Infra Emkay 151014

8/10/2019 Infra Emkay 151014

1/113

Your success is our success

Emkay

S e c

t o r

R e p o r t

Emka Global Financial Services Ltd. 1

InfrastructureIndia Infrastructure Sector Crossing the Chasm

October 13, 2014

Company Rating TP

IRB Infrastructure Buy 288Sadbhav Engineerin Buy 285

Ashoka Buildcon Buy 166

ITNL Hold 223

Adani Ports Buy 315

Gujarat Pipavav Hold 160

L&T Buy 1675

NCC Accumulate 45

Simplex Infrastructure Accumulate 293

J kumar Infrastructure Buy 412

Ahluwalia Contracts Accumulate 181

With the formation of a stablepro investment-oriented government, weexpect investor focus to shift from near term earnings/orders to long-termcycle recovery prospects. We believe that the potential for a cycle recoveryis high but the will commence by FY16E only, given the constraints of fuel,land acquisition and weak balance sheets of the infrastructure players.However, these issues are being addressed and we see concerns graduallysubsiding.

We have identified three major investment themes within the infrastructure sector -Highways/Roads, Ports and Core construction.

Highway/Road sector: Expect the road development sector to see pick up in tendering - immediately from EPC

and post FY16E, from BOT NHAI plans to tender 2,300 kms via the EPC route, which will revive tendering activity in

the road sector. It has already tendered 2000 kms through EPC route till date Redrafting of the Model Concession Agreement (MCA) to be a major game changer.

New MCA to provide NHAI with more authority on handling stalled bids, inviting re-bidsand terminating projects that fail to meet necessary criteria.

Pursuant to the redrafted MCA coming into play (by end-FY15E), we expect a sharpupsurge in re-bidding activity in the BOT space alongwith reduced competitive bidding.

Prefer large BOT players like IRB Infrastructure, Sadbhav Engineering, Ashoka Buildconbecause of their strong road-asset portfolio, stable order-books, no cash flow mismatchand capacity to generate growth capital. We retain a hold rating on ITNL due to leverageissues.

Port Sector: Expect container volumes to grow at 8.1% CAGR over FY14-16E on the west coast

mainly due to a) improvement in the overall exim cycle, and b) large shipping lines MSCand Maersk developing Indian ports as a trading hub.

Private ports to continue their growth trajectory and garner a larger share of theincremental container traffic due to a) inability of the major ports to take on additionalcontainer traffic due to capacity constraints and b) traffic diversion from NSCIT terminals(NhavaSheva)/GTI terminal at JNPT.

We expect Adani Port and Gujarat Pipavav to benefit immensely from the estimated1.33mtues incremental container volumes and gain incremental market share of 3.6%and 1.6% over FY14-16E. We recommend a BUY on Adani Port and Hold on GujaratPipavav

Core Construction Sector: Expect the new government to focus on reviving stalled projects. However, expect

tendering to gain momentum with a lag (from FY16E onwards) Expect highways, railways (Dedicated freight corridor and metro projects ) and defense

sectors to be the major contributors to fresh tendering. In the highway segment, weestimate USD 4.9bn worth projects to come for re-bidding (BOT Mode), USD 2-3bn fromfresh tendering under BOT mode and around USD 3.4bn under EPC mode. In thedefense sector, orders above USD15-20 bn to be lined up for tendering, largely underthe 'Buy and Make Indian' category.

The construction companies who have taken proactive steps during the last 3 years ofstress by way of a)selling the assets (NCC) b) focusing on the core constructionbusiness(not participated in the bids of the asset business (NCC, simplex Infrastructure )c)correcting capital structure L&T d)not bidding aggressively (J Kumar Infrastructure, Ahluwalia contracts) will remain immediate beneficiaries of any revival. Our top pick inthe sector are L&T, Jkumar Infra while we have accumulate rating on NCC, SimplexInfrastructure, Ahluwalia Contracts.

8/10/2019 Infra Emkay 151014

2/113

8/10/2019 Infra Emkay 151014

3/113

Road Sector Sector Report

Emkay Research October 13, 2014 3

Redraft of the Model Concession Agreement- a key positiveThe NHAI (National Highway Authority of India) is reworking the Model Concession Agreement (MCA) for highway projects with respect to the following issues - Appointed Date : Assigning the official date for the commencement of a project or the

appointed date,,after environmental clearances are in place, at least 80% of the land

required (ROW) is acquired and the concessionaire has tied up required funds Deemed termination in case of non-fulfilment of CPs (conditions precedent) by eitherparties after the first anniversary of the date of signing of CA (concession agreement)

Revenue shortfall loan: Non-political event to also be included for purpose ofrevenue shortfall loan versus current mechanism, which includes indirect politicalevent or political event and entire surplus cash after meeting the subsistenceexpenditure to be used for repayment of revenue shortfall loan as against 50% of theprofit before tax (PBT).

