Interstate Highway

NHDP is among the largest road development programs globally, hence to find out how the phase of development and success pan out, we looked at other large programs globally. We found that the interstate highways of the US are the nearest comparable. Hence, we tried to find out how the interstate highways were developed and funded and how they benefited the US.
Interstate Highway System USA

Interstate Highways, which changed the face of the US, were originally mooted by the Roosevelt administration in 1940s. However, it was President Dwight D Eisenhower who was inspired by the German Autobahns and the need for a road system to move military supplies and troops in case of emergency. He signed the bill on 29th June, 1956, of Federal Aid Highway Act of 1956 for launching a massive federal project of 41,000 miles nationwide, subsequently extended to current length of 46,876 miles (75,440 km). Officially know today as The Dwight D Eisenhower National System of Interstate and Defense Highways. The Interstate Highways replaced the existing old highways know as US Numbered Highway system or US Routes. US routes, built in the 1930s, were inadequate to handle faster and wider cars of 1950s even after widening and straightening of roads. The Interstates were built along or on top of US routes. The originally planned system was to be completed in 12 years but it took 35 years and cited to be complete with the opening of Interstate 70 in 1992. The Interstate of 46,876 miles includes 5,500 bridges, 104 tunnels, 14,750 interchanges and zero traffic lights. Interstates were built by state highway or transportation agencies with funding from the federal government and are owned and operated by the states.
~92% of funding was from federal government

The total cost of Interstate construction was USD128.9bn, of which federal government paid ~92% i.e. USD119bn and remaining being contributed by the states. After initial plans of tolling or raising funds by issuing bonds failed, the federal government created a Highway Trust Fund with initial seeding of USD25bn and continuously replenished through gasoline taxes. The federal and state governments agreed to share the cost on 90:10 basis.
25
RESEARCH
The changing face of America

America has seen tremendous changes until date since the Interstate system has come into existence, as depicted in figure below. The population in the metropolitan area increased from 56% to 80% of national population and most of the growth in metropolitan areas occurred in suburban areas, which now constitutes closer to two-third of metropolitan area vs. 50% in 1950s. This also resulted in increased employment opportunity both during the construction phase and post-completion as most interstates cut travel time between cities by more than 20%.
The Interstate System & Population Density
Travel time reduced due to Interstate system

Particulars Seattle and Portland, Oregon Cleveland and New York city Atlanta and Birmingham Chicago and Minneapolis Source: Company, PINC Research Travel time declined by 25% 33% 40% 25%
Impact on Economy
Stimulated economy and fuelled American addiction to automobility. Reduced the burden on railways, and trucking industry flourished Substantially reduced freight cost; it is estimated that tractor-trailer operating cost reduced 17% in Interstates vs. other highways. Transformed the American shipping industry. It makes shipping time not only faster, but highly predictable, helping bring about a revolution in manufacturing and retailing throughout the country. The freeways make just in time system possible, which means goods spend less time sitting around; this lowers overheads and consumer prices. Reduced production and distribution costs in virtually every industry and increased productivity. Improved inter-regional accessibility and created a national domestic market helping companies cater to larger markets and at lower cost.
vinod.nair@pinc.co.in subramaniam.yadav@pinc.co.in 26
RESEARCH
GDP-USD billion
16000
12000 8000
Majority of Interstate highways completed
4000 0 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
27
Although it may appear an exaggeration to state that the Interstate system alone led to such drastic changes, nevertheless, it did act as a backbone for development.
Comparison of road development programs in other countries

Particulars Programme Who built it Who owns it Length (km) Total Cost incurred Initial cost estimated India US State Governments / FHWA State government / transportation agencies State governments 68,872 USD128.9 bn USD27.2 bn China National Trunk Highway System (NTHS) State Council Provincial Transport Department Majority by Government 35,000 USD150bn National Highway Development Program (NHDP) Interstate Highway System State PWD / Private developers Government / Private operators 54,454 >USD25.8bn* USD60 bn
Implementing Authority NHAI
Increase in cost due to Higher raw material cost, land acquisition impediments Funding Toll
Increase in length, stricter design standard, & compliance with essential environment requirement & finally Inflation was a major factor Completed 13years ahead of schedule Tolls / Provincial government funding Majority roads are tolled Few roads are tolled
Budgetary allocation / Petrol Cess / Bonds / Tolls Gasoline tax Majority roads are tolled
* ongoing ~28% completed and ~18.5% under implementation
RESEARCH
Indian toll rates lower ... even on PPP terms

Particulars Expressways 407 ETR CityLink Hills M2 M5 South-West Motorway Lyon / Marseille Aix (A7/A8) Lyon / Montpellier (A7/A9) Paris / Angers (A10/A11) Bordeaux / Lyon (A89/A72) Bordeaux / Marseille Bordeaux / Espagne (A63) Rustenburg Zeerust (Swartruggens) M6 Toll Motorway 91 Express Lane John F. Kennedy Memorial Hwy (I-95) North Luzon Expressway Northern Gateway Toll Road Mazatlan- Culiacan India Mumbai Pune Expressway Ahmedabad Vadodara Expressway Delhi Gurgaon Expressway Jaipur Kishangarh Expressway Chennai Bypass Noida-Greater Noida Expressway Tunnels / Links Bandra-Worli Sea Link Halifax Harbour Bridges The Seaway International Bridge Corp. Cross City Tunnel Lane Cove tunnel (East & West) Eastern Distributor (M1) Great Belt Fixed Link Mackinac Bridge, Michigan India Canada Canada Australia Australia Australia Denmark US 8.93 0.58 0.69 1.96 0.78 0.92 32.84 0.43 INR CAD CAD AUD AUD AUD DKK USD 6 1 5 2 4 6 7 8 2.9 1.0 1.0 0.9 0.9 0.9 0.7 1.0 1.0 3.0 3.0 3.1 3.1 3.1 4.4 2.9 1.0 15.4 15.4 15.3 15.3 15.3 2.0 15.3 8.9 8.9 10.6 30.0 11.9 14.0 64.5 6.7 India India India India India India 1.47 0.92 0.74 0.61 0.94 0.84 INR INR INR INR INR INR 95 93 27 90 32 22 2.9 2.9 2.9 2.9 2.9 2.9 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.5 1.0 0.7 0.6 0.9 0.8 Canada Australia Australia Australia France France France France France France South Africa UK US US Philippines New Zealand Mexico 0.21 0.21 0.21 0.17 0.07 0.08 0.09 0.07 0.07 0.05 0.50 0.12 0.33 0.06 2.07 0.27 1.06 CAD AUD AUD AUD EUR EUR EUR EUR EUR EUR Rand GBP USD USD PHP NZD MXN 107 22 21 22 303 304 296 588 646 150 129 43 16 80 84 7.5 181.5 1.0 0.9 0.9 0.9 0.8 0.8 0.8 0.8 0.8 0.8 1.8 1.0 1.0 1.0 2.0 1.0 1.8 3.0 3.1 3.1 3.1 3.5 3.5 3.5 3.5 3.5 3.5 1.6 2.8 2.9 2.9 1.4 2.9 1.6 15.4 15.3 15.3 15.3 18.3 18.3 18.3 18.3 18.3 18.3 4.0 26.3 15.3 15.3 0.7 12.2 2.3 3.2 3.2 3.2 2.6 1.3 1.4 1.6 1.2 1.3 0.9 2.0 3.1 5.1 1.0 1.5 3.2 2.5 Country rate /km Currency km PPP Multiple PPP Factor Ex rate in PPP Toll rates in PPP (Rs)/km
Source: Company, PINC Research Note: Prices as on April 25,2011
28
RESEARCH
Global peer comparison

BB Ticker India Ashoka Buildcon GMR Infrastructure IL&FS Transportation IRB Infrastructure Larsen & Toubro Noida Toll Bridge Reliance Infrastructure Sadbhav Engg China (China listed) Anhui Expressway Fujian Expressway Gezhouba Co Hubei Chutian Expressway Jiangsu Expressway Jiangxi Ganyue Expressway Shandong Expressway Shenzhen Expressway China (Hong Kong listed) Anhui Expressway Hopewell Highway JIANGSU EXPRESS SHENZHEN EXPRESSWAY SICHUAN EXPRESSWAY ZHEJIANG EXPRESSWAY South East Asian Countries Bangkok Expressway CH Kamchang PCL Citra Marga Nusaphala Lingkaran Trans Plus Expressway European Brisa Autostrada Torino Societe Des Autoroutes Abertis Obrascon Huarte Societa Iniziative Other Global Peers Atlantia Companhia De Concessoes Transurban Group Source: Company, PINC Research ATL IM CCRO3 BZ TCL AU USD USD USD 14,117 13,649 8,385 27,810 17,001 12,555 5,898 3,414 962 6,139 3,718 1,056 7.7 7.5 18.4 7.3 6.8 16.5 2.5 7.1 2.3 2.3 6.8 2.5 12.1 15.9 86.7 11.6 13.5 61.1 BRI PL AT IM ARR FP ABE SM OHL SM SIS IM USD USD USD USD USD USD 3,943 1,431 8,356 17,148 3,934 2,869 6,882 4,587 16,536 38,969 8,226 5,175 1,023 1,608 3,012 6,413 8,171 1,675 1,051 1,743 3,137 6,670 8,296 1,792 9.3 4.4 8.0 9.8 4.5 5.4 9.0 4.0 7.6 9.3 4.1 4.7 1.5 NA 15.0 2.6 1.7 1.3 1.5 NA 18.2 2.4 1.5 1.2 18.6 7.2 10.6 14.9 10.3 10.6 16.9 7.5 11.7 13.2 9.3 9.4 BECL TB CK TB CMNP IJ LTK MK PLUS MK USD USD USD USD USD 464 479 259 622 7,448 1,066 984 330 973 10,095 231 720 104 118 1,411 245 805 NA 120 1,522 6.4 20.2 4.7 9.3 8.7 6.0 27.5 NA 9.2 8.2 0.7 2.0 1.0 3.8 2.6 0.7 1.8 NA 3.6 2.5 11.4 18.1 6.2 14.7 12.2 9.0 13.2 NA 14.7 11.1 995 HK 737 HK 177 HK 548 HK 107 HK 576 HK USD USD USD USD USD USD 1,517 1,943 5,283 1,684 2,746 3,737 1,791 2,512 6,223 3,211 2,989 3,420 519 333 1,190 478 525 1,158 534 372 1,225 503 546 1,192 5.2 9.9 8.0 9.8 7.3 5.3 4.9 9.2 7.8 9.1 8.5 5.1 1.3 1.8 1.9 1.0 1.2 1.5 1.2 1.8 1.9 0.9 NA 1.5 8.1 15.3 11.6 9.3 8.1 11.3 7.5 14.6 11.0 7.8 8.1 11.3 600012 CH 600033 CH 600068 CH 600035 CH 600377 CH 600269 CH 600350 CH 600548 CH USD USD USD USD USD USD USD USD 1,517 1,513 6,469 779 5,283 1,989 2,494 1,684 1,791 2,830 9,337 1,032 6,223 2,451 2,608 3,211 426 375 8,303 184 1,246 714 830 461 462 406 9,275 220 1,311 788 985 485 5.3 8.7 21.1 12.5 8.0 5.9 3.8 10.1 5.6 8.0 16.3 13.1 7.4 4.9 3.8 9.3 1.4 NA NA 1.4 1.8 1.1 1.3 1.2 1.3 NA NA 1.3 1.8 1.0 NA 1.1 8.9 16.2 14.2 9.7 11.0 8.9 9.8 11.2 8.2 13.8 NA 13.1 10.2 8.0 9.3 9.3 ASBL IN GMRI IN ILFT IN IRB IN LT IN NTB IN RELI IN SADE IN INR INR INR INR INR INR INR INR 13,670 149,470 43,380 66,473 5,316 182,956 21,615 24,045 372,886 71,093 106,042 6,657 40,276 14,901 62,187 55,452 35,219 882 23,512 17,915 84,176 68,905 42,943 791,948 974 216,847 25,586 5.4 15.7 5.8 7.9 12.5 9.9 11.5 11.2 4.7 11.0 4.4 6.9 10.5 8.9 8.5 8.4 1.3 1.7 1.7 2.2 3.7 1.2 0.7 2.2 1.1 1.6 1.4 2.0 3.2 1.1 0.7 2.0 7.0 62.1 10.3 11.8 19.9 13.6 10.9 7.9 5.6 23.1 8.4 13.1 16.6 11.9 8.8 8.3 Currency Mcap (mn) EV (mn) Sales (mn) FY12E FY13E EV/EBIDTA FY12E FY13E FY12E P/B FY13E FY12E P/E FY13E
1,043,177 1,162,223 637,754 288,170 188,231
Note: Prices as on April 27, 2011
29
RESEARCH
Annexure 1
Flowchart for Obtaining Forest Clearance Flow chart showing various steps involved in examination of cases received under FC Act
Application of user agency to the Nodal Officer
To DFO through the conservator of Forest

Ninety days time prescribed
Scrutiny of application, preparations of formal proposal Conservator of forest Scrutiny, recommendations Nodal Officer Scrutiny, remarks, recommendations of Principal CCF State govt. (Forest dept.)
Road side plantations notified as PF
Scrutiny, remarks and recommendations Examination Sire inspection for proposals above 40 ha of forest land
Regional Office MOEF (Proposals upto 40ha) MOEF. Delhi (Proposal above 40 ha)
Regional Office MOEF
Examination & final decision for cases upt 5ha forest land except those of mining and encroachment
Advisory Committee
Sixty days time prescribed
Examination & putting before State Advisory Group for proposal other than those mentioned above State advisory group Meeting recommendation MOEF. Delhi
Recommendations of the Advisory Committee

MOEF. Delhi
Final decision issue of first stage approval

State Govt.
Examination and final decision for all cases
State Governments compliance report
Formal Approval Order
MOEF. Delhi
30
C om pa n ie s
Initiating Coverage Sector: Infrastructure BSE Sensex: 19,292
RESEARCH
ASHOKA BUILDCON LTD

Ashoka Buildcon Ltd (ABL) has a portfolio of 23 BOT projects of which 16 are operational. ABL has a strong understanding and history of performance in BOT. ABL handed over 4 BOT assets back to the Govt. The focus was slow and steady with small-to-medium-sized projects, but the emphasis being on cash generation, risk mitigation and securing a sustainable business model. Now the tone has changed towards aggressive growth. Hence this could catapult higher valuations for ABL over the next 2yrs bringing it more closer to the top leagues of IRB and ITNL. Currently, the stock is available at 1.3x P/BV FY12E. Profitable 10 operating road BOT assets All the operational projects are profitable. As of FY10, ABL recorded total BOT revenue of Rs1.65bn and PAT of Rs576mn. For FY12E, we expect revenue of Rs4bn and PAT of Rs941mn. Historical healthy performance, gives a thumbs-up to new wins.
BUY CMP Rs260 TP Rs390

29 April 2011
Vinod Nair +91-22-6618 6379 vinod.nair@pinc.co.in Subramaniam Yadav +91-22-6618 6371 subramaniam.yadav@pinc.co.in
STOCK DATA
Market Cap Book Value per share (FY12) Eq Shares O/S (F.V. Rs10) Free Float Avg Traded Value (6 mnths) 52 week High/Low Bloomberg Code Reuters Code Rs13.7bn. Rs185 52.6mn. 32.8% Rs8.3mn Rs362/226 ASBL IN ABDL.BO
Initiating Coverage
Building for the next league Today ABL is qualified to bid for projects size of Rs16-20bn on its own and is also venturing into new regions. Project worth Rs30bn won in FY11. The approach is still measured but aggressive, ABL won in re-bidding with L1 position of Rs1.21bn premium to NHAI while L2 was Rs~1.2bn. No Further Dilution...in the medium term We do not expect dilution to happen at least for the next two year. On a best case basis ABL would require Rs8bn of equity funding (FY11E-FY13E) where as ABL is expected to end FY11 with Rs2.5bn of cash. The D/E ratio remains at 0.5x, which keeps scope for future BOT win. VALUATION AND RECOMMENDATION Equity invested until date by ABL is ~Rs4.5bn, which would increase to Rs7bn and Rs10bn by FY12E and FY13E, we value BOT (DCF) at equity multiple of 1.8x times and 1.2x times on FY12E and FY13E i.e. Rs12.5bn. Over FY10-13E, we expect revenue of the standalone business to grow at 29.4% CAGR and PAT to grow at 28.2% CAGR. Adjusted for the BOT assets in the standalone entity, PAT is expected to grow at 27% (BOT assets have matured, leading to lower interest cost). We value this business at 9x FY12E adjusted earnings of Rs17.1 (EPC).
SHAREHOLDING PATTERN
Name Promoters FII DII Public & Others % holding 67.2 2.4 17.2 13.3
PERFORMANCE (%)
Absolute Relative 1M (12.4) (13.1) 3M (3.6) (6.6) 6M (17.0) (13.8)
KEY FINANCIALS (CONSOLIDATED)