As per the current concession agreement, if the Realisable Fees in any accounting yearduring the concession period falls below the subsistence revenue level as a result of anindirect political event, or a political event, NHAI agrees to provide to the Concessionairesuch shortfall support, by way of a loan ("Revenue Shortfall Loan") with interest thereon @SBI PLR per annum. Provided, however, that any reserves of the Concessionaire and anysums received or likely to be received by the Concessionaire through insurance claims (toexclude insurance payments for physical loss used to carry out requisite repairs) orpayments by NHAI shall first be deducted and only the balance remaining shall bedisbursed as the Revenue Shortfall Loan.

In terms of repayment of the Revenue Shortfall Loans disbursed by NHAI pursuant heretoand the interest thereon shall be repaid by the Concessionaire in a sum equal to 50% ofthe Net Cash flow of the Concessionaire as and when made and such repayments shall bemade in one or more years as necessary. Making lenders a party to the concession agreement that is currently between the

concessionaire and NHAI, enabling quicker equity transfer, updation of the total project

cost at the time of inviting bids and mechanism to address cost escalation after signingthe concession agreement. NHAI has attempted to make a National HighwaysConstruction Cost Index (NHCCI) to overcome limitations of WPI.

Back ending of quoted premium payments from the 4th year of COD and escalating itby 3% upto 10th Year of COD and 8% thereafter, to solve mismatch of cash inflowsand outflows of the Concessionaire in initial years.

We believe that reworking the Model concession agreement at this juncture will helpproviding the solution to the actual ground risk the road project faces with respect to theland acquisition, equity infusion/financial closure, event risk which ultimately will helpavoiding the mismatch in the project cash flows.

8/10/2019 Infra Emkay 151014

4/113



Announcements made by the Union Government over the last2-3 months

Bidding to begin after 100% land acquisition Banks allowed to raise long-term funds for infrastructure sector

55 stalled highway projects covering 15,000 km to be revived Premium payment rescheduling cleared for 9 projects NHAI to have more power to make changes in the MCA and standardbidding

documents Proposal allow a projects lender to substitute developer before project achieves

COD. Eased out clearances: MOEF has launched e-clearance system for infrastructure

projects; exempted road projects located within adistance of 100 km of internationalborders from EC (Environment clearance )

Setting up of Finance Corporation with Japanese investors proposed. Formulation of Infrastructure Investment Trusts to act as analternate avenue of long-

term project finance; proposed setting up of asset reconstruction company NHAI formulated a scheme under which future toll flows to the extent of 30%of the

Total Project Cost can be securitized subject to these amounts being invested in roadsector projects. This was initiated to improve the cash flows into road projects.

8/10/2019 Infra Emkay 151014

5/113



Re-bidding of stalled contracts and new orders likely to push awardingactivity upwards from FY16E onwardsIn FY13 and FY14, project award activity fell sharply and was at its lowest level sinceFY05, with the exception of FY09. Both BOT (build-operate-transfer) and EPC(engineering, procurement and construction) project awards by the NHAI declined to1116km/213km in FY13/FY14 from 6380km in FY12. During FY09-12, there was a surge inordering activity in BOT mode, while the contribution of projects awarded in EPC mode wasnegligible. However,in FY13-14, we noticed awarding activity tapering off, with 14 BOTprojects worth Rs150bn/1,822km failing to attract any bids. This led to awarding of only1,116km of BOT projects as against the original target of 8,800km.Given the prevailingfinancial and structural challenges in the sector led by changes in the modelconcession agreement, we see potential rebidding of stalled contracts as well assome new BOT projects. NHAI also aims to tender projects worth 2300km via theEPC route which are likely to keep push tendering activity upwards in FY16E.

Interest in PPP has declined in the last two years PPP awards sharply declined from a high of 6,491 km in FY12 to 1,116 in FY13 to 222

km in FY14.

In FY14, only 2 out of 17 projects awarded, were contracted on a PPP basis. 13 out of 22 PPP projects did not attract bids in FY13 and about 21 projects failed toattract even a single bid in FY14. This is in sharp contrast to an average of 10 bids perproject witnessed earlier.

Exhibit 1: Decline in No of Bids for PPP Projects under NHDP

YearNo of prequalified bidders for

NHDP ProjectsAverage no of bids received

by NHAIFY12 101 16FY13 85 4FY14 61 5Source: NHAI, Emkay Research

72% of projects awarded in FY12 yet to commence construction

The NHAI awarded 16,889km of road projects over FY10-14, both in BOT and EPC mode,with 96% of the projects on a BOT basis. However, the strong tendering activity did nottranslate into real progress on the execution front. We have observed that, of the total 47projects tendered during FY12, only thirteen projects commenced construction activity tillJune 2014, increasing the average time to begin construction after a BOT project isawarded to 27 months (the difference between the LOA date and till date). Among the 11projects tendered in FY13, only two have started construction, which implies that theaverage time to commence construction is 12-15 months, as 80% of the projects weretendered in 1HFY13. Of the 47 projects which were tendered in FY12, 53% (25 projects)

were tendered out in premium mechanism, of which two projects are allowed for premiumrestructuring and 13 (27%) projects have started construction (which includes the twoprojects given principle approval for premium restructuring), which implies that largenumber of projects to come for re-bidding .

8/10/2019 Infra Emkay 151014

6/113



Exhibit 2: 72% of projects awarded in FY12 yet to commence constructionBidder Award date Km Type Construction Start date Premium

JMC projects, Artefact projects May-11 45 BOT Apr-12Gayatri projects Aug-11 163 BOT May-13Transtroy-OJSC corporation May-11 176 Annuity Apr-12Madhucon projects Nov-11 64 BOTKeti construction Apr-11 88 BOTEra infra-OJSC-SIBMOST Nov-11 93 BOT YL&T IDPL Nov-11 145 BOT YRamkey infra Nov-11 120 BOT YSadbhav eng Mar-12 110 BOT Y

Ashoka Buildcon Nov-11 112 BOT YGammon Infra Mar-12 107 BOTCoastal-srie Consortium Dec-11 100 BOT YVijai infra Dec-11 48 BOT Oct-13JSR Construction Mar-12 22 BOT May-13 YIL&FS transportation Feb-12 84 BOT Nov-13L&T IDPL May-11 244 BOT Dec-11 YTantia-Jiangsu Jan-11 69 BOT Oct-11Unity Infra Mar-12 68 BOT YSimplex infra Mar-12 102 BOTGammon infra Nov-11 124 BOTTranstroy Feb-12 125 BOT YNavayuga Engineering Mar-12 112Transstroy-OJSC Consortium Mar-12 80.02 BOTL&T IDPL Mar-12 208 BOT YL&T IDPL Mar-12 275 BOT YGannon dunkerley Jul-11 80 BOTEssel infraprojects Sep-11 125 BOT YGVK Transportation Sep-11 330 BOT YIVRCL Asset holding Nov-11 126 BOT YGammon infrastructure Mar-12 125 BOTPNC Infratech-BF utility Oct-11 95 BOT YSimplex infrastructure Dec-11 127 BOTSadbhav eng, Arvee Mar-12 79.3 BOT Apr-13 YC&C construction Sep-11 66 BOTEssar-Atlanta(JV) Oct-11 125 BOT YKNR, frischmann prabhu Oct-11 107 BOT Jul-12 YEssel infratructure Nov-11 70 Annuity Jul-12

Abhijit Roads Nov-11 153 BOTSoma Tollways Aug-11 225 BOTIVRCL asset & holding Mar-12 120 BOTTranstroy-OJSC corporation Mar-12 58 BOTIRB infrastructure Apr-11 102 BOT Jan-13 YKMC construction Mar-12 221 BOT YGammon Infra Feb-12 103 BOT YOriental structural Nov-11 160 BOT Mar-13 YRamky Infra Nov-11 124 BOT YGMR Infra Sep-11 555 BOT YTotal 10877.64Source: NHAI, Emkay Research

8/10/2019 Infra Emkay 151014

7/113



Premium restructuring may not be enough, re-bid of projects the prudentoptionTo bailout some of the commissioned projects (majority six-laning), which were facingfunding constraints, due to pay premium outgo. However, we believe that the mechanismwill benefit already commissioned projects given on premium, which would helpconcessionaires not to fund losses, which otherwise would have taken place. However, itmay not be sufficient to improve viability of projects due to aggressive bids, especially onroad projects like Kishangarh-Udaipur- Ahmedabad (KUA).

The premium restructuring is a short-term measure to kick-start stuck projects on theassumption that traffic will improve in the later part of the concession period, which will notbenefit under-construction projects, as it gives no incentives for the developers to start theirprojects.

Will benefit projects that are commissioned like Ahmedabad-Vadodra, Tumkur- Chitradurgaowned by IRB Infrastructure (will improve the NPV/project valuation). About 72% of theprojects tendered in FY12 are not commissioned and 53% of projects were given onpremium, where the project cost has escalated, which gives no incentive for thesedevelopers, considering the financial tightness of some of the developers holding these

projects to apply for premium restructuring principle.Recently, the NHAI scrapped road projects without penalising the developer as wildlifeclearance was still pending. Kota-Jhalawar road project (80km, a 4-laning project won by Keti Construction) Meerut-Bulandshahr (60km, a 4-laning project won by C&C Construction) Rampur-Kathgodam (93km, a 4-laning project won Era Infrastructure) Agra-Etawah (125km, a 6-laning project, won by Ramky Infrastructure) Amravati-Jalgoan ,Jalgoan Maharashtra (483 km given back by L&T )We believe the solution to kick-start these projects that are weighed down due to financialclosure is to re-invite them for re-bidding, which would attract serious developers and

discover a new premium or a grant base.