FY09 Net Revenues YoY Gr. (%) Operating Profit OPM (%) Adj. Net Profits YoY Gr. (%) 5,184 60.6 1,640 31.6 348 3.7 7.6 12.1 11.1 34.1 4.6 14.7 FY10 7,956 53.5 2,143 26.9 799 129.5 17.5 12.5 20.6 14.9 3.0 11.2 FY11E 9,965 25.3 2,704 27.1 985 23.3 18.7 11.0 16.1 13.9 2.4 8.9 FY12E 14,901 49.5 4,427 29.7 1,471 49.3 27.9 13.7 17.4 9.3 1.6 5.4
Rs mn FY13E 17,915 20.2 5,169 28.9 1,784 21.3 33.9 10.2 17.7 7.7 1.3 4.7 32
RELATIVE PERFORMANCE
ASBL 400 350 300 250 200 Oct-10 BSE (Rebased)
KEY RATIOS
Diluted EPS (Rs) ROACE (%) ROANW (%) PER (x) EV/Sales (x) EV/EBIDTA (x)
Jan-11
Apr-11
RESEARCH
Ashoka Buildcon Ltd
A Healthy BOT Set

BOT Assets
Projects (Rs mn) Indore - Edalabad Pune - Shirur Dewas Bypass Katni Bypass FOBs - Eastern Exp Hway Durg - Chhattisgarh Chhattisgarh - Bhandara Ahmednagar - Karmala TOLL ANG (Anagar - Aurangabad) Nasirabad ROB Sherinallah Bridge Waiganga river Bridge Sambalpur-Baragarh Belgaum Dharwad Jaora - Nayegaon 4-Laning Pimpalgaon-Nasik Total Source: Company, PINC Research Total Cost 1,641 1,599 613 709 37 5,870 5,350 504 1,027 147 142 409 10,080 6,300 8,470 16,000 58,898 Total Equity 428 530 166 211 14 1,770 1,545 319 357 77 86 80 3,322 1,730 2,417 3,382 16,434 Length (kms) 203 54 20 18 0 71 83 81 42 5 0 13 88 80 319 60 1,137 Lane Km 406 216 40 35 0 332 320 160 168 8 7 26 408 454 319 452 3,351 Holding (%) 87% 100% 100% 100% 100% 51% 51% 100% 100% 100% 100% 50% 100% 100% 37% 26% Stake (km) 176 54 20 18 0 36 42 81 42 5 0 7 88 80 118 16 783 Stake Lane (km) 352 216 40 35 0 169 163 160 168 8 7 13 408 454 118 118 2,429 Equity invested till date * 428 530 166 211 42 1749 1527 437 357 77 80 836 575 2,417 846 10,278
*Not adj for percentage stake
A feasible BOT portfolio that is already generating cash and profit

Ashoka Buildcon Ltd (ABL) has a portfolio of 27 BOT projects, of which 4 have been handed back to the government. Of this, 10 BOT road projects and 6 FOB projects are operational. Of the 16 operational BOT projects, ABL (parent) operates 4, its subsidiaries and joint venture (JV) companies operate10, and an associate company (ABL: 50% stake) and a JV (ABL: 5% stake) operate one each. All the operational projects are profitable. As of FY10, ABL recorded total BOT revenue of Rs1.65bn and PAT of Rs576mn. We expect revenue of Rs2.1bn & PAT of Rs982mn and revenue of Rs4bn & PAT of Rs941mn for FY11E and FY12E respectively (note total BOT performance).
All operational projects are profitable...
BOT consolidated P/L Statement (Ex-Standalone)

Particulars Revenues Other Income O&M EBIDTA EBIDTA Margin (%) Interest Depreciation PBT Ta x PAT Growth (%) Source: Company, PINC Research FY08 836.6 129.4 96.1 740.5 88.5% 308.9 333.6 224.4 17.4 207.0 FY09 1,056.7 184.8 232.4 824.4 78.0% 388.9 375.4 241.7 25.6 216.2 4.4 FY10 1,208.0 199.2 201.6 1,006.9 83.4% 300.9 359.7 541.9 83.8 458.2 112.0 FY11E 1,556.5 208.2 230.6 1,325.9 85.2% 248.6 351.9 930.8 146.3 784.4 71.2 FY12E 3,460.6 203.1 395.5 2,755.1 79.6% 1,343.7 613.8 997.9 278.2 719.7 -8.3 FY13E 3,874.6 218.6 371.7 3,177.4 82.0% 1,283.4 641.5 1,468.6 346.2 1,122.3 56.0 FY14E 4,856.3 234.7 763.9 3,744.0 77.1% 1,628.6 673.9 1,602.0 368.1 1,228.4 9.5
33
RESEARCH
Ashoka Buildcon Ltd
Historical healthy performance, gives a thumbs-up to new wins...
BOT Standalone P/L Statement (Standalone)

Particulars Revenues Other Income Branch Income O&M EBIDTA EBIDTA Margin (%) Interest Depreciation PAT Growth (%) Source: Company, PINC Research FY08 227 13.3 59.2 18.8 267.2 93.4 75.9 111.0 93.5 FY09 388 14.1 64.1 36.1 415.9 92.0 136.1 218.2 75.6 -19.2 FY10 448 5.6 67.5 68.9 446.3 86.6 119.9 214.3 117.7 55.7 FY11E 515 5.6 63.3 78.4 500.2 86.4 94.4 214.3 197.1 67.5 FY12E 533 5.6 41.9 77.5 497.7 86.5 77.7 203.7 221.8 12.5 FY13E 583 5.6 41.9 82.2 542.9 86.9 57.1 203.7 287.7 29.7
(Rs mn) FY14E 681 5.6 41.9 87.2 636.0 87.9 36.5 203.7 390.6 35.8
Well established playersmall but steady

ABL enjoys the first-mover advantage of knowing the business well, having seen the full cycle of projects. The company has an established track record of identifying and running BOT ventures profitably. ABL has been focused on small-to-medium-sized projects at the regional level (state projects). Although the approach has been slow and steady, we understand that ABL's emphasis is on cash generation, risk mitigation and a thorough understanding of the business dynamics. This approach has helped ABL in securing a sustainable business model, although the company had to sacrifice fast growth in the process. We believe this is bound to change now that the company has achieved critical mass and core competence.
Building for the next league

Although the change is visible (tabled below new wins), ABL's approach seems measured. Our interaction with the company suggests that it is now keen about taking on large projects, building on the confidence of successful and profitable project execution over the past 15 years. Today ABL is qualified to bid for projects worth Rs16-20bn on its own and is also venturing into new regions.
Projects won in FY11

Projects won in FY11 Sambalpur-Baragarh Belgaum Dharwad Dhankuni-Kharagpur Source: Company, PINC Research TPC (Rs mn) 10,080 6,300 13,960 Authority NHAI NHAI NHAI Km 88 80 111
34
RESEARCH
Ashoka Buildcon Ltd
L1 status suggests current bids would be profit accretive

ABL's latest round of bidding for NHAI projects fortifies our belief that the approach is still measured but aggressive. For the Dhankuni Kharagpur project, TPC of which is Rs14bn, ABL won in rebidding with L1 position of Rs1.21bn premium to NHAI while L2 was Rs~1.2bn. We are yet to value Dhankuni project as we await FC and project details.
Bidding in initial round...Ashoka at Rs1.16bn

3000.00 1905.3 1500.00 0.00 Patel Oriental ITNL IVRCL BSCPL SEW Ashoka PLL NCC -1500.00 -3000.00 -3442.5 -4500.00
1200.0 1160.1 1125.0
822.6
750.0
711.0
576.0
198.9
189.0
30.0 Reliance Madhucon

35
Projects under construction.Two approaching tolling

The result will be strong growth in BOT revenue, which will substantially enhance company's transformation from a mid-tier BOT player to a sizeable BOT and EPC player.
Project Status
Projects Belgaum Dharwad Jaora - Nayegaon 4-Laning Land Acq % completed 98% 100% 5-6% 98.5% Tolling E FY12 FY12 Status Tolling to start by May 2011 end. 1st section tolling is expected to start in May 2011 while the rest 2 section by Sept 2011. RoB work in progress. 6%-7% of land pending to be handed over. Awaiting appointed date by H1FY12, Environment clerance pending
Pimpalgaon-Nasik Sambalpur-Baragarh
93-94% 70-75%
35-40% 2-3%
FY14 FY14
Simplex
RESEARCH
Ashoka Buildcon Ltd
No further dilution...in the medium term Equity Requirement

Particulars Sambalpur-Baragarh Belgaum Dharwad Jaora - Nayegaon 4-Laning (37% stake) Pimpalgaon-Nasik (26% stake) Dhankuni-Kharagpur Total Source: Company, PINC Research FY 11 830.5 173.0 260.1 219.7 698.0 1,483.3 FY 12 830.5 692.0 219.8 1,396.0 2,440.3 3,709.3 (Rs mn) FY 13 1,661.0 432.5 219.8
We do not expect dilution to happen at least for the next two year. On a best case basis ABL would require Rs8bn of equity funding (FY11E-FY13E) where as ABL is expected to end FY11 with Rs2.5bn as cash in book. The standalone cash flow situation of the company is very comfortable and well managed. With the recent equity raising the Debt/Equity ratio has reduced to 0.5x, which keeps enough scope for future BoT wins.
Standalone Cashflow position

Particulars Cash From Operation (net of tax) Less: Interest payment Cash from Operation Capex Net Cash generated Eq Invst Req Debt Raised Equity Raised Debt/Equity (Gross) Source: Company, PINC Research FY 08 175.2 254.0 (78.9) 929.2 (1008.1) FY 09 896.3 449.2 447.2 471.9 (24.7) 281.7 163.2 0.0 1.0x FY 10 769.2 341.7 427.5 225.2 202.3 224.3 13.7 0.0 0.8x FY 11 1,183.5 457.2 726.3 377.2 349.0 1,483.3 250.0 2,250.0 0.5x FY 12E 1,078.0 551.7 526.3 300.0 226.3 2,440.3 750.0 0.0 0.5x
(Rs mn) FY 13E 1,446.9 692.3 754.6 265.0 489.6 3,709.3 1,500.0 0.0 0.6x
36
RESEARCH
Ashoka Buildcon Ltd
EPC division
ABL has constructed 44 roads and bridges and built over 5.4 million square feet of commercial, industrial and institutional projects. The EPC division primarily executes engineering and designs works and procures raw material and equipment for own BOT division and third parties. It also: (1) maintains and repairs existing roads for own BOT division; (2) constructs and modernizes power distribution networks comprising distribution transformers and electricity substations for third parties; and (3) constructs commercial, industrial and institutional buildings for third parties. ABL has built a sizeable construction business; it ended FY10 with total construction revenue of Rs9.9bn and is likely to end the year with construction revenue of Rs11.7bn, up 17%. We forecast total construction revenue to grow at 31% CAGR for FY10-13E. ABL has ramped up its execution capability in the recent past. It now owns a large fleet of equipment with gross block of Rs2bn and has 1,200 personnel executing the projects.
Standalone sales
Sales Mix Contract work receipts Sales trading Toll Collection - BOT Toll Collection - Contract Total Source: Company, PINC Research FY08 2,247 680 338 -3,264 FY09 6,223 812 388 -7,423 FY10 9,945 769 448 -11,162 FY11E 11,664 908 515 -13,088 FY12E 16,875 999 533 220 18,627
(Rs mn) FY13E 22,500 1,099 583 -24,182
Standalone sales mix

Contract w ork receipts 120% 338 90% 680 60% 30% 0% FY08 FY09 FY10 FY11E FY12E 2,247 6,223 9,945 11,664 16,875 388 812 448 769 515 908 533 999 Sales trading Toll Collection - BOT
(Rs mn)
Toll Collection - Contract 583 1,099
22,500
FY13E
EBITDA Mix (Standalone)

Increasing EPC EBITDA mix...
BOT 120% 90% 327 60% 30% 0% FY08
(Rs mn)
Sales trading
Toll Collection - Contract
EPC
795
1,048
1,143
1,654
2,205
54 208
65 352 FY09
62 379 FY10
73 437 FY11E
80 456 FY12E
88 501 FY13E
37
RESEARCH
Ashoka Buildcon Ltd
Consolidated Revenue
Particulars Contract work receipts Sales trading Toll Collection - BOT Toll Collection - Contract Source: Company, PINC Research FY08 1,377 678 1,173 -3,228 FY09 2,931 809 1,445 -5,184 FY10 5,527 776 1,653 -7,956 FY11E 6,999 894 2,072 -9,965 FY12E 9,703 984 3,994 220 14,901
(Rs mn) FY13E 12,375 1,082 4,458 -17,915
EPC Sales are netted off by own BOT construction work done...
Consolidated sales mix

Contract w ork receipts 120% 90% 60% 30% 0% FY08
(Rs mn)
Sales trading
Toll Collection - BOT
1,173 678 1,377
1,445 809
1,653 776
2,072 894
3,994 984
4,458 1,082
2,931
5,527
6,999
9,703
12,375
FY09
FY10
FY11E
FY12E
FY13E
EBITDA Mix (Consolidated)

Contract w ork receipts 120% 28 90% 60% 30% 0% 54 171 FY08
(Rs mn)
Sales trading
Toll Collection - BOT
1,008
1,240
1,453
1,826
3,253
3,720
65 335 FY09
62 628 FY10
73 805 FY11E
80 1,067 FY12E
88 1,361 FY13E
38
RESEARCH
Ashoka Buildcon Ltd
Please note that ABL's consolidated accounts are stated as per AS 21, which does not allow business and profits earned from own/subsidiary companies to be consolidated. Hence, consolidated revenue is netted off from construction revenue of own BOT ventures. We see this proportion to be maintained at 40:45% over FY11E-13E.
Power distribution projects

In FY09, ABL ventured into the power EPC business. Its first contract was from MSEDCL for construction and commissioning of sub-transmission lines, distribution lines, power transformers and new sub-stations. This business has shown substantial traction and currently forms ~30% of revenue and 40% of the order book. The management's emphasis on this business is strong, given that it has earned good growth and profit from this relatively new venture. EBITDA margins in this business are between 10-12% with net margin of 5-7%. Further, management is looking at new initiatives to expand either on its own or through partnerships. The current distribution orders stand at Rs7bn, which are from Maharashtra state.
RMC and bitumen division

The RMC and bitumen division sells ready-mix concrete and bitumen and supports the EPC division. ABL owns 14 RMC plants with 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 from its plant in Pune with a capacity of 60 metric tonnes per day. This division is expected to grow at 13% until FY13E to Rs1.1bn.
Toll collection contract division

ABL also has a toll collection contract division that leverages its experience in collecting toll on BOT projects and has a proprietary computerised toll revenue auditing system. Recently, ABL won a toll collection contract for the Bankapur-Devgiri stretch in Karnataka. This is an annual contract of Rs220mn and is likely to be completed in FY12E. Margins in such projects are expected at 15-20%. In the past too, ABL entered into four such agreements to collect toll on roads/bridges owned and constructed by third parties. The last contract had expired in February 2007.
39
RESEARCH
Ashoka Buildcon Ltd
Valuation
BOT assets
We value ABL using the SOTP methodology, BOT assets on DCF basis. We value the operational tolled projects at 13% discount and under-construction projects at 14% discount. The cumulative equity value, adjusted for percentage stake, is Rs12.5bn. Equity invested until date by ABL is Rs4.5bn, which would increase to Rs7bn and Rs10bn by FY12E and FY13E, i.e. we value at equity multiple of 1.8x times and 1.2x times on FY12E and FY13E. The current operational projects yield RoE of 16% as of end-FY11. Although it would be difficult to maintain this number on a consolidated basis for all the BOT assets since large projects are at the construction stage, our analysis suggests average project IRR of 10% and equity IRR of 19% for the under-construction projects over concession period.
BOT assets valued at 1.8x FY12E and 1.2x FY13E of invested equity...
IRR Table (Under construction)

Project Sambalpur-Baragarh Belgaum Dharwad Jaora - Nayegaon 4-Laning Pimpalgaon-Nasik Source: Company, PINC Research Project IRR (%) 11.6 10.2 12.1 6.6 Equity IRR (%) 17.0 16.6 22.0 19.8 D:E 2.4 2.8 2.5 4.0
EPC business
Over FY10-13E, we expect revenue of the standalone business to grow at 29.4% CAGR and PAT to grow at 28.2% CAGR. Adjusted for the BOT assets in the standalone entity, PAT is expected to grow at 27% (BOT assets have matured, leading to lower interest cost). We value this business at 9x FY12E adjusted earnings of Rs17.1 (construction EPC). We foresee a substantial jump in profitability of the standalone business at 47%, led by growth of 42% in sales and 33% in EBITDA, even as EBITDA margin settles at 11.8% for FY12E against 13.3% in FY10. The drop in margin is due to our assumption of lower EBITDA of 9.8% for the pure EPC division as against the historical average of 1112%. Despite robust expectations, we believe that a lower multiple of 9x is justified, given that ABL derives 30% of revenue from power distribution contracts that are competitive and 40% from own EPC contracts. Further, we would like to see more traction in order inflow, which would enhance earnings visibility post FY12E.
P/E - One year Forward P/BV - One year forward
P/E 12 Av g+1std dev
Av . P/E Av g-1std dev 1.8
P/BV Av g+1std dev
Av . P/BV Av g-1std dev
10
1.6
1.4
6 Oct-10 Nov -10 Jan-11 Mar-11 Apr-11
1.2 Oct-10 Nov -10 Jan-11 Mar-11 Apr-11
Source: Company, PINC Research vinod.nair@pinc.co.in subramaniam.yadav@pinc.co.in 40
RESEARCH
Ashoka Buildcon Ltd
SOTP Valuation
Particulars BOT Projects operational (SPV's) Indore - Edalabad Pune - Shirur Dewas Bypass Katni Bypass FOBs - Eastern Exp Hway Dhule Bypass Durg - Chhattisgarh Chhattisgarh - Bhandara BOT Projects operational (Standalone) Anagar - Karmala TOLL ANG (Anagar - Aurangabad) Nasirabad ROB Sherinallah Bridge Waiganga river Bridge BOT Projects under construction Sambalpur-Baragarh Belgaum Dharwad Jaora - Nayegaon 4-Laning Pimpalgaon-Nasik Total BOT Value EPC Business Total Value CMP Appreciation Source: Company, PINC Research 1,618 757 5,269 1,946 19,894 PAT FY12E 900 P/E (x) 9 8,099 20,510 154 390 259 50% 100% 100% 37% 26% 1,618 757 1,950 506 12,411 30.7 14.4 37.0 9.6 236 750 476 257 147 517 100% 100% 100% 100% 50% 750 476 257 147 258 14.3 9.0 4.9 2.8 4.9 1,718 580 489 676 82 47 2,555 2,009 87% 100% 100% 100% 100% 100% 51% 51% 1,490 580 489 675 82 47 1,303 1,025 28.3 11.0 9.3 12.8 1.6 0.9 24.8 19.5 NAV Stake Adj NAV Per share
41
RESEARCH
Ashoka Buildcon Ltd
Business
ABL is present in entire value chain of road construction from RMC division to construction, operation and maintenance and toll collection. ABL also has presence in power transmission and distribution, manufacture and sales of pre cast concrete poles, RMC and bitumen to third party. ABL is amongst the largest toll road operator in India and owns 27 BOT projects, of which 16 are operational (six Foot over bridges), six under construction, one under financial closure and four handed over to government. ABL has four key division: a) b) c) d) BOT division EPC division (for own and third party works) RMC and bitumen division Toll collection contract division
Company Structure
Company Toll collection Contract Division 99.80% Ashoka Technolgies Pvt. Ltd. EPC Division 50.99 Ashoka Pre Con Pvt. Ltd. BOT Division 26% L&T PNG Tollway Private Ltd. (NH 3 Pimpalgaon-Nashik100% Ashoka Infrastrucuture Ltd. (Pune-Shirur Road) 100% Ashoka Infraways Private Ltd. (Dewas Bypass) 50% Jayaswals Ashoka Infrastructure Private Ltd. (Wainganga Bridge) 50% Ashoka Bridgeways (AnawaliKasegaon Road) RMC and Bitumen Division
100% Companys BOT projects (Ahmednagar - Karmal Road) (Nashirabad railway-over Bridge) (Sheri Nallah Bridge) (Ahmednagar - Aurangabad Rd.) (Shopping mall-campus of Rukmin, Bai Hospital, Kalyan, Maharashira)
86.74%(1) Viva Highways Private Ltd. (Indore-Edalabad Road)
99.99% Ashoka Infrastructures (Dhule Bypass)
99.99% Ashoka High-way Ad (6 foot-over-bridges in Mumbai) 52.02% 53.18% Ashoka Highways (Durg) Ltd. (NH-6 322.4) km405 km)
98.67% Ashoka Sambalpur Baragarh Tollway Private Ltd. (NH-6 SambalpurBargarh Rd)(6) 13.76% Jaora Nayagoan Toll Road Company (Jaora-Nayagaon Road.)
98.67% Ashoka Belgaum dharwad Tollway Pvt. Ltd. (NH-4 BelgauvnDharwhd)(7) 100%
99.89% Ashoka-DSC Katni Bypass Road Pvt. Ltd. (Katni Bypass)
Ashoka Highways (Bhandara) (NH-6 Bhandara Rd.)
(Dhankuni-Khargpur) 111.4 km.
Source: RHP, PINC Research
42
RESEARCH
Ashoka Buildcon Ltd
In FY00 ABL ventured into manufacturing of RMC solely for use for own EPC division by FY02 they started selling it to third party as well. In FY05 processing of bitumen to a higher grade was also initiated in Pune for use in road projects. Having developed systems and procedures for collecting tolls in own BOT projects, including developing proprietary computerised toll revenue auditing system, ABL tendered for and were awarded the first contract to collect the tolls on a road owned and constructed by a third party. In FY09 ABL began undertaking EPC work in the power sector with the first project coming from Maharashtra State Electricity Distribution Company Limited for the construction and commissioning of sub-transmission lines, distribution lines, power transformers and new sub-stations. In September 2009 ABL started manufacturing pre-cast concrete poles. In FY10, the Government of Maharashtra issued us a letter of allotment for us develop a 1,500 KW per hour hydro electric power plant in Waghur, Maharashtra on a build, own, operate and transfer ("BOOT") basis. Currently ABL has operations across the states of Maharashtra, Madhya Pradesh, Chhattisgarh, Rajasthan, Karnataka and Orissa.
BOT division
Currently have 23 BOT road projects in its kitty, i.e. 3,498.35 km of lanes in Maharashtra, Madhya Pradesh, Chhattisgarh, Karnataka and Orissa. The weighted average concession period (including toll collection period) for these 23 BOT road projects was 21.09 years as at March 31, 2010. Out of the 23 BOT projects mentioned above, 16 are in operation and six are under construction and one under financial closure. Of the 17 BOT projects in operation four are operated by the Company; 11 are operated by the subsidiaries of the Company/joint ventures controlled by the Company, one is operated by an associate company in which the Company has a 50% interest; and one is operated by a joint venture in which the Company has a 5% interest. Of the six BOT projects under construction: four are being developed by subsidiaries of the Company, one is being developed by PNG Tollway Private Limited, in which the Company has a 26% Interest, and one is being developed by Jaora Nayagoan Toll Road Company Private Limited in which the Company has a 13.76% beneficial interest. In addition, the company has successfully transferred four BOT projects to the Govt.
EPC division (for own and third party works)

The EPC division primarily does engineering and design works, procures raw material and equipment for own BOT division and third parties. It also does (1) maintains and repairs existing roads for own BOT division, (2) constructs and modernizes power distribution networks, comprising distribution transformers and electricity substations, for third parties and (3) constructs commercial, industrial and institutional buildings for third parties. ABL, has constructed 44 roads and bridges and built over 5.4 million square feet of commercial, industrial and institutional projects.
43
RESEARCH
Ashoka Buildcon Ltd
RMC and bitumen division The RMC and bitumen division sells ready-mix concrete and bitumen and supports the EPC division. ABL owns 14 RMC plants with a total production capacity of 650 cubic metres per hour and 86 concrete transit trucks and 19 concrete pumps. This division also sells and processes bitumen to a higher grade for use in road projects from its plant in Pune with a capacity of 60 metric tonnes per day.
Toll collection contract division ABL also has a toll collection contract division to leverage its experience of collecting tolls on our BOT projects and has proprietary computerised toll revenue auditing system. ABL has entered into four agreements to collect tolls on roads/bridges owned and constructed by third parties, but currently they are not tolling any project, their last contract expired in February 2007.
Management Bandwidth
Ashok M. Katariya, aged 61 years, is the Executive Chairman of the Company. He is a gold medalist in Bachelor of Engineering (B.E.) from COEP, Pune University, India. Ashok M. Katariya has previously worked with the Public Health Department in Maharashtra. In 1975, he started working as a contractor to the PWD, Maharashtra. Subsequently, he ventured into civil construction and infrastructure development. He has received the "Udyog Ratna" award from Indian Economic Council and Life Time Achievement award from the Association of Consulting Civil Engineers. Satish D. Parakh, aged 50 years, is the Managing Director of the Company. He holds a B.E. degree in civil engineering. Satish D. Parakh has been with the Ashoka Group since 1982 and has executed various industrial/residential and BOT projects. He has previously worked with Shapoorji Pallonji & Company. He is a Member of Maharashtra Economic Development Council. He was also the chairman of the Institute of Engineers, Nashik in 2007. Sunil B. Raisoni, aged 48 years, is an Executive Director of the Company. He holds a Diploma in civil engineering. Sunil B. Raisoni has an experience of over 26 years in the sector of civil engineering. He has been involved with execution of projects such as Mandve Bridge, Pune-Shirur Road Project and the Nagar-Karmala Road Project for Ashoka Buildcon Limited.
44
RESEARCH
Ashoka Buildcon Ltd

Year Ended March (Figures in Rs mn)
Standalone Financials
Income Statement
Revenues Growth (%) Operating Profit Other Income EBIDTA Growth (%) Depreciation & Amortization EBIT Interest Charges (Net) PBT (Before E/o items) Tax provision E/o Income / (Loss) Net Profits Adjusted Net Profits Growth (%) Basic EPS (Rs) Diluted EPS (Rs) Growth (%)
FY09
7,423 127.4 1,211 133 1,345 80.5 331 1,014 449 564 91 478 474 115.6 10.4 10.4 115.6
FY10
11,162 50.4 1,488 156 1,644 22.3 356 1,289 342 947 235 757 712 50.3 15.6 15.6 50.3
FY11E
13,088 17.2 1,649 200 1,849 12.4 384 1,465 457 1,007 242 766 766 7.5 14.5 14.5 (6.7)
FY12E
18,627 42.3 2,198 240 2,438 31.9 410 2,028 552 1,476 354 1,122 1,122 46.5 21.3 21.3 46.5
FY13E
24,182 29.8 2,853 250 3,103 27.3 436 2,668 692 1,975 474 1,501 1,501 33.8 28.5 28.5 33.8
Cash Flow Statement

Profit before tax Depreciation Income from inv & int. (profit) Interest paid Taxes (Inc)/Dec in working capital Other operating activities Cash from operations Net capital expenditure Net Investments Interest & dividend recd Cash from inv. activities Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Other financing activities Cash from finan. activities Inc/(Dec.) in cash
FY09
568 117 449 (85) 1,314 (1,619) 896 (436) (282) 62 (656) 163 (449) (286) (46)
FY10
992 142 342 (223) 807 (1,396) 769 (216) (178) 78 (316) 837 (823) (358) (344) 108
FY11E
1,007 172 (200) 457 (227) (239) 1,183 (377) (1,055) 200 (1,232) 2,250 250 (457) 2,043 1,994
FY12E
1,476 206 (240) 552 (329) (791) 1,078 (300) (1,550) 240 (1,610) 750 (552) 198 (334)
FY13E
1,975 244 (250) 692 (434) (972) 1,447 (265) (1,250) 250 (1,265) 1,500 (692) 808 990
Balance Sheet
Equity Share Capital Reserves & Surplus Shareholders' Funds Minorities Interest Total Debt Capital Employed Fixed Assets Cash & cash eq. Net current assets Investments Deferred tax asset Total Assets
FY09
457 2,721 3,309 3,255 6,564 1,055 479 3,591 1,935 (18) 6,564
FY10
457 3,468 4,049 3,269 7,318 1,105 587 4,083 2,160 (30) 7,318
FY11E
526 6,414 7,065 3,519 10,583 1,295 2,582 6,118 3,215 (45) 10,583
FY12E
526 7,536 8,187 4,269 12,455 1,525 2,248 6,236 4,765 (70) 12,455
FY13E
526 9,037 9,688 5,769 15,457 1,681 3,238 7,871 6,015 (110) 15,457
Key Ratios
OPM (%) Net Margin (%) Dividend Yield (%) Net Debt/Equity (x) Net working capital (days) ROACE (%) ROANW (%) EV/Sales (x) EV/EBIDTA (x) PER (x) PCE (x) Price/Book (x)
FY09
16.3 6.4 0.0 0.8 81 16.1 16.2 2.2 13.5 25.0 20.1 3.3
FY10
13.3 6.4 0.0 0.7 73 19.1 21.3 1.5 11.0 16.6 13.9 2.7
FY11E
12.6 5.9 0.0 0.1 69 16.4 14.1 1.2 9.9 17.8 14.5 1.8
FY12E
11.8 6.0 0.0 0.2 64 17.6 15.0 0.9 7.4 12.2 10.3 1.6
FY13E
11.8 6.2 0.0 0.3 64 15.7 17.0 0.7 5.7 9.1 7.8 1.4
45
RESEARCH
Ashoka Buildcon Ltd
Consolidated Financials
Income Statement
Year Ended March (Figures in Rs mn) FY11E

9,965 25.3 2,704 240 2,944 26.7 770 2,174 700 1,473 398 985 985 23.3 21.6 18.7 7.1
FY09
5,184 60.6 1,640 150 1,790 27.1 645 1,145 646 499 116 348 348 3.7 7.6 7.6 3.7
FY10
7,956 53.5 2,143 182 2,324 29.8 661 1,663 490 1,173 319 804 799 129.5 17.5 17.5 129.5
FY12E
14,901 49.5 4,427 300 4,727 60.6 1,050 3,677 1,468 2,210 619 1,471 1,471 49.3 27.9 27.9 49.3
FY13E
17,915 20.2 5,169 350 5,519 16.8 1,175 4,344 1,652 2,693 754 1,784 1,784 21.3 33.9 33.9 21.3
Cash Flow Statement

FY09
499 645 646 (111) 368 94 2,092 (3,664) (194) 41 (3,818) 2,105 (682) 1,423 (302)
FY10
1,177 661 490 (307) (889) 512 1,553 (4,777) (576) 466 (4,887) 3,995 (507) 3,488 154
FY11E
1,473 770 (240) 700 (383) (224) 2,187 (5,054) (800) 104 (5,750) 2,250 4,500 (700) 6,050 2,487
FY12E
2,210 1,050 (300) 1,468 (601) (1,559) 2,388 (6,269) (1,400) (121) (7,790) 5,250 (1,468) 3,782 (1,620)
FY13E
2,693 1,175 (350) 1,652 (732) (685) 3,908 (6,920) (1,400) (208) (8,528) 5,250 (1,652) 3,598 (1,023)
Balance Sheet
FY09
457 2,836 3,423 287 7,226 10,936 4,636 692 5,408 911 (18) 10,936
FY10
457 4,042 4,623 813 11,221 16,657 9,283 845 5,918 1,487 (30) 16,658
FY11E
526 7,208 7,859 903 15,721 24,483 13,907 3,333 8,333 2,287 (45) 24,483
FY12E
526 8,679 9,330 1,023 20,971 31,324 9,250 1,713 18,450 3,687 (63) 31,324
FY13E
526 10,463 11,113 1,178 26,221 38,513 16,031 690 17,479 5,087 (85) 38,513
Key Ratios
FY09
31.6 6.7 0.0 1.9 50 12.1 11.1 4.6 14.7 34.1 12.0 3.2
FY10
26.9 10.0 0.0 2.2 74 12.5 20.6 3.0 11.2 14.9 8.1 2.4
FY11E
27.1 9.9 0.0 1.6 67 11.0 16.1 2.4 8.9 13.9 6.8 1.4
FY12E
29.7 9.9 0.0 2.1 83 13.7 17.4 1.6 5.4 9.3 5.4 1.4
FY13E
28.9 10.0 0.0 2.3 83 10.2 17.7 1.3 4.7 7.7 4.6 1.2
1 year forward rolling P/E Band
1 year forward rolling P/B Band
430
11x 10x 9x
360
360
320
1.6x 1.5x
290 220
8x 7x
280 240
1.4x 1.3x
150 Oct-10
200 Nov -10 Jan-11 Mar-11 Apr-11 Oct-10 Nov -10 Jan-11 Mar-11 Apr-11
46
RESEARCH
IRB INFRASTRUCTURE DEVELOPERS LTD.