8/10/2019 Infra Emkay 151014

8/113



Exhibit 3: BOT Projects to be tenderedRoad Stretch State (kms) Cost (Rs.mn)

Barwa Adda-Panagarh West Bengal 122.9 16,650Jabalpur-Lakhnadon Madhya Pradesh 80.8 7,770Bhavnagar-Verawal (4 lane) Gujarat 260.0 32,400Yadgiri-Warangal (4 lane) Andhra Pradesh 99.0 9,570Hospet-Hubli (4 lane) Karnataka 143.3 12,930Numaligarh-Jorhat (4 lane) Assam 51.2 5,850Ghoshpukur-Salsabari (4 lane) West Bengal 154.9 22,120Karaikudi-Ramanathapuram (2 lane) Tamil Nadu 80.0 3,360Demoh-Dibrugarh (4 lane) Assam 46.0 4,730Jorhat-Demoh (4 lane) Assam 81.8 8,750Chas-Ramgarh (2/4 lane) Jharkhand 78.3 2,980

Aurangabad-Vedishi (4 lane) Maharashtra 189.1 18,710Chandikhole-Dubari-Bhuban (4 lane) Odisha 62.2 6,520Parwanoo-Shimla (4 lane) Himachal Pradesh 89.6 22,930Chhutmalpur-Saharapur-Yamunagarh-Haryana/UP border Uttarakhand/ UP 104.8 10,240Eastern Peripheral expressway (6 lane) Haryana/ UP 135.0Solapur-Vedishi (4 lane) Maharashtra 98.7 9,700Hissar-Dabwali (4 lane) Haryana 145.8 13,320Jabalpur-Mandla Chipli section of NH12A Madhyapradesh 177 9,220Katni -Shahdol-Anooppur-chhattisgarh border section of NH-78 MadhyapradeshZirakpur-Patiala section of NH-64 Punjab Punjab 50.7 5,360

Amritsar-Bhatinda section of NH-15 Punjab Punjab 174 18,990 Ambala Kaithal, Haryana HaryanaDelhi-Meerut Expressway, Delhi/Uttar Pradesh Delhi/UP 157 65,710Kazhakootam-Mukkola section of NH-47 , kerela KerelaTotal 2,582.10 307,810.00Source: NHAI, Emkay Research

Exhibit 4: BOT Projects likely to get tendered in the next 3 months

Road Stretch (BOT Mode) State NH No. Length Project cost (Rsmn) Type

KAZHAKKOOTAM TO MUKKOLA Kerala 47 27 5780 BOT(toll)Mukarba Chowk - Paninpat(8 laning) Rajasthan 44 70 21287 BOT(toll)Roorkee-Chutmalpur-Saharanpur-Yamunanagar (4 laning) UP/Haryana Border 72A/73 105 13900 DBFOTLucknow-Sultanpur UP 56 126 12760 DBFOTDimapur - Kohima(4 lanning) Nagaland 39 49 10899 BOT(Annuity)Nagina-Kashipur Uttarakhand 74 99 10990 BOT(TOLL)Bikaner-Phalodi Rajasthan 15 159.3 8229 BOT(TOLL)

Total 475 83844Source: Company, Emkay Research

8/10/2019 Infra Emkay 151014

9/113



Exhibit 5: Competitive intensity easing

Date Name of Project WinnersCost

(Rs bn)Length

(km)Final

biddersPlayers

pre-qualified% Final bidsparticipation

Apr-11 Ahmedabad Vadodara IRB Infrastructure 49.2 195 13 22 59% Apr-11 Beawar-Pali-Pindwara L&T 23.9 244 16 19 84%May-11 Barwa Panagarh DSC 16.7 123 9 20 45%

Jul-11 Kishangarh--Ahmedabad GMR Infra 53.9 556 7 11 64%Sep-11 Gwalior Shivpuri Essel Infraprojects 10.6 125 15 28 54%Sep-11 Shivpuri Dewas GVK 28.2 330 14 19 74%Oct-11 Lucknow Sultanpur Essar - Atlanta 10.4 126 12 34 35%Nov-11 Cuttak Angul Ashoka Buildcon 11.2 112 16 27 59%Nov-11 Etawah and Chakeri (Kanpur) Oriental Structural 14.9 160 9 35 26%Nov-11 Hospet Chitradurga Ramky Infra 10.5 120 14 37 38%Nov-11 Mah/KNT- Sangareddy L&T 12.7 145 19 37 51%Nov-11 Patna - Buxar Gammon Infra 8.1 105 1 36 3%Nov-11 Raipur Bilaspur IVRCL 12.2 127 17 33 52%Dec-11 Bikaner - Suratgarh MBL Infra 5.1 172 6 33 18%

Dec-11 Chittorgarh Neemachah Chetak Enterprises Ltd. 5.1 117 9 36 25%Jan-12 Kiratpur - Ner chowk IL&FS Transportation 18.2 113 4 28 14%Jan-12 Obdellagang - Betul Transtroy 9.1 121 6 36 17%Mar-12 Amravati Jalgaon L&T 25.4 275 12 22 55%Mar-12 Anadpuram- Visakhapatnam - Ankapalli Transtroy - OJSC 8.4 58 6 35 17%Mar-12 Gomti Chauraha - Udaipur Sadbhav Engineering 11.1 79 10 39 26%Mar-12 Hoskote - Dobaspet Transtroy - OJSC 7.2 80 4 36 11%Mar-12 Jalgaon - Guj/Mah Border L&T 19.7 209 17 29 59%Mar-12 Jind - Punjab/Haryana Border Unity infrastructure 4.4 69 5 40 13%Mar-12 Kharagpur-Baleshwar IL&FS Transportation 4.8 119 5 40 13%Mar-12 Rajahmundry - Gundugulunu IVRCL Asset 16.2 121 3 35 9%