IRB's unique ability to win bids at competitive levels v/s L2 and L3 is a trademark. We understand that IRB identifies assets, and bids as per competitive and strategic value. This gives us immense confidence about IRB's business sustainability. Recent correction in the stock price makes IRB a valuable investment proposal at 2x P/BV FY13E. Ability to win the right project at the right time IRB has demonstrated the knack to win large strategic BOT assets; Mumbai-Pune and Surat-Dahisar are good proven example. The recent Vadodra-Ahmedabad win, has been underscrutiny from the financial community, we believe given the management's business credentials and worst case 13% equity IRR, would not be value erosive to the shareholders. We currently assign no value to the project due to the long gestation towards financial closure. Cashing EPC
STOCK DATA
Market Cap Book Value per share Eq Shares O/S (F.V. Rs10) Free Float Avg Traded Value (6 mnths) 52 week High/Low Bloomberg Code Reuters Code
BUY CMP Rs185 TP Rs253

29 April 2011
Initiating Coverage
IRB has consistently made abnormally high EPC margins, 20% in FY10 and 25% in FY11E. This has resulted in strong free cash flow, increasing the ability to take more future projects at low dilution risk. We maintain margins at 18%-19% for FY12E and FY13E. We expect the EPC division to record 52% CAGR in FY10-13E. BOT projects to record 15% revenue CAGR over FY10-13E The BOT segment is expected to deliver healthy CAGR of 15% over FY10-13E on back of addition of new toll roads and rate increases. We expect the Tumkur-Chitradurga and Kolhapur project to start tolling in FY12 at Rs1.5bn and Rs402mn resp. and factor 18% rate increases in Mumbai-Pune Expressway, NH4 (16%-old Mumbai Pune highway), and Pune-Solapur highway in FY12 and Kolhapur and Pune-Nashik in FY13. VALUATION AND RECOMMENDATION We value EPC business at PE multiple of 11x for its FY12E earnings of Rs8.2 and thus arrive at a value of Rs90. We value the BOT project at Rs138, at 12% cost of equity for operational projects and 14% for under-construction projects. We value the land at a discount to market price at Rs10 per share and cash in book at 1x, at Rs15 per share, arriving at a SOTP valuation of Rs253.
Rs61.3bn. Rs89.1 332.4mn. 25.2% Rs470mn Rs313/148 IRB IN IRBI.BO
Name Promoters FII DII Others % holding 74.8 14.1 3.9 7.3
PERFORMANCE (%)
Absolute Relative 1M (7.6) (9.3) 3M (16.6) (18.0) 12M (33.1) (40.1)

FY09 Net Revenues YoY Gr. (%) Operating Profit OPM (%) Adj. Net Profits YoY Gr. (%) 9,918 35.4 4,388 44.2 1,758 54.3 5.3 12.7 10.5 37.8 8.8 19.9 FY10 17,049 71.9 7,990 46.9 3,854 119.3 11.6 19.4 20.4 17.2 5.3 11.3 FY11E 25,160 47.6 11,010 43.8 4,958 28.6 14.9 23.4 22.0 13.4 4.2 9.6 FY12E 35,219 40.0 13,502 38.3 5,629 13.5 16.9 22.6 20.7 11.8 3.4 8.8
Rs mn FY13E 42,943 21.9 15,291 35.6 5,069 (10.0) 15.3 18.2 15.9 13.1 3.0 8.5 47
150 May -10 Aug-10 Oct-10 Jan-11 Apr-11 200 350 300 250
IRB
BSE (Rebased)
KEY RATIOS
RESEARCH
IRB Infrastructure Developers Ltd.
Ability to win the right project at the right time The inflection point in IRBs history has been winning the prestigious Mumbai-Pune Expressway (MPEWL), which today is a cash cow. When it won the project, the viability of project and IRBs ability to pay Rs9.2bn upfront and manage the road were questioned. Today, however, MPEWL is amongst the busiest and the highest per-day toll-collecting roads. Continuing with its legacy of winning prestigious projects, in FY08, IRB won the Surat-Dahisar project, which made logical sense since it already had the Bharuch-Surat stretch in its portfolio. In FY10, in a relatively lower competitive environment, IRB won 383km length of project vis--vis 114 km in FY11 in a highly competitive scenario, thus avoiding aggressive bidding rounds.
Mumbai Pune Expressway - Strong cashflow

FCFE 2,600 2,110 1,950 1,300 650 6 FY09
(Rs mn)
FCFF 2,390
1,116
1,178
1,242
1,452 1,149
1,474
1,355
FY10
FY11E
FY12E
FY13E
Mumbai Pune Expressway - Strong revenue stream

Particulars Revenue MPEW NH4 Ebidta PAT Source: Company, PINC Research FY09 2,883 1,877 1,006 2,332 500 FY10 3,063 2,006 1,057 2,552 556 FY11E 3,247 2,136 1,126 2,727 788 FY12E 4,042 2,521 1,306 3,436 1,283
(Rs mn) FY13E 4,305 2,685 1,391 3,659 1,509
IRB - Portfolio growth

Operational Adj. length km 2,000 1,664 1,500 Length km 1,086 782 782 803 1,129 994 1,007 1,000 500 FY09
Source: Company, PINC Research vinod.nair@pinc.co.in subramaniam.yadav@pinc.co.in 48
Operational+Underconstruction Adj. length km 1,774
1,454
FY10
FY11
FY12E
FY13E
RESEARCH
Cash flow from EPC enables competitive bidding Bagging bigger projects has strengthened IRBs EPC arm, which is making PBITD margin of above industry average at 20% for FY10 and 25% for FY11E. This has resulted in free cash flow generation from the EPC arm and the existing profitable MPEWL has lent comfort to the company in bidding for bigger and more lucrative projects at competitive rates. This also resulted in executing projects without equity dilution, unlike other infrastructure developers.
List of competitive bidding

Mumbai Pune Expressway IRB Infra Gammon India, Ashoka Buildcon & Viva Highways JV Shaktikumar Sancheyati, Sangam India & Nidihi Mercantile JV Surat Dahisar IRB Infra L&T Reliance Energy Jaipur- Deoli IRB Infra L2 Amritsar- Pathankot IRB Infra L2 Goa- Karnataka IRB Infra L2 Talegaon- Amravati IRB Infra L2 Tumkur - Chitradurg IRB Infra BSCPL Sadbhav Gammon Ahmedabad-Vadodara Expressway IRB Madhucon Projects Oriental Structures BID lost Belgaum- Dharwad Ashoka Buildcon IDFC - Plus Expressway IRB Infra Premium (Rs mn) 310 300 288 Upfront payment (Rs mn) 9,180 9,100 8,000 Revenue sharing (%) 38.0% 35.2% 33.6% Grant (Rs mn) 3,060 3,150 Grant (Rs mn) 1,270 1,620 Grant (Rs mn) 1,860 1,875 Grant (Rs mn) 2,160 2,261 Premium (Rs mn) 1,404 1,271 1,110 1,110 Premium (Rs mn) 3,096 1,917 1,369
49
RESEARCH
Largest integrated player; present in entire value chain of the BOT project IRB Infrastructure is among the largest integrated players with a presence across the entire value chain of a BOT project. It has 10 operational and 6 under-construction projects totaling 5735 lane km. IRB won projects on DBOT basis as well as O&M and tolling contracts. This along with a strong in-house EPC arm makes IRB the largest integrated player in the country. This helps the company reduce costs and maintain a healthy operational margin.
BOT Details
Particulars MIPL Surat Dahisar IDAA (surat Bharuch) IRB Infra (Kharpada Bridge) NKT (Nagar -Karmala- Tembhurni) TGTRPL (Thane Ghodbunder) ATRPL (Pune Nashik) ATR Infra (Pune Solapur) Thane Bhiwandi MMK (Mohol Kamtee) IRDP, Kolhapur Panji Goa Amritsar Pathankot Jaipur to Deoli Talegaon Amravati Tumkur Chitradurga Total Source: Company, PINC Research Total Cost (Rs mn) 12,920 25,870 14,040 320 368 2,485 740 630 1,040 450 4,300 8,213 14,417 17,057 8,850 10,800 122,499 Equity 1,050 12,330 1,930 100 150 319 60 180 340 150 1,720 3,350 3,908 4,997 1,941 3,240 35,764 Length (kms) 206 239 65 1 60 15 30 26 24 33 50 69 102 149 67 114 1,250 Lane (Km) 1014 1432 390 3 120 60 119 104 96 67 100 276 408 595 267 684 5,735 Holding (%) 100 90 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Stake (km) 206 215 65 1 60 15 30 26 24 33 50 69 102 149 67 114 1,226 Stake Lane (km) 1014 1289 390 3 120 60 119 104 96 67 100 276 408 595 267 684 5,592 Equity invested till date* (Rs mn) 1,050 4,840 1,934 100 150 2,370 518 450 610 70 1,720 1,072 1,048 1,490 626 18,048
*not adjusted for stake
50
RESEARCH
Key beneficiary of NHAI awarding process in recent years IRB which already owns ~750km and has added ~500km (~2222 lane km) of road length in the past two years totaling c1250km (c5735 lane km). It has cornered 6% of NHAIs awarding. As against its earlier strategy of concentrating on Maharashtra, IRB expanded to other parts of the country and won five new projects. As NHAI targets to award c7300km of road project in FY12, we expect IRB to try and maintain its share of 6-8% of awarding. Incrementally, IRB is looking at mega projects to build its portfolio and has already tied up with Reliance Infra to bid for mega projects as the size of the project is more than USD1bn. Recently, IRB won six laning of Ahmedabad-Vadodara highway and improvement of existing Expressway, the concession period is for 25yrs and entails a project cost of Rs36bn. IRB will pay a premium of Rs3.1bn every year with 5% increase. We have not valued this project as of now, given its pending financial closure. Given its strong balance sheet and comfortable cash position, we believe IRB is poised to win billion dollar worth of project each year without diluting equity.
List of Mega Highways

Project Kishangarh-Udaipur-Ahmedabad Ichapuram-Visakhapatnam-Rajahmundry Dhule-Jalgaon-Akola-Amravati Gwalior-Shivpur-Biaora-Dewas Amritsar-Bikaner-Nagaur-Jodhpur-Pali Lakhnadon-Jabalpur-Katni-Reva Indapur-Goa/Maharashtraborder Ahmedabad-Bamanbore-Rajkot-Gondal Bhavnagar-Pipavav-Porbandar-Dwarka Beawar-Pali-Pindwara Baihata Chariali-Banderdewa Total Source: NHAI, Media, PINC Research State Rajasthan / Gujarat AP Maharshtra MP Punjab /Rajasthan MP Maharashtra / Goa Gujarat Gujarat Rajasthan Assam Km 557 436 485 450 700 284 390 425 445 246 314 4,732 Nature Six laning Six laning Four laning Four laning Two laning Four laning Four laning Four laning Six / Four laning Four laning Four laning
51
RESEARCH
Revenue CAGR of 36% over FY10-13E EPC to drive growth EPC revenue CAGR of 52% over FY10-FY13E We expect IRB to record 36% revenue CAGR over FY10-13E, driven largely by the EPC segment. Currently, IRB has five (including three recently won projects) projects under construction with order book of Rs89.8bn. The other two projects, Tumkur-Chitradurga and Goa-Karnataka are also likely to go into construction by Q2FY12. We expect the EPC division to record 52% CAGR in FY10-13E. However, IRB continues to surprise in its EPC margin at 25% in FY11E, due to lower raw material prices in the Surat-Dahisar project against higher cost built in during bidding. We expect the margin to soften to 19% in FY12 and to 18% in FY13.
EPC revenue & Margin

Rev enue 40,000 22.8 30,000 16.3 19.0 18.0 Ebidta Margin
(Rs mn)
24.0
18.0
20,000 32,060 10,000 9,144 0 FY10

12.0 25,269 16,912
6.0
0.0 FY11E FY12E FY13E
Order Book Mix

Order book details EPC & ongoing BOT projects BOT projects in O&M Phase Funded Construction projects BOT projects under award Total (Rs mn) 49,480 21,025 210 19,140 89,855
Amritsar-Pathankot 13% Panji-Goa 8% Jaipur-Tonk-Deoli 16% Tumkur-Chitradurga 12% Sindhudurg Airport 2% Funded work 0% O&M Contracts 23%
Surat-Dahisar 16% IRDP Kolhapur 2%
BOT projects to record 15% revenue CAGR over FY10-13E The BOT segment is expected to deliver healthy CAGR of 15% over FY10-13E on back of addition of new toll roads, toll increases and traffic growth. We expect the TumkurChitradurga and Kolhapur project to start tolling in FY12 at Rs1.5bn and Rs402mn resp. and expect major toll rate increases in the Mumbai-Pune Expressway (18%), NH4 (16% old Mumbai Pune highway), and Pune-Solapur highway in FY12 and Kolhapur and PuneNashik in FY13.
vinod.nair@pinc.co.in subramaniam.yadav@pinc.co.in 52
RESEARCH
BOT revenue to grow at cagr of 15.5% over FY10FY13E...
BOT Revenue
12,000 88.5
(Rs mn)
& Margins
(%)
BOT Rev enue
Ebidta Margin 90.0
i.e. daily revenue to increase from Rs20mn to 30mn by FY13E...
9,000
86.8 86.2 85.4
88.0
6,000
86.0
3,000 7,214 0 FY10

84.0 8,248 FY11E 9,950 FY12E 10,883 82.0 FY13E
Key projects has mainatined a healthy momentum...
Key project avg revenue per day

Surat Dahisar BOT Project 12 9.5 9 7.9 6 3.5 3 3.3 3.3 8.4 8.4 8.3 8.5 8.8 Mumbai -Pune BOT Project 10.1
(Rs mn)
Bharuch -Surat BOT Project 9.7 10.4 9.0 8.7 8.8
3.8
0 Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11
Other project avg revenue per day

Thane Bhiw andi By pass 4 Lane BOT Project Pune -Nashik BOT Project Nagar -Karmala -Tembhurni BOT Project Kharpada Bridge BOT Project 1.6 1.2 1.2 0.8 0.4 0.0 0.7 0.4 0.8 0.5 0.8 0.5 0.8 0.5 0.4 0.2 0.7 0.6 0.4 0.2 0.2 1.2 Thane Ghodbunder BOT Project Pune -Sholapur BOT Project Mohol -Mandrup -Kamtee BOT Project 1.4 1.5 1.3
(Rs mn)
1.5
0.8 0.6 0.4 0.2
Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11
53
RESEARCH
Valuation Projectwise BOT revenue Valuation and Recommendation We use sum-of-the-parts methodology to value IRB. We value its EPC business using the traditional PE method and BOT projects on DCF basis. For its EPC business, we assign a PE multiple of 11x (earlier 12x) for its FY12E earnings of Rs8.2 and thus arrive at a value of Rs90. We value the BOT project at Rs138, valuing cost of equity at 12% for operational projects and 14% for under-construction projects. We value the land at a discount to market price at Rs10 per share and cash in book at 1x, at Rs15 per share, arriving at a SOTP valuation of Rs253.
Available at substantially corrected valuation, the stock provides an entry level for longterm investors...as we believe roads and IRB are here to stay
P/E - One year forward
P/E 45 35 25 15 5 Feb-08 Dec-08 Sep-09 Av g+1std dev
Av . P/E Av g-1std dev
Jul-10
Apr-11
Available at 2x P/BV against avg of 3x P/BV...
P/B - One year forward
P/BV 5.0 4.0 3.0 2.0 1.0 Feb-08 Av g+1std dev
Dec-08
Sep-09
Jul-10
Apr-11
54
RESEARCH
SOTP Valuation
Particulars MIPL Surat Dahisar IDAA (surat Bharuch) IRB Infra (Kharpada Bridge) NKT (Nagar -Karmala- Tembhurni) TGTRPL (Thane Ghodbunder) ATR Infra (Pune Solapur) ATRPL (Pune Nashik) Thane Bhiwandi MMK (Mohol Kamtee) IRDP, Kolhapur Panaji Goa Amritsar Pathankot Jaipur to Deoli Talegaon Amravati Tumkur Chitradurga BOT Fair Value Construction Business MRMPL FY12E Net Profits No. of Shares (IRB Cons.) EPS contribution to IRB Assigned P/E multiple Fair Value per Share Real Estate @ Rs4mn/acre Fair Value per Share Cash in Holding Company's Books SOTP Source: Company, PINC Research 3,300 10 15 253 2,715 332 8 11 90 Holding (%) 100 90 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Length (kms) 206 239 65 1 60 15 30 26 24 33 49 65 102 149 67 114 Debt: Equity 11.3 1.1 6.3 2.2 1.5 6.8 11.3 2.5 2.1 2.0 1.5 0.9 2.4 1.8 2.4 2.3 Total Cost (mn) 12,920 25,870 14,040 320 368 2,485 740 630 1,040 450 4,300 8,213 14,417 17,057 8,850 10,800 New NPV/ Share 44.5 7.9 18.8 0.8 1.7 8.2 5.5 2.4 7.5 1.0 11.4 3.6 6.9 9.2 8.1 0.3 138
55
RESEARCH
Background IRB started in 1977 as road construction company and is today one of the largest road developers in India. IRB is among the few companies that has in-house design, build and operational capabilities. The company manages one of the largest road portfolios in India with 10 operational and 6 under-construction BOT road assets totaling 1250km (5735 lane km) of BOT road assets. Mr. Virendra D. Mhaiskar is the Chairman and Managing Director of IRB. He is responsible for spearheading the groups business and strategy. He is a civil engineer with more than 20 years experience in the construction and infrastructure industry. Mr. Dattatraya P. Mhaiskar is a civil engineer with more than 50 years experience in the construction and infrastructure industry. He is the chief mentor of the group. In 1977, Mr. Mhaiskar promoted IRBPL, a subsidiary of IRB Mrs. Deepali V. Mhaiskar is the Executive Director of IRB. She joined the company in 1998. She is an economics graduate and oversees administration of the company.
IRB Group Structure

IRB Infrastructure Developers Ltd. (IRB)
Engineering & Construction
Real Estate
Modern Road Makers Pvt. Ltd. (100%) BOT Projects
Aryan Infrastructure Investments Pvt. Ltd. (66%)
Lolhapur Hotel Project (100%)
Operational Mhaiskar Infrastructure Private Ltd. (Mumbai-Pune) (100%) Thane Ghodbunder Toll Road Private Ltd. (100%) ATR Infrastructure Private Ltd. (Pune-Nashik) (100%) Aryan Toll Road Private Ltd. (Pune-Solapur) (100%)
Under construction
IRDP, Kolhapur (100%)
Jaipur Deoli (100%)
Surat - Dahisar (90%)
Goa Karnataka Border (100%)
Talegaon Amravati (100%)
IDAA Infrastructure Private Ltd. (Bharuch-Surat) (100%) IRB Infrastructure Private Ltd. (Patalganga-Kharpada) (100%) NKT Road & Toll Private Ltd. (Ahmednagar - KarmalaTembhurni) (100%) Source: Company, PINC Research
Amritsar Pathankot (100%)
Tumkur Chitradurga (100%)
Thane Bhiwandi (100%) MMK Toll Road Private Ltd. (Mohol-Kurul-Kamati-Mandrup Road) (100%)
Ahmedabad - Vadodara Highway (100%)
56
RESEARCH
Income Statement
Revenues Growth (%) Operating Profit Other Income EBIDTA Growth (%) Depreciation & Amortization EBIT Interest Charges (Net) PBT (Before E/o items) Tax provision Minority Interest Net Profits Adjusted Net Profits Growth (%) Basic EPS (Rs) Diluted EPS (Rs) Growth (%)

25,160 47.6 11,010 622 11,632 37.2 2,287 9,345 3,047 6,298 1,232 109 4,958 4,958 28.6 14.9 14.9 28.6
FY09
9,918 35.4 4,388 282 4,669 0.7 1,144 3,526 1,377 2,149 378 13 1,758 1,758 54.3 5.3 5.3 54.3
FY10
17,049 71.9 7,990 490 8,480 81.6 1,819 6,661 2,494 4,167 787 179 3,854 3,854 119.3 11.6 11.6 119.3
FY12E
35,219 40.0 13,502 537 14,040 20.7 2,560 11,479 4,084 7,395 1,667 99 5,629 5,629 13.5 16.9 16.9 13.5
FY13E
42,943 21.9 15,291 629 15,920 13.4 4,256 11,664 4,576 7,088 2,103 (84) 5,069 5,069 (10.0) 15.3 15.3 (10.0)
Cash Flow Statement

Profit before tax Depreciation Income from inv & int. (profit) Interest paid Taxes Other operating activities Cash from operations Net capital expenditure Net Investments Interest & dividend recd Cash from inv. activities Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Other financing activities Cash from finan. activities Inc/(Dec.) in cash
FY09
2,149 1,144 (184) 1,344 (424) 35 2,615 (8,114) 953 90 (6,047) 5,686 (223) (952) 3,308 (123)
FY10
4,167 1,819 (291) 2,437 (812) 1,849 15 9,033 (10,657) (713) 4 (10,223) 15,315 (429) (2,455) 1,431 241
FY11E
6,298 2,287 (622) 3,047 (1,232) (234) 9,544 (21,658) 622 (21,036) 17,000 (681) (3,047) 13,272 1,781
FY12E
7,395 2,560 (537) 4,084 (1,667) 248 12,084 (20,946) 537 (20,409) 12,500 (681) (4,084) 7,736 (589)
FY13E
7,088 4,256 (629) 4,576 (2,103) (339) 12,849 (18,685) 629 (18,056) 10,500 (700) (4,576) 5,224 17
(Inc)/Dec in working capital (1,401)
Balance Sheet
Equity Share Capital Reserves & Surplus Shareholders' Funds Minorities Interest Total Debt Deferred Tax liability Capital Employed Fixed Assets Cash & cash eq. Net current assets Investments Total Assets
FY09
3,324 13,977 17,301 599 24,859 182 42,940 34,707 4,147 7,116 1,108 42,940
FY10
3,324 17,075 20,399 779 29,152 267 50,597 43,477 5,102 6,661 451 50,597
FY11E
3,324 21,352 24,676 887 46,152 267 71,983 63,148 6,583 8,375 451 71,983
FY12E
3,324 26,301 29,625 986 58,652 267 89,531 81,878 5,649 7,193 451 89,531
FY13E
3,324 30,670 33,994 902 69,152 267 104,316 96,327 5,646 7,529 451 104,316
Key Ratios
FY09
44.2 17.7 0.9 1.2 107.7 12.7 10.5 8.3 18.7 34.9 21.1 3.5
FY10
46.9 22.6 0.8 1.2 32.9 19.4 20.4 5.0 10.7 15.9 10.8 3.0
FY11E
43.8 19.7 0.9 1.6 25.6 23.4 22.0 4.0 9.2 12.4 8.5 2.5
FY12E
38.3 16.0 0.9 1.8 15.8 22.6 20.7 3.2 8.5 10.9 7.5 2.1
FY13E
35.6 11.8 1.0 1.9 15.8 18.2 15.9 2.9 8.2 12.1 6.6 1.8
500 400 300 200

10x 25x
400
4x
300
20x 15x 3x
200
2x
100 0 Feb-08
100
5x
1x
Dec-08 Sep-09 Jul-10 Apr-11
Feb-08
Dec-08
Sep-09
Jul-10
Apr-11
57
RESEARCH
IL&FS TRANSPORTATION NETWORKS LTD.

ITNL's emergence as a leading player in BOT space is here to stay with likely 1000km of win over next 2yrs (+700km in FY10-FY11). In the medium term we would like to see and assess more the performance of its BOT assets, given that initial phase could be low in profitability (Consolidated project IRR), also EPC capability is low (outsourced model) leading to lower valuation multiple for the business. We recommend HOLD rating. Strong wins in last two years - the run should continue... ITNL has a total of 12,000 lane km, which includes the AlmatyHorgos project. ITNL added 2,851lane km in FY10, and 2,600 lane km in FY11. Given the high NHAI and State outlay, we expect the momentum to continue. We forecast ITNL to win 525km and 520km projects in FY12E and FY13E. Our estimates are based on ITNL's 4.5% - 5% share in NHAI projects and rest from state projects. BOT Performance - Mixed bag The current portfolio is a mixed bag, though the projects are relatively new. Performance of RIDCOR (ph I) and West Gujarat need to improve. RIDCOR (ph I) will generate profit only by FY16. Valuation could be impacted... in the initial stage ITNL has eight projects that are debt heavy, most of which are loaded with sub-debt financed by ITNL at higher interest rate. A project may not be profitable initially but ITNL would be able to garner cash as interest income from such projects. Fee and Interest income could not be strong value drivers. From fee to EPC ITNL will keep a light balance sheet and outsource work to local or tier-II contractors. But as ITNL does not build infrastructure towards building EPC capability, there is no incentive for investors to provide attractive multiples to EPC revenue. VALUATION AND RECOMMENDATION We recommend a HOLD rating with a SOTP based target price of Rs254, we have not valued the MP border check post and Chhattisgarh project, the total value of the BOT projects is Rs115 (Rs22.2bn), EPC business has been valued at 7x (light asset model) at Rs125 per share and Elsamex at Rs14 per share (1x equity invested)
STOCK DATA
Market Cap Book Value per share (FY12) Eq Shares O/S (F.V. Rs10) Free Float Avg Traded Value (6 mnths) 52 week High/Low Bloomberg Code Reuters Code
HOLD CMP Rs217 TP Rs254

29 April 2011
Initiating Coverage
Rs42.2bn. Rs131 194.3mn. 24.9% Rs30.7mn Rs368/189 ILFT IN ILFT.BO
PERFORMANCE (%)
Absolute Relative 1M 4.0 2.1 3M (18.4) (19.7) 12M (22.7) (30.8)

FY09 Net Revenues YoY Gr. (%) Operating Profit OPM (%) Adj. Net Profits YoY Gr. (%) 12,254 1,833 15.0 (179) (1.0) 18.4 5.9 5.7 38.1 FY10 24,029 96.1 7,942 33.1 3,295 (1,941.2) 17.0 21.0 27.0 12.8 2.9 8.8 FY11E 33,933 41.2 10,441 30.8 3,946 19.7 20.3 17.7 21.5 10.7 2.1 6.7 FY12E 55,452 63.4 12,344 22.3 4,213 6.8 21.7 15.4 19.4 10.0 1.3 5.7
Rs mn FY13E 68,905 24.3 16,000 23.2 5,177 22.9 26.6 12.4 20.1 8.2 1.0 4.4 58
ILFT 390 330 270 210 150 May -10 BSE (Rebased)
KEY RATIOS
Aug-10
Oct-10
Jan-11
Apr-11
RESEARCH
IL&FS Transportation Networks Ltd.
The BOT Portfolio

BOT Details
Particulars East Hyd Expressway Guj Rd & infra IRIDCL (Beawer Gomti) North Karnataka (Belgaum) Expressway West Gujarat Expressway Andhra Pradesh Expressway Hazaribagh ranchi Expressway Pune-Sholapur Jharkhand Rd Moradabad Chenani - Nashria Chhattisgarh Noida Toll Ramky Elsamex Thiruvanthapuram (Phase I & II) RIDCOR Jorabat - Shillong Narketpally - Addanki Chandrapur - Warora Total Source: Company, PINC Research Total Cost ( Rs mn) 4,278 4,657 3,550 5,995 2,758 7,871 8,692 14,027 14,078 19,836 39,842 23,000 5,888 3,994 3,724 16,180 8,240 17,289 6,700 210,598 Total Equity 293 1,265 400 1,000 400 337 1,310 1,600 1,702 2,217 5,194 4,693 3,308 450 1,491 1,000 840 2,343 1,760 31,604 Length (kms) 13 131 116 78 67 75 71 101 98 121 11 684 8 13 42 1,053 62 213 61 3,018 Lane Km 173 523 248 472 389 328 319 571 466 522 38 1,368 60 152 158 2,106 262 888 275 9,318 Holding (%) 74% 84% 100% 87% 100% 100% 74% 100% 100% 100% 100% 74% 25% 26% 50% 50% 50% 50% 35% Stake (km) 10 110 116 68 67 75 53 101 98 121 11 506 2 3 21 527 31 107 21 2,046 Stake Lane (km) 128 437 248 411 389 328 236 571 466 522 38 1,012 15 40 79 1,053 131 444 96 6,644 Equity invested till date* 293 1,265 400 1,006 400 337 1,311 1,600 851 1,108 3,308 450 1,015 250 210 469 352 14,625
* not adjusted for stake
Strong wins in last two years

ITNLs BOT project size has increased substantially in the past two years. It has a total of 12,000 lane km, which includes the Almaty-Horgos project (1,212 lane km). ITNL added BOT projects with lane km of 2,851 in FY10, and 2,600km in FY11.
BOT Projects won in FY10

Projects Hazaribagh Ranchi Expressway Pune-Sholapur Moradabad Jharkhand Rd Mega Highway Rajasthan Chandrapur Warora Total Source: Company, PINC Research TPC (Rs mn) 8,692 14,027 19,836 14,078 7,500 6,700 70,833 length km 71 101 121 98 349 61 801 lane km 319 571 522 466 698 275 2,851

Projects Chenani - Nashria Jorabat - Shillong Narketpally - Addanki MP entry point Total Source: Company, PINC Research TPC (Rs mn) 37,200 8,240 17,605 10,940 73,985 length km 11 62 213 285.9 lane km 38 262 888 1,188
59
RESEARCH
The run should continue...

Lane km growth chart
Operational Adj. length km 2,000 1,664 1,500 Length km 1,086 782 782 803 1,129 994 1,007 1,000 500 FY09
Operational+Underconstruction Adj. length km 1,774
1,454
FY10
FY11
FY12E
FY13E
Given the high projected NHAI outlay and state projects, we expect the momentum to continue. We forecast ITNL to win 525km and 520km projects in FY12 and FY13. Our estimates are based on ITNLs 4.5%-5% share in NHAI projects and rest from state projects. This will enhance near-term performance and help record higher revenue from construction, fee income and O&M. Thus, we believe that business growth is not a concern over the next 2-3 years.
Consolidated sales mix

Construction Rev enue 100% 75% 50% 25% 0% FY10 FY11E FY12E FY13E 48.5 58.8 73.7 74.1 3.8 9.3 38.4 Elsamex 1.4 11.5 28.4 Toll/Annuity 0.9 8.3 17.2 Fee Income 0.6 11.6 13.7
Consolidated sales growth

Construction Rev enue Toll/Annuity Grow th (%) 96.1% 60,000 40,000 2,242 20,000 9,230 11,642 FY10 41.2% 3,887 9,621 19,958 FY11E FY12E 4,580 9,523 63.4% 40,867 51,083 24.3% Elsamex Fee Income 7,961 9,426
(Rs mn)
80,000
120.0% 90.0% 60.0% 30.0% 0.0%
FY13E
Standalone sales mix

Construction Rev enue 100% 75% 50% 25% 0% 13.86 FY10 FY11E FY12E FY13E 81.71 54.75 72.31 77.65 4.43 4.21 41.04 Fee Income 3.29 24.41 O&M Income 3.47 18.87
Standalone sales growth

Construction Rev enue O&M Income 0 32,000 24,000 16,000 8,000 FY10 FY11E FY12E FY13E 374 6,908 553 5,386 55% 51% 16% 540% 800 650 4,829 4,346 Fee Income 0 Grow th (%)
(Rs mn)
600%
400%
200%
0%
Source: Company, PINC Research 60
RESEARCH
But in the long run, quality/performance of BOT assets is the key

As business growth risk is low given the opportunity, we believe in the long run quality of BOT assets will be looked at as the essential value driver, although we believe this scenario is at least 2-3 years away.

Guj Rd & Infra (Ahm Vadodara) Particulars Sales EBITDA EBITDA margin (%) PAT PAT (%) Eff interest rate Source: Company, PINC Research FY09 659.7 532.7 81% 96.6 15% 12% FY10 747.4 623.0 83% 181.8 24% 13% FY11E 828.6 695.9 84% 239.6 29% 13% FY09 225.3 122.2 54% -85.4 -38% 10% West Gujarat FY10 311.7 210.1 67% -166.1 -53% 13% FY11E 329.7 224.4 68% -129.5 -39% 13% FY09 572.0 N.A N.A N.A N.A N.A RIDCOR FY10 826.1 636.0 77% -1,535.9 N.A 10.4%
(Rs mn)
FY11E 1,056.1 908.2 86% -1,351.9 N.A 10.5%
Performance of ITNLs BOT assets as of FY10

ITNLs operational BOT portfolio is relatively new and does not provide a complete overview of future performance. ITNL follows the practice of awarding tolling contracts which is reviewed yearly. Hence it is a learning curve and BOT projects take 618 months to achieve true traffic potential. The current portfolio is a mixed bag, though the projects are relatively new. Performance of RIDCOR (phase I) has to improve substantially and we have not factored in phase II as it is likely to be operational by FY14. We believe Phase I will generate profit only by FY16. Based on FY10, ITNL booked consolidated revenue of Rs2.2bn, which is adjusted for capital charge on annuity. Excluding RIDCOR, we expect consolidated PAT of Rs150 250mn. Based on the 9-month FY11 performance, we expect revenue from ITNLs tolled operational assets to grow at 43.8% in FY11E, including RIDCOR. The Guj Rd & Infra Ltd underwent CDR package and ITNL is assured of a guaranteed return in the project.
Project wise capital structure

Projects East Hyd Expressway Guj Rd & infra IRIDCL (Beawer Gomti) North Karnataka (Belgaum) West Gujarat Andhra Pradesh Exp Hazaribagh ranchi Pune-Sholapur Jharkhand Rd Moradabad Chenani - Nashria Thiruvanthapuram (Ph I&II) RIDCOR (Ph I) Jorabat - Shillong Narketpally - Addanki Chandrapur - Warora Source: Company, PINC Research vinod.nair@pinc.co.in subramaniam.yadav@pinc.co.in 61 TPC (Rs mn) 4,278.0 4,657.0 3,550.0 5,995.0 2,758.0 7,870.9 8,692.0 14,027.0 14,078.0 19,836.0 39,841.7 3,724.0 16,180.0 8,240.0 17,288.6 6,700.0 Equity 293.0 1,265.4 400.0 1,000.0 400.0 337.0 1,310.0 1,600.0 1,702.0 2,216.6 5,194.2 1,491.0 1,000.0 840.0 2,343.4 1,760.0 Grant 776.5 390.0 180.0 0.0 0.0 2,850.0 0.0 4,433.0 2,150.0 4,670.2 1,760.0 Debt 3,208.7 3,391.6 2,760.0 5,278.0 1,974.0 7,533.9 7,382.0 9,577.0 12,375.0 13,187.0 34,647.5 2,233.0 14,355.0 7,400.0 10,274.9 3,180.0 D/E 11.0 2.7 6.9 5.3 4.9 22.4 5.6 6.0 7.3 5.9 6.7 1.5 14.4 8.8 4.4 1.8 D/E&Grant 3.0 3.5 3.4 2.2 7.3 2.0 4.6 1.5 0.9 D/TPC 0.75 0.73 0.78 0.88 0.72 0.96 0.85 0.68 0.88 0.66 0.87 0.60 0.89 0.90 0.59 0.47
RESEARCH
Valuation could be impacted... in the initial stage

Hence, other than traffic and tariff growth, the capital structure of BOT assets will play an important role in determining profitability of the projects and RIDCOR is a good example of this. ITNL has eight projects that are debt heavy, most of which are loaded with sub-debt financed by ITNL at higher interest rate. Hence, we would like to highlight that although a project may not be profitable initially, ITNL would be able to garner cash as interest income from such projects. However, profitability for such projects at the initial stages may suffer, impacting valuations.
Project IRR table for projects under construction

Project East Hyderabad Expressway Ramky Elsamax (Hyd RR) Hazaribagh Ranchi Pune Solapur Moradabad Jharkhand Road Chennani Nashri Warora-Bamini Jorbhat shillong Narkatpally-Addanki Source: Company, PINC Research Project IRR (%) 0.6 1.5 1.5 6.6 3.7 2.6 4.4 10.1 3.6 6.6 Equity IRR (%) 2.2 4.2 8.8 12.6 18.4 16.5 16.7 17.8 6.6 18.0 D:E 3.0 6.4 5.6 6.0 5.9 7.3 6.7 1.8 8.8 4.4
Consolidated project IRR...key to decision making