Mar-12 Sikar - Bikaner IL&FS Transportation 6.3 238 1 30 9%Mar-12 Solapur - Bijapur Sadbhav engineering 11.0 110 16 38 42%

Apr-12 Bridge across Narmada(Vadodara - Surat section) HCC 5.1 6 2 35 6%

May-12 Walajahpet - Poonamallee Essel project 12.9 93 19 37 51%May-12 Goa karnataka - Kundapur IRB Infra 24.0 187 2 35 6%Jul-12 Raebareli-Jaunpur PNC Infratech 5.7 166 8 30 27%Jul-12 Coimbatore-Mettupalayam Transstroy-OJSC Consortium 5.9 54 6 35 17%

Aug-12 Walayar-Vadakkancherry KNR Construction 6.8 54 1 32 3%Nov-12 Kashipur-Sitarganj Galfar Engg & Contracting SAOG 6.1 77 1 30 3%

Nov-12 Rajasthan border-Fatehpur-Salasar Galfar Engg & Contracting SAOG 5.3 154 2 32 6%

Nov-12Rajsamand-Gangapur-Bhilwara 87 6.8Sadbhav Engg Ltd Sadbhav Engg Ltd 6.8 87 1 35 3%

Mar-13 Rohtak-Hissar Sadbhav Engg Ltd 9.6 99 5 34 15%Mar-13 Khed-Sinnar IL&FS Transportation Networks 13.5 138 4 40 10%Jan-14 Solapur yadeshi IRB Infrastructure 9.1 90 2 8 25%May-14 Yadeshi aurangabad IRB Infrastructure 32.0 190 3 8 38%May-14 Rajasthan -Kaithal IRB Infrastructure 23.0 166 1 8 13%Source: NHAI, Emkay Research

8/10/2019 Infra Emkay 151014

10/113



Exhibit 6: Balance of length to be awarded

NHDP ComponentTotal

Length (km)Completed

4/6 lane (km)Under

Length (km)Implementation

No of projectsBalance for award of

civil works (km)NHDP Phase I 7522 7514 8 10 -NHDP Phase II 6647 5647 610 52 385NHDP Phase III 12109 5611 4813 89 1685

NHDP Phase IV 20000^ 285 4130 33 10384NHDP Phase V 6500 1584 2496 28 2420NHDP Phase VI 1000 - - - 1000NHDP Phase VII 700* 21 20 2 659Misc Projects 656 363 293 9 -NH-34 5.5 5.5 1SARDP-NE 388 69 43 2 276Total 55528 21094 12419 226 16808Source: NHAI, Emkay Research

Exhibit 7: Length Awarded

1608 1390 1145 643

33605058

6380

1116 9750

1000200030004000500060007000

F Y 0 6

F Y 0 7

F Y 0 8

F Y 0 9

F Y 1 0

F Y 1 1

F Y 1 2

F Y 1 3

F Y 1 4

Length awarded (Km)

Source: Company, Emkay Research

Exhibit 8: Length Completed

753 635

16822205

2693

17842249

2848

6370

500

1000

1500

2000

25003000

F Y 0 6

F Y 0 7

F Y 0 8

F Y 0 9

F Y 1 0

F Y 1 1

F Y 1 2

F Y 1 3

F Y 1 4

Length completed (Km)


Exhibit 9: Length awarded under BOT & EPC Mode

1608 1390 1145643

3360

5058

6380

1116

213

3055

345 89

1223

0

1000

2000

3000

4000

5000

6000

7000

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

Length aw arded (Km) BOT Length aw arded (Km) EPC Source: Emkay Research

8/10/2019 Infra Emkay 151014

11/113



EPC to propel momentum in FY15E-16E As awarding activity has stagnated in FY13 and FY14 for various reasons discussedabove, the NHAI is trying to make progress to get the order momentum back on track viaawarding EPC projects. In FY14E, the NHAI has awarded six projects of 728km via theEPC route. We have seen that that there has been aggressive bidding across EPCprojects, since the EPC qualification document, as per our understanding, encouragesparticipation with no cap on the number of bidders (It is leant that some bidders havequoted at a 30% discount to the NHAI benchmark cost) in small-size projects of Rs3bn (20bidders) and project size of Rs3-5bn (10 bidders). We believe that the total opportunity size for EPC projects would be Rs148bn. We believe that if stalled projects earlier given on BOT projects, which according to us

would be around 2032km, giving opportunity size Rs203bn, considering that 33% ofthis comes via EPC route might create financial constraint for NHAI, which can beresolved by raising fresh funds via bond issue .

The government plans to set up a finance corporation with a corpus of Rs1 trn, inpartnership with Japanese investors, to fund projects in the road sector. The Japanesepartners are likely to have a 26% stake in the corporation, with assured returns of 9%.

Toll revenue of around Rs50bn, which the road transport ministry gets, would besecuritised to raise money.We consider this aggressive bidding in EPC projects as generation of negative value forbidders, as: a) scalability of margins is capped in EPC, b) project value is at risk due todelays in land acquisition (this would increase overheads), and c) any change in scope ofwork will ultimately put project completion at risk.

Features of EPC model concession agreementIt is stringent on technical criteria, where EPC contracts have set minimum criteria of 2.5xthe estimated project cost for projects and construction business (both highways and othercore sectors combined) carried out by the bidder over the past 5 financial years. Thiscompares with the BOT contract requirement of 1x the project costs worth of project

business (highways and other core sectors) accumulated over the past 5 years.Leeway provided on financial net worth. The concession agreement currently providesleeway in terms of minimum net-worth threshold, which is at 10% of the project cost asagainst 25% of the project cost for BOT contracts.

DLP (defect liability period) of 2 years on completion of the project highway and additionalDLP for major bridges and structures of 3 years (total 5 years).

Defined maintenance period of 2 years after the completion of work; 1.5% and 2% of thecontract price to be paid to the contractor in the first and second year, respectively.

Incentive for the contractor for early completion in the form of a bonus.

Damages up to 1% of the project cost would be paid by the authority on account of any

delay from their side.The contractor cannot sub-contract any work in more than 70% of the total project length.

The EPC contract allows for a JV of maximum three players, with the lead memberresponsible for satisfying 60% of technical and financial requirements (others have tosatisfy 30% of requirements). This is in addition to the weighted score exceeding thetechnical and financial requirements.

8/10/2019 Infra Emkay 151014

12/113



Exhibit 10: EPC projects tenderedRoad Stretch State (kms) Cost (Rs.mn) Status Awardee

Bheem-Parsoli including Bheem & Parsoli Bypass Rajasthan 33.0 1,000 Awarded GR InfraprojectsParsoli-Gulabpura Rajasthan 36.3 1,140 Awarded GR InfraprojectsJhalawar-Rajasthan/ Madhya Pradesh Border Rajasthan 62.2 1,770 Awarded Dilip BuildconMerta City-Lambia-Jaitaran-Raipur Rajasthan 52.8 1,580 Awarded GR InfraprojectsRaipur-Bheem (Jassa Khera) Rajasthan 32.4 1,490 Awarded GR Infraprojects

Ambedkarnagar-Raebareilly (2 lane) Uttar Pradesh 155.9 4,960 Awarded GCK ProjectsRaebareilly-Banda (2 lane) Uttar Pradesh 133.3 3,510 Awarded Constrctora Sanjose S.ALadnu Nimbi Jodhan-Degna-Merta City (2 lane) Rajasthan 139.0 3,680 Awarded Dinesh chandra R aggarwal Infracon pvt ltdBhilwara-Ladpura (2 lane) Rajasthan 67.8 2,370 Awarded Zignego Company -GHV India pvt ltdPadhi-Dahod (2 lane) Rajasthan 85.6 2,790 Awarded Dinesh chandra aggarwalUnaira-Gulabpura (2 lane) Rajasthan 214.0 5,710 Awarded Gammon IndiaKarauli-Dholpur (2 lane) Rajasthan 100.9 2,890 Awarded Dilip Buildcon

Biharsharif-Barbigha-Mokama (2 lane) Bihar 56.3 1,940 Balancefor awardChhapra-Rewaghat-Muzzaffarpur (2 lane) Bihar 75.0 3,050 Awarded Supreme Infrastructure

Patna-Gaya-Dhobi (4 lane) Bihar 127.2 10,270Balancefor award

Jalandhar-Amritsar (6 lane) Punjab 20.0 4,930 Awarded Dineshchandra R. Agarwal, Infra con pvt litdThanjavur-Pudukkotai (2 lane) Tamil Nadu 55.2 1,700 -Tirumayam-Mannamadurai (2 lane) Tamil Nadu 77.7 2,520 -Bareilly-Sitarganj (2 lane) UP 74.5 2,970 Awarded VIL LtdUncha Nagar-Khanuawa-Roppas-Dholpur (4 lane) Rajasthan 75.0 - -Bar-Bilara-Jodhupur (2 lane) Rajasthan 125.0 - -Barmer-Sanchor-Gujarat Border (2 lane) Rajasthan 154.0 5300 - Galfar Engineering & Contracting SAOGTwo laning of NH-222 with ajunction atNH-211 To Manwath Maharashtra 102.0 3270 Awarded L&T

Widening & streghtening of Jodhpur-Barmer section Rajasthan 85.6 2120 Awarded Sadbhav engTwo laning of Malshej Ghat-Ane Ghat Maharashtra 60.6 2930 Awarded Ashoka BuildconTwo laning of AneGhat-Ahmednagar Bypass section Maharashtra 51.4Two laning of Panchalakona-Yerpedu Tamil Nadu 84.0 2090 Awarded KNR ConstructionTotal 2,336.72 70,680.00Source: Company, Emkay Research

8/10/2019 Infra Emkay 151014

13/113

8/10/2019 Infra Emkay 151014

14/113



Attempt to revive stuck projectsNHAI is likely to form a company to take over the stalled projects where the promoters arefinancially constrained (short of resources) and are not able to complete them.