We would also like to highlight that for ITNL, a BOT project is not a pure project IRR game from traffic and tariff growth perspective. In other words, profitability from toll revenue or annuity alone is not a deciding factor for ITNL. Hence, to arrive at consolidated project IRR, we would need to fully analyze a project across the entire revenue chain comprising fee, construction, and O&M income and interest earned on sub-debt. Further, having IL&FS as a parent would also play a significant part here (financing).
EPC/Fee Income to drive growth...wait and watch for BoT performance

Following this analysis (low profitability in initial phase), we examine that EPC revenue and fee income that will drive valuation over the next 2-3 years following which these would depend on the new NHAI/State outlay plans. By this time, the BOT assets would be more mature and provide a better visibility of likely performance. ITNL has a large annuity portfolio. Further, heavy debt projects may limit substantial value accretion. However, it is too early to comment on this. Moreover, ITNL would earn sizeable income from interest on sub-debt, although it will be netted off during consolidation of other income. Nevertheless, this will leave cash for future growth plans. We would not assign a high multiple of such cash flow. Ultimately, we need to see how the BOT companies evolve their business plans and use BOT cash toward new business avenues.
62
RESEARCH
EBITDA Mix Consolidated

BOT Consolidated Standalone Ebidta 100% 80% 60% 40% 20% 0% FY10
Source: PINC Research
EBITDA Mix Standalone

Non BOT Indian Subsidiaries Elsamex Ebidta
Construction Rev enue 100% 1.4 1.9 Fee Income 2.1 O&M Income 2.5
5.3
4.6
3.9
2.9 43.9 3.9
75% 96.2 82.8 69.4 62.0
66.2
56.4
56.1
50%
3.8 4.2 24.2 35.1
3.8 36.3 49.2

25% 2.5 FY10 15.3 FY11E 28.5 FY12E 35.4
0%
FY11E
FY12E
FY13E
FY13E
From fee to EPC

ITNL envisages a change in its revenue model from a fee-based income stream where it charged 5%20% of the cost of the project to the respective SPV as project development charges. Henceforth, ITNL will bring down the fee income structure to 3% over the next few years. Instead, ITNL would start booking construction/EPC revenue through the respective SPVs or the standalone entity. This will lead to income being deferred over a longer period. Strong growth in order book and gradual reduction in fee income will take care of any adverse reduction/impact on profitability.
Maintain light balance sheet

We would like to highlight that increasing EPC revenue is not at the cost of increase in capital equipment or construction ability. ITNL will keep a light balance sheet and outsource work to local or tier-II contractors. This will help ITNL from taking on construction risks and WC management issues. Arithmetically, its more a transfer of fee income to EPC margins with a large top line.
63
RESEARCH
Change in revenue booking Change in revenue booking - No impact

Particulars Earlier Model Fee Income Margin assumed @ 80% Current Model Fee Income Margin assumed @ 60% Construction Revenue Margin assumed @ 10% Total EBITDA Source: Company, PINC Research 5,386 3,231 19,958 1,996 5,227 4,829 2,897 40,867 4,087 6,984 4,346 2,607 51,083 5,108 7,716 6,240 4,992 8,112 6,490 9,734 7,787 FY11E FY12E (Rs mn) FY13E
It is difficult to assess the immediate impact of the change of the revenue model on valuations. Neverthelss, we try to arrive at a fair picture using a pro-forma estimate. We believe had ITNL continued with its fee income model, it would have earned fee income in its standalone entity of Rs8bn for FY12, based on 8.4% rate to the order book as in FY10. Much of this fee income would have flown to the consolidated profitable entity. Against this, we expect ITNL to book Rs40bn construction revenue with EBITDA of Rs3.6bn. Thus, the change in revenue model appears more as deferment of income since construction would be executed over 2-3 years. As ITNL does not build infrastructure towards building EPC capability, there is no incentive for investors to provide attractive multiples to EPC revenue.
64
RESEARCH
Order Book - Not an issue Order Book

NHAI Projects 160,000 15,846 17,431 32,471 120,000 80,000 40,000 FY11E
Source: Company, PINC Research (Rs mn)
Non NHAI Projects
Non Roads
Order book is likely to grow at a CAGR of 11% over FY11E-FY13E...
14,406 22,056
28,796
86,139
96,532
99,174
FY12E
FY13E
Our Order book assumption is understated by the likely order wins from non road projects and O&M contracts. We have assumed an average project cost per km of Rs105mn - Rs115mn for ITNL...
Road win assumptions

FY09 NHAI (km) Outlay (Rs mn) Avg Cost per km Awards Ashoka IRB ITNL 60 89 6.1 9.1 16 24 383 302 214 11.9 9.4 6.7 383 284 177 309 280 114 74 5.4 2.2 1.4 280 114 43 213 228 520 325 260 3.5 8.0 5.0 4.0 200 280 560 320 280 3.5 7.0 4.0 3.5 200 979 129,210 132 FY10 3,216 305,415 95 FY11 5,208 349,393 67 FY12E 6,500 520,000 80 FY13E 8,000 560,000 70
A single win like Chenani could lead to high growth in order book...
Sadbhav Share (%) Ashoka IRB ITNL Sadbhav Adjusted for stake Ashoka IRB ITNL Sadbhav State km award ITNL Source: Company, PINC Research
Order inflow or business growth is not the concern for ITNL
65
RESEARCH
Other Business ventures

Apart from BOT road projects, ITNL is keen to look at other urban infrastructure projects on a case-to-case basis. Nevertheless, in the medium term, the emphasis will continue to be on BOT road assets. Currently, the non-road proportion of assets is small and not a significant value driver. These are possible building tools for the next leg of business value. Rapid Metro Rail Gurgaon Ltd The company will develop the first fully privately financed Metro Rail project in private sector in India: the Metro Link from Delhi Metro Sikanderpur Station on MG Road to NH-8 over 60 meter wide sector road (Vishwakarma Marg) and on the green belt along NH-8 with provision for future extension to Sector 55-56 in South and Udyog Vihar and Sector-21 Dwarka in North. The route length of the metro link is approx. 5km. As a first step in this direction, the company received LOI from HUDA (Haryana Urban Development Authority) in July 2009 and subsequently it signed a 99 years Concession Contract (CC) with HUDA in December 2009. The project is expected to be completed in 30 months time after achieving financial closure. As of March 31, 2010, company incurred capital expenditure of Rs303.9mn. The project has been financially closed in FY10 and debt of Rs7,700mn has been tied up. We have not yet valued the project as we await further details. ITNL now holds 100% stake in the venture (35% directly and 65% through ITNL Enso Rail System). Vansh Nimay Infrastructures The project involves running and maintaining the Nagpur City Bus Services on BOO basis (Build, Own and Operate) for the Municipal Corporation of Nagpur (NMC) for concession period of 10 years since February 9, 2007. The project was approved under the JNNURM scheme. Initially, the plan was to operate 200 buses. Subsequently, the scope of the project increased by 300 more buses to a total of 500. ITNL currently operates more than 400 buses. The total project cost is Rs720mn of which Rs560mn comprises term loans, the balance being funded by NMC (70:30). NMC asked VNIL to fund 30% of the cost of acquisition of buses against operation and maintenance obligations as well as collection of fare and other revenue as per mutually terms agreed between NMC and VNIL. The agreement provides for an extension of the concession period by another 5 years subject to satisfactory operations of the Project by VNIL. We do not value the project; the equity capital of the project is Rs100mn with accumulated losses of Rs107mn. Total revenue of the project as on FY10 stood at Rs283mn. ITNL is not investing further equity in the project. Its stake in the project is 90% and capex is funded through term loans, grants and internal accruals. MP border check post project In FY11, ITNL bagged the border check post upgradation and operation project of Rs10.9bn from the state of Madhya Pradesh (MP). ITNL will have 51% stake in a consortium with Spanco. The scope involves management of 24 border check posts in MP for 12.5yrs including a two-year construction period. The project is to achieve financial closure; we do not value the project and await project details.
66
RESEARCH
Regional Airport The Karnataka Govt awarded two minor airports to ITNL and Comet group consortium at Gulbarga and Shimoga with a total project cost of Rs4000mn. ITNL will hold 40% in the project. We do not value the project and await project details. Elsamex SA ITNL acquired 90% in Elsamex (now 100%) in March 2008 for Rs766.54mn with debt on book of ~Rs7bn. In FY10, Elsamex (standalone) recorded revenue of Rs7bn and net profit of Rs121mn. Elsamex earns major revenue from maintenance contracts of BOT assets in Road and Gas stations. Its maintenance business has very thin margins due to high fixed and interest costs. Since acquisition of Elsamex, ITNL infused further capital; as of March 2010, ITNLs accumulated investment stands at Rs2,722mn. We do not expect ITNL to invest further capital in Elsamex. Given the thin EBITDA margin and uncertainty of European economy, we value Elsamex at 1x of equity investment.
Elsamex consolidated P/L

(Rs mn) Revenues Other Income EBIDTA EBIDTA % Interest Depreciation PBT Tax PAT Source: Company, PINC Research CY 08 10,750 9 248 2.3% 292 69 (80) (12) (68) CY 09 10,343 7 441 4.3% 463 49 (67) 71 (137)
67
RESEARCH
Valuation
BOT value Rs144 per share We value ITNLs BOT assets on FCFE basis. We assume CoE of 14% for all projects under construction. We have discounted operational projects at 12% for annuities and 13% for tolled projects. We value the Noida project at current Mcap at 10% holding discount. We have excluded the Chhattisgrah and MP border projects from our valuation as we await FC and project details. The total value of BOT project based on our calculation adjusted for stake is Rs22.2bn (adj for stake) against an equity investment of Rs10bn FY11E and Rs13bn in FY12E, i.e. 2.3x and 1.7x respectively. We believe this is reasonable, given the initial development stage of most of ITNLs assets. Construction divisionRs143 per share We value the construction division based on consolidated EPC EBITDA for FY12E at 8x. We have accorded a lower-than-peer EV/EBITDA multiple as it is a pure outsourcing and low-capex model. The fee income is transferred to another division as construction margins. We conservatively assume EBITDA margin of 8.59%. However, we believe that given the light balance sheet model, ITNL can book higher margins, which would surprise us on the upside. We do not accord any value to cash in book in the standalone entity. ElsamexRs14 per share Standalone numbers of Elsamex improved in FY10 and we believe this is likely to be maintained in FY11. Further, given that a full picture of Elsamex, valuing the company would be complicated. Elsamex works on thin margins. During FY10, the standalone entity reported 5.8% margin whereas our calculations suggest a margin of 4.3%. Thus, we assume 5% margin. Given the heavy debt structure of Elsamex and the fact that limited information is available on the company, we do not consider EV/EBITDA a reliable valuation tool. Equity invested until date by ITNL in Elsamex is Rs2,722mn. So we value the venture at 1x of equity invested.
P/E - One year Forward P/BV - One year forward
P/E Av g+1std dev 19 16 13
Av . P/E Av g-1std dev
P/BV 4.0 Av g+1std dev
3.0
2.0
10 7 Mar-10 Jul-10 Oct-10 Jan-11 Apr-11

1.0 Mar-10
Jul-10
Oct-10
Jan-11
Apr-11
68
RESEARCH
SOTP Valuation
Particulars East Hyd Expressway Guj Rd & infra IRIDCL (Beawer Gomti) North Karnataka (Belgaum) Expressway West Gujarat Expressway Andhra Pradesh Expressway Hazaribagh ranchi Expressway Pune-Sholapur Jharkhand Rd Moradabad Chenani - Nashria Chhattisgarh Noida Toll Ramky Elsamex Thiruvanthapuram (Phase I & II) RIDCOR Jorabat - Shillong Narketpally - Addanki Chandrapur - Warora BOT Valuation EPC business Ebidta Multiple Valuation Elsamex Book Value Multiple Valuation Total Source: Company, PINC Research 2,722 1 2,722 14 254 3,474 7 24,316 125 Length (km) 13 131 116 78 67 75 71 101 98 121 11 684 8 13 42 1,053 62 213 61 Holding (%) 74% 84% 100% 87% 100% 100% 74% 100% 100% 100% 100% 74% 25% 26% 50% 50% 50% 50% 35% TPC (Rs mn) 4,278 4,657 3,550 5,995 2,758 7,871 8,692 14,027 14,078 19,836 39,842 23,000 5,888 3,994 3,724 16,180 8,240 17,289 6,700 Equity (Rs mn) 293 1,265 400 1,000 400 337 1,310 1,600 1,702 2,217 5,194 4,693 3,308 450 1,491 1,000 840 2,343 1,760 D:E 3.0 2.7 6.9 5.3 4.9 22.4 5.6 6.0 7.3 5.9 6.7 0.5 6.4 2.6 14.4 8.8 4.4 1.8 NPV 366 4,002 434 901 1,025 (506) 1,023 2,331 894 1,254 1,060 1,274 188 81 4,582 757 1,927 682 NPV / Share 1.9 20.6 2.2 4.6 5.3 (2.6) 5.3 12.0 4.6 6.5 5.5 6.6 1.0 0.4 23.6 3.9 9.9 3.5 115
69
RESEARCH

Income Statement
FY09
1,321 368 801 1,169 27 1,142 596 546 296 404 250 1.5 1.5 -
FY10
8,455 540.1 5,479 868 6,346 443.0 43 6,303 1,425 4,878 1,724 3,247 3,154 1,163.7 16.2 16.2 1,015.0
FY11E
13,123 55.2 5,894 938 6,832 7.6 100 6,732 1,439 5,293 1,928 3,366 3,366 6.7 17.3 17.3 6.7
FY12E
19,782 50.7 6,924 1,004 7,927 16.0 142 7,785 2,145 5,640 2,031 3,610 3,610 7.3 18.6 18.6 7.3
FY13E
23,025 16.4 7,023 1,074 8,096 2.1 204 7,892 2,500 5,392 1,941 3,451 3,451 (4.4) 17.8 17.8 (4.4)
Cash Flow Statement

FY09
700 27 (396) 596 (445) (67) (151) (26) (36) 345 71 (2,369) 3,310 (325) (593) 2,337 (58)
FY10
4,971 43 (538) 1,425 (2,105) (4,445) 5 (720) (276) (9,882) 970 (9,543) 5,758 7,610 (214) (1,452) 11,665 1,402
FY11E
5,293 100 1,439 (1,924) (4,195) 3 716 (464) (3,500) (3,964) 6,000 (680) (1,439) 3,882 633
FY12E
5,640 142 2,145 (2,026) (7,994) (2,093) (409) (3,500) (3,909) 1,500 (680) (2,145) (1,325) (7,327)
FY13E
5,392 204 2,500 (1,937) (4,864) 1,296 (393) (3,500) (3,893) 4,500 (680) (2,500) 1,320 (1,277)
Balance Sheet
FY09
1,714 5,951 7,665 7,190 14,855 331 26 5,915 8,611 (2) 14,855
FY10
1,943 13,815 15,758 15,250 31,008 100 1,429 16,955 13,954 (2) 31,008
FY11E
1,943 16,501 18,444 21,250 39,694 393 2,060 21,851 17,454 (4) 39,694
FY12E
1,943 19,431 21,374 22,751 44,125 551 (5,267) 22,626 20,954 (6) 44,125
FY13E
1,943 22,203 24,145 27,251 51,396 597 (6,544) 26,353 24,454 (8) 51,396
Key Ratios
FY09
27.8 18.9 0.6 0.9 1,735 17.5 10.5 42.4 152.4 149.2 134.7 4.0
FY10
64.8 37.3 1.4 1.0 658 27.9 27.7 6.6 10.2 13.4 13.2 2.4
FY11E
44.9 25.6 1.4 1.2 540 19.0 19.7 4.3 9.5 12.5 12.2 2.1
FY12E
35.0 18.2 1.4 1.1 506 18.6 18.1 2.8 8.1 11.7 11.2 1.8
FY13E
30.5 15.0 1.4 1.1 512 12.5 15.2 2.4 8.0 12.2 11.5 1.6
70
RESEARCH
Income Statement

33,933 41.2 10,441 772 11,213 29.8 616 10,598 4,431 6,167 2,159 3,946 3,946 19.7 20.3 20.3 19.7
FY09
12,254 1,833 625 2,458 353 2,105 1,743 362 483 263 (179) (1.0) (1.0) -
FY10
24,029 96.1 7,942 694 8,637 251.3 603 8,033 2,941 5,093 1,858 3,445 3,295 NM 17.0 17.0 NM
FY12E
55,452 63.4 12,344 850 13,193 17.7 717 12,477 5,872 6,605 2,312 4,213 4,213 6.8 21.7 21.7 6.8
FY13E
68,905 24.3 16,000 926 16,926 28.3 867 16,059 7,972 8,088 2,831 5,177 5,177 22.9 26.6 26.6 22.9
Cash Flow Statement

Profit before tax Depreciation Income from inv & int. (profit) Interest paid Taxes Other operating activities Cash from operations Net capital expenditure Net Investments Interest & dividend recd Cash from inv. activities Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Other financing activities Cash from finan. activities Inc/(Dec.) in cash
FY09
804 353 (246) 1,743 (572) (437) 175 338 539 (1,046) (184) 10,734 (1,751) (8,902) (300) (308)
FY10
5,242 603 (434) 2,941 (1,903) (3,008) 13 3,190 (5,372) (4,137) (5,349) (14,586) 5,758 29,134 (2,941) (16,475) 15,226 3,830
FY11E
6,167 616 4,431 (2,079) (2,148) 599 7,586 (8,400) (500) (10,100) (19,000) 16,000 (4,431) (4,399) 10,922 (493)
FY12E
6,605 717 5,872 (2,217) 261 65 11,302 (8,550) 500 (15,000) (23,050) 19,000 (5,872) 50 12,499 751
FY13E
8,088 867 7,972 (2,751) (4,123) 65 10,118 (8,550) 500 (15,000) (23,050) 23,000 (7,972) 60 14,409 1,477
(Inc)/Dec in working capital (1,321)
Balance Sheet
FY09
1,714 7,148 9,212 774 18,542 28,528 1,633 1,601 13,461 2,010 11,424 28,528
FY10
1,943 14,744 17,036 1,118 33,215 51,370 1,323 5,502 29,624 4,544 15,879 51,370
FY11E
1,943 18,010 20,303 1,150 49,215 70,668 1,608 4,493 38,263 5,044 25,754 70,669
FY12E
1,943 21,544 23,837 1,200 68,215 93,252 1,941 5,244 46,254 4,544 40,514 93,252
FY13E
1,943 26,042 28,334 1,260 91,215 120,810 2,125 6,721 59,353 4,044 55,289 120,810
Key Ratios
FY09
15.0 (1.5) 0.6 1.8 159 18.4 5.9 5.7 38.1 214.0 3.5
FY10
33.1 13.7 1.4 1.6 147 21.0 27.0 2.9 8.8 12.8 10.8 2.3
FY11E
30.8 11.6 1.4 2.2 127 17.7 21.5 2.1 6.7 10.7 9.3 1.9
FY12E
22.3 7.6 1.4 2.6 76 15.4 19.4 1.3 5.7 10.0 8.6 1.7
FY13E
23.2 7.5 1.4 3.0 83 12.4 20.1 1.0 4.4 8.2 7.0 1.4
450 370 290 210 130 Mar-10

16x 14x 12x 10x
400
2.8x
340 280 220
2.5x 2.2x 1.9x 1.6x
8x
Jul-10
Oct-10
Jan-11
Apr-11
160 Mar-10
Jul-10
Oct-10
Jan-11
Apr-11
71
RESEARCH
SADBHAV ENGINEERING LTD.

Sadbhav Engg (SEL) has a well-established EPC division with healthy historical performance. In the last two years, SEL has added 9 BOT assets, we believe in the near term, valuations could be driven by the performance in these assets, which are likely to ramp up only post FY13E. With no BOT wins in FY11, the strategy that SEL would adapt in FY12&FY13 would be watched eagerly. Execution in FY12E could be flat due to a flatish opening order book. We recommend a HOLD rating given the price outperformance post Q4FY11 results and near term growth bottleneck. A healthy core business generating cash SEL has a well-managed core EPC business, which is built on a healthy mix of road, mining and irrigation projects. The division has grown at 43% over the past five years. Although we expect this growth trend to even out over the next three years, we believe the core business would continue to generate cash. But growth could slow down for the core business
HOLD CMP Rs140 TP Rs165

29 April 2011
STOCK DATA
Market Cap Book Value per share (FY12) Eq Shares O/S (F.V. Rs1) Free Float Avg Traded Value (6 mnths) 52 week High/Low Bloomberg Code Reuters Code Rs21.0bn. Rs65 150mn 52.4% Rs22.0mn Rs164/94 SADE IN SADE.BO
Initiating Coverage
With no BOT win in FY11 and order inflow in the road segment down by 30% execution could slow down in FY12E. Nevertheless, given a competitive scenario especially in small-to-medium-sized BOT assets, the years ahead needs to be seen cautiously. The emphasis could be to execute the current projects in hand for SIPL than new wins in a competitive world. SIPL valued at Rs18bn to Rs20bn by PEwe value it at 28% discount Based on DCF, we arrive at a consolidated value of Rs18.2bn for all the nine projects (not adjusted for stake share). Adjusted for SIPL's stake share in the respective projects, the value is Rs14.4bn. We have considered the best-case scenario with share of 80% for SEL in SIPL, assuming SEL will increase its stake in SIPL by infusing Rs2bn. Hence at 80% stake, we value SEL at Rs11.6bn i.e. Rs77.3 per share. VALUATION AND RECOMMENDATION Although estimates for the core business are flat, we value the EPC at a healthy P/E multiple of 12x on FY12E, which is underpinned more by the inherent qualities of the business model. We value the BOT assets at Rs11.6bn i.e. Rs77.3 per share, adjusted for 80% stake in SIPL. We recommend a HOLD rating.
PERFORMANCE (%)
Absolute Relative 1M 24.8 22.5 3M 37.1 34.8 12M 9.1 (2.4)

FY09 Net Revenues YoY Gr. (%) Operating Profit OPM (%) Adjusted Net Profits YoY Gr. (%) 10,974 26.5 1,429 13.0 429 (19.6) 3.4 18.5 12.2 3.4 2.7 21.0 FY10 13,340 21.6 2,220 16.6 363 (15.4) 2.9 12.0 10.2 2.9 2.6 15.8 FY11E 23,362 75.1 3,324 14.2 933 157.2 6.2 12.1 15.1 6.2 1.7 11.9 FY12E 23,512 0.6 3,606 15.3 1,182 26.7 7.9 8.1 12.8 7.9 2.1 13.7
Rs mn FY13E 25,586 8.8 4,784 18.7 1,246 5.3 8.3 7.8 12.0 8.3 2.3 12.5 72
SADE 170 130 90 50 May -10 BSE (Rebased)
KEY RATIOS
Aug-10
Oct-10
Jan-11
Apr-11
RESEARCH
Sadbhav Engineering Ltd.
A healthy core businessgenerating cash

SEL has a well-managed core EPC business, which is built on a healthy mix of road, mining and irrigation projects. The division has grown at 43% over the past five years. Although we expect this growth trend to even out over the next three years, we believe the core business would continue to generate cash.
Sales Mix
Roads 28000 2,782 21000 2,200 14000 266 7000 0 FY08
(Rs mn)
Irrigation
Mining 2825.6 2397.5 2691.6 2423.1
1475 1462 7672
2021 752 9792 17,110 16649.8 17327.1
953 7481
FY09
FY10
FY11
FY12E
FY13E
Cash from operation graph

2,500 2,000 1,500 1,000 500 -(500) 283 FY07 (249) FY08 FY09 894 16 FY10 FY11A FY12E 2,101 1,448
(Rs mn)
1,774
FY13E
The mining division is the cash cow, and the primary reason for SEL's healthy blended margin of 11-11.5%. Hence the proportion if this business in the overall mix plays an important role in cash generation. Order book of the mining business increased to Rs10bn to be executed over 2-7yrs.
Why we expect growth to slow down for the core business

SEL's road segment drove bulk of growth in the core business. Furthermore, a major portion of this has come through own BOT asset wins over the past 2-3 years. But this momentum slowed down in FY11 and order inflow in the road segment reduced 30% with no NHAI wins. Nevertheless, given a competitive scenario especially in small-to-medium-sized BOT assets, the years ahead brim with promise.
73
RESEARCH
Order book scenario
Order book mix and growth graph

Roads 80000 60000 40000 20000 0 FY08 FY09 FY10 FY11 FY12E 2615 4760 17424 5305 9086 13253 6399 7063 52034 29928 51230 9205 6447 8830 9590 8411 9693 Irrigation Mining
(Rs mn)
54147
FY13E
We have factored in healthy 22.5% CAGR for the road segment over FY11-13E and we expect the opening total order book to grow at 7% CAGR FY11E-13E. Our expectation is based on average execution of 26% vs. 30%. Historically SEL used consortium partners to bid for BOT assets, based on which EPC work is assigned. We assume 4% share in NHAI projects for FY12 and 3.5% for FY13, but these are not adjusted for stake share. But the EPC order that would flow to SEL will also depend on the JV share as witnesses historically.
Healthy Balance sheet maintained

Despite exponential growth in BOT asset wins since FY09, SEL's standalone balance sheet remains healthy. The company has maintained gross debt/equity ratio well below 1x at 0.85x FY11E. With the BOT assets been transferred to Sadbhav Infrastructure Projects Ltd (SIPL) now, the burden of equity infusion would reduce.
Healthy working parameters

FY07 RoE (%) RoCE (%) RoIC (%) Asset Turnover NOPAT Debt equity ratio Book value per share 19.4 14.7 16.7 2.3 311.3 0.5 13.5 FY08 24.2 18.0 18.5 2.7 631.5 0.5 24.4 FY09 20.1 14.0 14.0 2.1 795.8 0.6 27.5 FY10 17.7 9.1 9.4 1.8 720.3 1.1 31.3 FY11 23.5 21.7 22.5 2.4 2041.4 0.6 41.7 FY12E 15.8 16.7 17.5 1.9 1975.2 0.7 48.1 FY13E 12.0 13.6 14.6 1.6 2001.3 0.9 53.5
74
RESEARCH
BOT performance BOT Details

Projects Mumbai Nashik Expressway Ahmedabad Ring Road Aurangabad Jalna Tollway Nagpur Seoni Expressway Maharashtra Border Check Post Network Dhule Palasner Tollway Hyderabad Yadgiri Tollway Rohtak Panipat Tollway Bijapur Hungund Tollway Total Source: Company, PINC Research Total Cost (Rs mn) 7,901 5,008 2,770 4,897 14,264 14,200 4,802 12,134 12,571 78,547 Total Equity 891 521 830 1,076 2,853 3,550 1,000 2,427 1,370 14,518 Length (kms) 100 76 66 56 0 89 36 81 97 601 Lane Km 398 304 276 226 422 392 143 323 389 2,873 Holding (%) 20% 80% 51% 51% 90% 27% 60% 100% 77% Stake (km) 20 61 34 29 0 24 21 81 75 344 Stake Lane 80 243 141 115 380 106 86 323 299 1,773 Equity invested till date* 891 105 20 578 1,141 2,308 600 243 548 6,433 Concession period 20 20 23.5 20 24.5 18 23 25 20 Equity of SIPL 178 417 423 549 2,568 959 600 2,427 1,055 9175
* not adjusted for stake
SEL currently has three operational BOT assets: Aurangabad-Jalna, Ahm Ring Road and Mumbai-Nashik, which are likely to emerge profitable by FY15. Similarly, our consolidated BOT analysis suggests that SIPL would start generating profit from FY15. We have assumed periodical maintenance to start from FY12 for Ahm Ring Road. So our EBITDA margin is lower, but for which profit would have been higher by ~Rs70mn in FY12 and Rs150mn in FY13.
SIPL Revenue statement

Particulars Revenues EBIDTA EBIDTA (%) Interest Depreciation PBT Tax PAT FY 11 1,357.2 1229.6 90.6 634.1 376.6 227.7 (0.6) 228.4 FY 12 1,639.5 1,375.1 83.9 8,16.3 536.6 31.5 (1.6) 33.1 FY 13 3,144.6 2,494.7 79.3 1,374.0 780.1 360.4 103.7 256.7 FY 14 7,738.5 6,005.7 77.6 4,063.8 1,498.1 464.1 141.5 322.6
(Rs mn) FY 15 8,427.1 6,647.8 78.9 4,272.1 1,721.3 675.1 54.7 620.4
Please note: Toll revenue does not include Mumbai Nashik and Dhule Panesar
In case of the Nagpur-Saone project, we have valued only 50% of the project assuming 50% of annuity payment. We have assumed no further capex for the project and await the final order from NHAI. Based on our project analysis, we believe it will be time since we start seeing book and cash profit from the projects. However, that is also typical for most BOT projects. Further, we believe that much would depend on new project wins for SEL that are becoming competitive. Although the core business is likely to do well, it will be under pressure to generate cash for future BOT wins.
75
RESEARCH
SIPL valued at Rs18bn to Rs20bn by PEwe value it at 28% discount

Norwest Venture Partners and Xander Group Inc infused Rs4bn in SIPL in Aug'10 for 22.2% stake, valuing the entity at Rs18bn, SEL has the right to bring in Rs2bn more within 18 months and reduce the PE partners stake to 20%, which accords it a future valuation of Rs20bn. However, using the DCF-based approach, we arrive at a consolidated value of Rs18.2bn for all the nine projects (not adjusted for take share). Adjusted for SIPL's stake share in the respective projects, the value is Rs14.4bn. We have considered the best-case scenario with share of 80% for SEL in SIPL, assuming SEL will increase its stake in SIPL by infusing Rs2bn. Hence at 80% stake, we value SEL at Rs11.6bn i.e. Rs77.3 per share.
76
RESEARCH
Valuation
EPC standalone business
SEL has a well-established EPC division with healthy historical performance. In FY12E, we expect modest performance as order inflows in FY11 have not been encouraging. However, we expect momentum to pick up in FY13. Based on our current order inflow estimates, we expect the top line to grow at 15%. Although the debt level is not a concern, interest cost as a percentage of sales is expected to move up from 2.1% in FY11E to 3.4% in FY13E, based on 10% average cost of capital. Margins are expected to reach a historical high of 11.4% in FY11, which we have evened out to 11% in FY13, given the strong movement in commodity prices. The next impact is that profitability for the core EPC business is likely to be flattish for FY11-FY13E. The risks to our estimate are higher order wins and better execution in FY12, which SEL is capable of and which would surprise us on the upside. Although estimates for the core business are flat, we value the EPC at a healthy P/E multiple of 12x on FY12E, which is underpinned more by the inherent qualities of the business model.
BOT assets
We have valued the BOT business on DCF basis (FCFE). We are not valuing it using the P/E deal approach which is at 38% premium to our valuation as our analysis suggests profits are back-ended. We value the BOT assets at Rs11.6bn i.e. Rs77.3 per share, adjusted for 80% stake in SIPL.
P/E - One year Forward
P/BV - One year forward
P/E 45 35 25 15 5 Apr-07 Apr-08 Apr-09 Av g+1std dev
Av . P/E Av g-1std dev 6.0 4.5 3.0 1.5 Apr-10 Apr-11 Apr-07
P/BV Av g+1std dev
Apr-08
Apr-09
Apr-10
Apr-11
77
RESEARCH
SOTP Valuation
Particulars SPV's Aurangabad-Jalna Ahmedabad Ring Road Maharashtra Border Nagpur-Seoni Hyd Yadgiri Bijapur Hungund Rohtak Panipat Associates Mumbai Nashik Dhule Palesnar Total BOT Value Sadbhav Stake in SIPL Total BOT value per share PAT FY12E EPC Business 1,062 Multiple 12 Total Value 12,750 85 1,174 2,549 20,120 20% 27% 235 688 14,909 1.6 4.6 99 80% 80 1,026 1,966 7,639 122 295 2,647 2,703 51% 80% 90% 80% 60% 77% 100% 523 1,572 6,875 97 177 2,038 2,703 3.5 10.5 45.8 0.6 1.2 13.6 18.0 NAV Stake SEL's Stake Per Share
Total value per share CMP Appreciation Source: Company, PINC Research
165 140 18%
78
RESEARCH
Background
Sadbhav Engineering Ltd. (SEL) started by Mr Vishnubhai Patel in 1988, later took over its family owned business M/s Bhavna Construction Company in 1989. SEL is amongst the leading player in roads (both BOT & EPC), irrigation and mining. With its initial forte in irrigation and mining, the company forayed into roads in late 1990. In order to increase its footprint in BOT assets, SEL has partnered with other players to increase its bid capacity and win bigger projects. Currently out of nine BOT assets, the company has JV for eight of the projects. SEL has till date constructed more than 1370km of roads & highways & currently constructing ~1,180km. At present, SEL is working on 15 road projects, 12 irrigation and 9 mining projects with outstanding value of Rs77.8bn.
Evolution of the company