Under the proposal, if a project comes to a halt due to the promoter not having enoughfunds, NHAI will obtain a no objection certificate from the lender to the project as well as

the concessionaire and put in the requisite funds to complete construction. NHAI will thentoll the project till it recovers its funds and thereafter, hand it back to the concessionaire,who will operate the project for the remaining period of the concession and the interests ofboth lenders and the concessionaire will be protected.

According to NHAI, there are about 20-25 projects worth RsRs150 -180 bn awaiting lastmile connectivity and the short fall across projects are in the range of Rs5bn-7bn.

This model of reviving stuck projects has been tested with the Jaipur- Gurgaon expresswayto which a consortium of lenders had given approximately Rs16 bn of loans and Rs6 bn offurther fund infusion was required, which was funded by the bankers. We believe that NHAIwill put the seed capital to form the company and look after the operational mechanismwhereas bankers have to put funds required to complete the projects (For recovery of thisloan, bankers will have the first right to get the toll collection amount). It is important to notethat in this case, as per Model concession agreement (MCA), the concessionaire is atdefault so whether he will be opted out of the project or continue to remain the developerneeds to be seen.

Exhibit 13: Stuck projects

Project Developer Length TPC Rsbn% of work

completedDeadline ofcompletion

ExtendedDeadline

Barhi-Hazaribagh Abhijet group 40.5 4 35 Feb-14Patna-Muzaffarpur Gammon Infra 63 10 83 Feb-13 Dec-14Kundapur-surathkal toMangalore-Kerela border

Navayuga KPCL 79 59 Mar-13 Dec-14

Delhi-Haryana Border to rohtak KCT-ERA Infra consortium 64 8.57 94.25 May-10 Jul-14Srinagar-Banihal Ramky Infra JPTEG 66 14.4 24 Jun-14Source: Emkay Research

8/10/2019 Infra Emkay 151014

15/113



Outlook and opportunities at the state-level

On paper, the states have lined up more than 196 PPP projects valued at over Rs1,391 bn.These include projects under the concept or bidding stage as well as those in the pipeline.Maximum investments have been planned by states like Uttar Pradesh, amounting toRs400 bn. However, this investment comprises the Rs300 bn Ganga Expressway project,

which has hung in the balance since it was announced in 2007. Apart from Uttar Pradesh,Tamil Nadu (over Rs281 billion) and Maharashtra (over Rs235 bn) have high levels ofplanned investments.

As per our interaction with state highway authorities, there will be an EPC opportunity ofabout Rs 1,600 billion in seven states of Haryana, Kerala, Madhya Pradesh, Maharashtra,Tamil Nadu, Uttar Pradesh and West Bengal. Further, multilateral agencies have approvedloans worth $1.8 bn in the last 14 months to fund these projects.

Exhibit 14: Opportunities at the state level

PPP Pipeline

Category States CommentNo. of

ProjectsPrivate Investment

(Rs bln)

Frontrunners AP, Gujarat, MP, Maharashtra andRajasthan

Succesful in attracting PPP in the future;big plans for the future

61 350+

Catching Up Karnataka, Kerala and Tamil Nadu Drawn up plans to recover lost ground 84 420.98+

Recent EntrantsBihar, Haryana, Odisha, Punjab andUP

Significant plans to accelerate pace ofprivate investment

48 520.08+

LaggardsHP, Uttarakhand, West Bengal, J&Kand North Eastern States

Unlikely to attract PPP in the near future NA NA


Exhibit 15: Loans extended by World Bank ($mln)

250 250320

281.7

50.713

320 350

216160

250175

050

100150200250300350400

P u n

j a b

O d i s h a

A n

d h r a

P r a

d e s h

H i m a c h a

l

P r a

d e s h

T a m

i l N a

d u

M i z o r a m

A s s a m

K a r n a

t a k a

K e r a

l a

R a

j a s t

h a n

U t t a r a

k h a n

d

G u

j a r a

t

Source: Emkay Research

Exhibit 16: Loans extended by ADB ($mln )

620

1020

200315 300

750

125.2

0

200

400

600

800

10001200

MadhyaPradesh

Bihar Jharkhand Karnataka Chhatisgarh Uttarakhand NER

Source: Emkay Research

8/10/2019 Infra Emkay 151014

16/113



Substitution / exit policy to bring back momentum? In order to clear the clog in the sector, the government has made provisions to allow

developers to sell projects (replace the SPV in consultation with lenders) irrespectiveof the stage of construction. The substitution policy entails the SPV to hold a 51%stake in the project, post the sale. However, according to the NHAI, there are norestrictions on second sale. The decision would be applicable to the following projects:a) The ongoing 2 and 4 laning NHAI projects, where financial closures have been

achieved by the concessionaire, but COD has not yet been declared by theauthority.

b) The 6-laning NHAI projects, where financial closures have been achieved by theconcessionaire, but a project completion certificate has not yet been declared bythe authority.

c) Completed 2, 4 and 6 laning NHAI projects awarded in BOT mode. All new NHAI projects under PPP yet to be bid out in BOT mode in line with

case a, b, and c as the case may be. The provision substitution has always been in-built in the model

concession agreement: Concession agreement for 2000: 51% during the construction period for 3

years following COD and to hold 26% for the remaining concession period. Concession agreement post-November 2009 (B. K. Chaturvedi Committee):

51% during the construction period till COD and for a period up to 3 years, thebidder can reduce the shareholding to 33%. Thereafter, the shareholding canbe brought down to 26% for the remaining concession period.