Awarded MultaiChindwara-Seoni and NarsinghpurAmarwaraChindwara-Saoner cash contract of Rs 14, 113 mn PE of INR 4 bn in SIPL by Norwest Venture Partners & Xander Group for 22.22%
Awarded Dhule Palasner BOT (DPTL)
ARRIL becomes the 1st BOT of SEL to be operational Listing with an IPO of Rs540 mn Bonus from NHAI for early completion of road project 2003 - 04 Completed first canal Syphon across Wartak river 2001 - 02 13.82 kms Kakrapar canal remodeled in 75 days 2000 - 01 1997 - 2004 Establishment 1989 - 90 1988 - 97 Entry Source: Company, PINC Research Appreciation letter from the world bank for quality of work Order Book crosses Rs10000 mn First BOT project MNEL 2005 - 06 2005 - 06 Growth Phase
Awarded Maharashtra Border Check Post BOT (MBCPNL)
2008 - 09 Awarded Hyderabad Awarded Yadgiri BOT Project Lakhanadon-Seoni (HYTPL) BOT (NSEL) 2007 - 08 Awarded Sardar Patel Ring Road BOT (ARRIL) Awarded Aurangabad Jalna BOT (AJTL) 2006 - 07 2006 - 2010 Asset Build up Awarded Rohtak Panipat BOT Project (RPTPL) Awarded Bijapur Hungund BOT Project (BHTPL) 2009 - 10
Executed largest portion of the canal work of Sardar Sarovar Nigam Executed first road project for L&T 1993-97 Awarded first Mining project 1992-93 Awarded first Irrigation project
Rights Issue of equity shares & warrants of Rs 1250 mn
2010 Creating Value
79
RESEARCH
Corporate Structure
Sadbhav Engineering Ltd
EPC Division
Sadbhav Infrastructure Project Ltd (SIPL)
Roads & Highways Operation Projects Irrigation Under Constructions
MNEL* - Toll
MBCPNL - Toll
Mining
ARRIL - Toll
DPTL - Toll
AJTL - Toll
RPTPL - Toll
NSEL - Annuity
HY TPL - Toll
HY TPL - Toll
* Partially operational
Management Bandwidth
Vishnubhai M. Patel, Promoter, Managing Director & Chief Executive Officer Vishnubhai Patel, 67 years, is the Promoter, MD and CEO of the company. He has earned over forty years of construction experience in the family business as partner of M/s Bhavna Construction Co, which was absorbed into SEL in 1988. The company has completed several high quality projects under his guidance, prominent being the canal woks done for Sardar Sarovar Narmada Project. He has also been a recipient of prestigious 'Udyog Ratna Award' for outstanding performance in the field of Industrial Development of the country.
Shashin V. Patel, Joint Managing Director Shashin Patel, aged 28 years, is on the company's board as the Joint MD since 2000. He is a post graduate in Business Administration from K.S. School of Business Management, Gujarat University. At SEL, his responsibilities include managing day to day affairs in consultation with the MD and making strategic management decisions. He is also in-charge of the MIS in the company.
80
RESEARCH
Nitin Patel, Executive Director (ED) Nitin Patel joined SEL in 1999 as an internal auditor and has subsequently grown to become the ED of the company. He is a certified Chartered Accountant and was associated with M/ s Manubhai & Co., Chartered Accountants before joining SEL. His current areas of responsibility include execution of project, human resources as well as overall functioning of corporate affairs. He was actively involved in the management of the Orissa project which dealt with widening and strengthening of the 2-lane carriage way of NH-5. He also plays an important role in policy implementation and liaison with banks & financial institutions for obtaining funds.
Ajay H. Kadia, Chief Financial Officer (CFO) Ajay Kadia, 27 years old, is associated with the company since 2005 as the CFO of SEL. He is a qualified Chartered Accountant and has a total work experience of four years. Prior to joining SEL, he was working with Jasmin B. Shah & Co., Chartered Accountants. He is currently heading the accounts department of the company and is responsible for all finance & accounts related matters.
81
RESEARCH

Income Statement
Revenues Growth (%) Operating Profit Other Income EBIDTA Growth (%) Depreciation & Amortization EBIT Interest Charges (Net) PBT (Before E/o items) Tax provision E/o Income / (Loss) Minority Interest Net Profits Adjusted Net Profits Growth (%) Diluted EPS (Rs) Growth (%)
FY09
10,609 18.0 1,067 133 1,200 12.9 157 1,043 214 829 196 633 633 20.7 5.1 20.7
FY10
12,565 18.4 1,373 170 1,543 28.6 233 1,310 331 980 441 538 538 (14.9) 4.3 (14.9)
FY11
22,092 75.8 2,258 52 2,310 49.7 269 2,041 284 1,757 562 1,196 1,196 122.1 8.0 85.1
FY12E
21,873 (1.0) 2,231 90 2,321 0.5 346 1,975 388 1,588 525 1,062 1,062 (11.2) 7.1 (11.2)
FY13E
22,442 2.6 2,289 100 2,389 2.9 388 2,001 600 1,402 487 915 915 (13.9) 6.1 (13.9)
Cash Flow Statement

Profit before tax Depreciation Income from inv & int. (profit) Interest paid Taxes (Inc)/Dec in working capital Other operating activities Cash from operations Net capital expenditure Net Investments Others Cash from inv. activities Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Other financing activities Cash from finan. activities Inc/(Dec.) in cash
FY09
829 157 128 (183) (63) 27 894 (277) (41) (441) (760) 608 (58) (221) 329 463
FY10
980 233 331 (393) (1,149) 15 16 (769) (53) (1,295) (2,117) 2,128 (58) (325) 1,745 (356)
FY11
1,757 269 284 (542) 333 2,101 (750) (1,823) (2,573) 1,250 (278) (105) (284) 583 111
FY12E
1,588 346 388 (500) (396) 23 1,448 (500) (1,388) (1,888) 1,200 (105) (388) 708 268
FY13E
1,402 388 600 (442) (197) 23 1,774 (550) (2,269) (2,819) 2,300 (105) (600) 1,596 550
Balance Sheet
FY09
125 3,310 3,435 2,111 5,546 1,545 100 2,856 1,246 (110) 5,546
FY10
125 3,790 3,915 4,239 8,154 2,101 448 4,752 1,441 (141) 8,154
FY11
150 6,108 6,257 3,961 10,218 2,298 846 4,817 3,265 (161) 10,218
FY12E
150 7,064 7,214 5,161 12,374 2,736 827 5,172 4,653 (186) 12,374
FY13E
150 7,874 8,024 7,461 15,485 2,899 1,377 5,896 6,922 (231) 15,485
Key Ratios
FY09
10.1 6.0 0.3 0.6 95 14.0 20.1 1.8 18.3 27.7 22.2 5.1
FY10
10.9 4.3 0.3 1.0 125 9.1 17.7 1.7 15.5 26.8 19.8 4.5
FY11
10.2 5.4 0.4 0.5 66 21.7 23.5 1.1 10.7 17.6 14.3 3.4
FY12E
10.2 4.9 0.4 0.7 73 16.7 15.8 1.2 11.7 19.8 14.9 2.9
FY13E
10.2 4.1 0.4 0.9 74 13.6 12.0 1.3 12.4 22.9 16.1 2.6
82
RESEARCH
Income Statement
Revenues Growth (%) Operating Profit Other Income EBIDTA Growth (%) Depreciation & Amortization EBIT Interest Charges (Net) PBT (Before E/o items) Tax provision E/o Income / (Loss) Minority Interest Net Profits Adjusted Net Profits Growth (%) Diluted EPS (Rs) Growth (%)
Year Ended March (Figures in Rs mn) FY11

23,362 75.1 3,324 199 3,523 45.4 679 2,844 1,435 1,409 639 (162) 933 933 157.2 6.2 114.3
FY09
10,974 26.5 1,429 142 1,570 378 1,192 618 575 197 (51) 429 429 (19.6) 3.4 (24.8)
FY10
13,340 21.6 2,220 202 2,423 54.3 564 1,858 1,132 726 459 (95) 363 363 (15.4) 2.9 (15.4)
FY12E
23,512 0.6 3,606 99 3,705 5.2 882 2,823 1,204 1,619 523 (87) 1,182 1,182 26.7 7.9 26.7
FY13E
25,586 8.8 4,784 120 4,904 32.3 1,168 3,736 1,974 1,762 590 (74) 1,246 1,246 5.3 8.3 5.3
Cash Flow Statement

Profit before tax Depreciation Income from inv & int. (profit) Interest paid Taxes (Inc)/Dec in working capital Other operating activities Cash from operations Net capital expenditure Net Investments Others Cash from inv. activities Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Other financing activities Cash from finan. activities Inc/(Dec.) in cash
FY09
378 378 528 (229) (948) 211 311 (2,734) 172 (252) (2,814) 3,306 (58) (619) 2,629 126
FY10
726 564 1,132 (393) 31 2,060 (769) (53) (1,295) (2,117) 2,128 (58) (325) 1,745 1,688
FY11
1,409 679 1,435 (611) (416) 138 2,635 (9,246) 610 (8,636) 3,250 5,471 (105) (1,435) 7,181 1,179
FY12E
1,619 882 1,204 (443) (714) (311) 2,236 (10,940) (200) (11,140) 10,961 (105) (1,204) 9,652 748
FY13E
1,762 1,168 1,974 (480) (539) 5 3,890 (11,822) (200) (12,022) 12,580 (105) (1,974) 10,502 2,370
Balance Sheet
FY09
125 3,397 3,522 678 9,383 13,582 10,118 324 3,307 255 (110) 13,582
FY10
125 3,480 3,605 583 14,554 18,742 13,001 507 5,015 864 (141) 18,742
FY11
150 8,578 8,728 2,012 20,026 30,765 24,385 1,365 6,289 254 (163) 30,765
FY12E
150 9,670 9,820 1,925 30,987 42,732 34,443 2,435 8,073 454 (238) 42,732
FY13E
150 10,826 10,976 1,851 43,567 56,394 45,097 4,804 10,981 654 (338) 56,394
Key Ratios
FY09
13.0 3.9 0.3 2.6 99 18.5 12.2 2.7 21.0 3.4 21.7 5.0
FY10
16.6 2.7 0.3 3.9 123 12.0 10.2 2.6 15.8 2.9 18.9 4.9
FY11
14.2 4.0 0.4 2.1 77 12.1 15.1 1.7 11.9 6.2 13.0 2.4
FY12E
15.3 5.0 0.4 2.9 88 8.1 12.8 2.1 13.7 7.9 10.2 2.1
FY13E
18.7 4.9 0.4 3.5 88 7.8 12.0 2.3 12.5 8.3 8.7 1.9
200
200
3.2x
150
30x 25x
150
2.4x
100
20x 15x
100
1.6x
50
10x
50
0.8x
0 Apr-07
Apr-08 Apr-09 Apr-10 Apr-11
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
83
RESEARCH
T E A M
EQUITY DESK
Sadanand Raje Head - Institutional Sales Technical Analyst sadanand.raje@pinc.co.in 91-22-6618 6366
RESEARCH
Vineet Hetamasaria, CFA Nikhil Deshpande Tasmai Merchant Vinod Nair Ankit Babel Hitul Gutka Subramaniam Yadav Madhura Joshi Satish Mishra Urvashi Biyani Naveen Trivedi Rohit Kumar Anand Ronak Bakshi Namrata Sharma Sakshee Chhabra Bikash Bhalotia Harleen Babber Dipti Vijaywargi Sushant Dalmia, CFA Suman Memani Abhishek Kumar C Krishnamurthy
Head of Research, Auto, Cement Auto, Auto Ancillary, Cement Auto, Auto Ancillary, Cement Construction, Power, Capital Goods Capital Goods Power Construction Power Fertiliser, Natural Gas, Engineering Fertiliser, Natural Gas, Engineering FMCG IT Services IT Services Media Media Metals, Mining Metals, Mining Metals, Mining Pharma Real Estate, Mid caps Real Estate, Mid caps Technical Analyst
vineet.hetamasaria@pinc.co.in nikhil.deshpande@pinc.co.in tasmai.merchant@pinc.co.in vinod.nair@pinc.co.in ankit.b@pinc.co.in hitul.gutka@pinc.co.in subramaniam.yadav@pinc.co.in madhura.joshi@pinc.co.in satish.mishra@pinc.co.in urvashi.biyani@pinc.co.in naveent@pinc.co.in rohit.anand@pinc.co.in ronak.bakshi@pinc.co.in namrata.sharma@pinc.co.in sakshee.chhabra@pinc.co.in bikash.bhalotia@pinc.co.in harleen.babber@pinc.co.in dipti.vijaywargi @pinc.co.in sushant.dalmia@pinc.co.in suman.memani@pinc.co.in abhishek.kumar@pinc.co.in krishnamurthy.c@pinc.co.in
91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618
6388 6339 6377 6379 6551 6410 6371 6395 6488 6334 6384 6372 6411 6412 6633 6387 6389 6393 6462 6479 6398 6747
SALES
Rajeev Gupta Ankur Varman Himanshu Varia Shailesh Kadam Ganesh Gokhale
Equities Equities Equities Derivatives Derivatives
rajeev.gupta@pinc.co.in ankur.varman@pinc.co.in himanshu.varia@pinc.co.in shaileshk@pinc.co.in ganeshg@pinc.co.in
91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618
6486 6380 6342 6349 6347
DEALING
Mehul Desai Naresh Panjnani Amar Margaje Ashok Savla Sajjid Lala Raju Bhavsar Kinjal Mehta Chandani Bhatia Hasmukh D. Prajapati Kamlesh Purohit
Head - Sales Trading Co-Head - Sales Trading
mehul.desai@pinc.co.in naresh.panjnani@pinc.co.in amar.margaje@pinc.co.in ashok.savla@pinc.co.in sajjid.lala@pinc.co.in rajub@pinc.co.in kinjal.mehta@pinc.co.in chandani.bhatia@pinc.co.in hasmukhp@pinc.co.in kamlesh.purohit@pinc.co.in
91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618
6303 6333 6327 6321 6337 6322 6333 6324 6325 6357
SINGAPORE DESK
Amul Shah amul.shah@sg.pinc.co.in 65-6327 0626
DIRECTORS
Gaurang Gandhi Hemang Gandhi Ketan Gandhi gaurangg@pinc.co.in hemangg@pinc.co.in ketang@pinc.co.in 91-22-6618 6400 91-22-6618 6400 91-22-6618 6400
COMPLIANCE
Rakesh Bhatia Head Compliance rakeshb@pinc.co.in 91-22-6618 6400
Infinity.com
bright thinking
Financial Securities Ltd
SMALL WORLD, INFINITE OPPORTUNITIES
Member : Bombay Stock Exchange & National Stock Exchange of India Ltd. : Sebi Reg No: INB 010989331. Clearing No : 211 1216, Maker Chambers V, Nariman Point, Mumbai - 400 021; Tel.: 91-22-66186633/6400 Fax : 91-22-22049195
Disclaimer: This document has been prepared by the Research Desk of M/s Infinity.com Financial Securities Ltd. (PINC) and is meant for use of the recipient only and is not for public circulation. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors The information contained herein is obtained and collated from sources believed reliable and PINC has not independently verified all the information given in this document. Accordingly, no representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. The opinion expressed or estimates made are as per the best judgement as applicable at that point of time and PINC reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval PINC, its affiliates, their directors, employees and their dependant family members may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through analysis of PINC. The views expressed are those of analyst and the PINC may or may not subscribe to all the views expressed therein This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. Neither this document nor any copy of it may be taken or transmitted into the United State (to U.S.Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in Japan or to any resident thereof. The distribution of this document in other jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions Neither PINC, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Copyright in this document vests exclusively with PINC and this document is not to be reported or circulated or copied or made available to others.
Our reports are also available on Reuters, Thomson Publishers and Bloomberg PINV <GO>

Indian Turnpikes (BOT Toll Roads)

Transféré par

Informations du document

Description originale:

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Indian Turnpikes (BOT Toll Roads)

Transféré par

Droits d'auteur :

Formats disponibles

29 April, 2011

Vinod Nair +91-22-6618 6379 vinod.nair@pinc.co.in

Subramaniam Yadav +91-22-6618 6371 subramaniam.yadav@pinc.co.in

Highways known in different countries as

Highway development programme of various countries

* Phase I includes port projects and other NH # as Oct10

Highway addition during Plan period

Source: NHAI, MoRTH, PINC Research

NHAI awarding picks up

NHAI awarding since February

Ahmedabad - Vadodara Exp. Gujarat Source: NHAI, PINC Research

Current NHDP status

Source: NHAI, PINC Research * as on Feb11

Increasing interest rate the highest risk for the sector

Source: Bloomberg, PINC Research

Stage of development (Developed vs Developing)

India in 2008, is where US was in 1912...

High opportunityhigh competitionover the next three years

NHAI awarding expected in next two years

Increasing competition visible in bidding

Panvel - Indapur project

0 (Rs mn) (1,500) 2 4 6 8 10 12 14

Stick with the leader

Increasing size of companies

800 600 400 200 500 1,000

* size of bubble is project size

Operational + New project win (adj. length)

Our top picks are Ashoka and IRB

Indian Road Sector

Status of National Highways

The Importance of Roads

Indias success of the Five year plan programme

Source: MoRTH, Crisil, PINC Research * XI plan till FY10

Tolled roads in India (NH)

Toll collection in India (NH)

4,500 Length (km)

50% 82.94 74.98 74.32 73.69 64.85

1,500 112 209

FY05 FY06 FY07 FY08 FY09 FY10

0% FY05 FY06 FY07 FY08 FY09 FY10

Source: NHAI, MoRTH, PINC Research

Toll collection & tolled Km (NH)

Source: NHAI, MoRTH, PINC Research vinod.nair@pinc.co.in subramaniam.yadav@pinc.co.in 9

India needs better roads - WEF

Source: WEF, PINC Research Note: Scale of 1-5, 5 represents good

Opportunity galore USD60bn opportunity

* Phase I includes port projects and other NH # as Oct10

New Minister, New Target

Execution and awarding trend

Highway addition during Plan period

Length added (LHS)

Total Length (RHS)

80,000 60,000 40,000 20,000

Inter period (1966-1969)

Inter period (1990-1992)

0 IX Plan (1997-2002) Eleventh Plan (2007-

Source: NHAI, MoRTH, PINC Research vinod.nair@pinc.co.in subramaniam.yadav@pinc.co.in

NHAI awarding picks up

NHAI awarding since February

Ahmedabad - Vadodara Exp. Gujarat Source: NHAI, PINC Research

National Highway Development Project (NHDP)

Phases of NHDP program

Source: NHAI, PINC Research