The current concession agreement provides a 51% stake during theconstruction period for 2 years following COD.

However, the current concession agreement contains provision for substitutionof the existing concessionaire to lenders, and such a substitution could havebeen involved in case of: (a) financial default (delays of 3 months in servicingdebt), (b) concessionaire default (lender gets 270 days to substituteconcessionaire), and (c) other cases of breach of provisions of MCA.

Arguably, the move would benefit only financially viable projects (presumably, the projectswill not have too many problems), the exit option may not garner interest for projects whichhave been bid aggressively (buyers focus only on value generating projects, and it lacksincentives to share upfront losses). But the real problem lies with economically unviableprojects. However, we do not rule out possibilities, where weaker developers could use thisexit option to sell their stakes in projects (both completed and under-construction can besold) and use the resulting equity in other projects or on fresh bids without being blacklistedfor not complying with concession agreement commitments. Besides, such provision canalso help lenders to exercise greater control over projects funded by them (createsflexibility to substitute concessionaires, particularly the non-performing ones).

Exit policy for projects achieved appointed dateIt is to be noted that the substitution of the SPV would be applicable for projects that haveachieved the appointed date (all clearances related to EC and FC and other pre-conditionsof the NHAI). However, we have observed that of the total 47 projects tendered in FY12,only 13 projects have commenced construction till June 2013. This implies that the majorityof the projects were not given the appointed date. This move, we believe, would not benefitthese projects. It also presents ambiguity about whether the tax holiday that the first SPV iseligible for would be passed on to the new SPV, the additional cost of new stamp duty forforming a new SPV, which is usually 2.5% of the value of the transaction, and theimposition of penalty for exiting the projects.

8/10/2019 Infra Emkay 151014

17/113


Emkay

C o m p a n y

U p

d a

t e

Emkay Global Financial Services Ltd. 17

Financial Snapshot (Consolidated) (Rsmn)

YE- Net EBITDA EPS EPS RoE EV/

Mar Sales (Core) (%) APAT (Rs) % chg (%) P/E EBITDA P/BV

FY13A 36,872 16,333 44.3 5,536 16.7 11.6 18.2 13.7 8.6 2.3FY14A 37,319 17,537 47.0 4,596 13.8 -17.0 13.5 16.5 9.3 2.1FY15E 46,602 24,470 52.5 5,802 17.5 26.2 14.8 13.0 8.2 1.7FY16E 53,121 29,827 56.1 6,066 18.3 4.5 12.3 12.5 7.7 1.3

IRB InfrastructureOn the Fast Track

October 13, 2014

Rating

Buy

Previous Reco

Buy

CMPRs234

Target PriceRs288

EPS Chg FY15E/FY16E (%) NATarget Price change (%) NANifty 7,911Sensex 26,465

Price Performance(%) 1M 3M 6M 12M

Absolute -6 3 138 184

Rel. to Nifty -6 -2 99 113Source: Bloomberg

Relative price chart

900

1040

1180

1320

1460

1600

O ct -1 3 D ec -1 3 F eb -1 4 A pr -1 4 J un -1 4 J ul- 14 S ep -1 4

Rs

-10

-2

6

14

22

30%

ICICI Bank (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock DetailsSector ConstructionBloomberg IRB IBEquity Capital (Rs mn) 3,324Face Value(Rs) 10No of shares o/s (mn) 33252 Week H/L 276/ 67

Market Cap (Rs bn/USD mn) 78/ 1,263Daily Avg Volume (No of sh) 7,033,551Daily Avg Turnover (US$mn) 28.6

Shareholding Pattern (%)Jun'14 Mar'14 Dec'13

Promoters 61.1 61.7 62.3 FII/NRI 24.8 25.7 23.2

Institutions 4.4 3.0 3.8 Private Corp 3.6 1.7 3.3

Public 6.1 7.9 7.4 Source: Bloomberg

n Prospects improve with potential benefits from (a) premiumrestructuringscheme (aid near-term cashflows and value forAhmedabad-Vadodara project), (b) newproject wins in theconstruction arm,(c)wins extension for the Mumbai puneproject d) macro recovery to help BOT business

n Earnings CAGR of 15.5% over FY14-16E expect a CAGR of25% in cash profits, providing the ability to fund equity innew projects, the stock trades at FY15E/16E P/B of 1.7x/1.4xof and EV/EBITDA and 8x/7.7x

n Given its large operating portfolio, strong order backlog andmoderate leverage, is best positioned to benefit from a pick-up in traffic growth and execution environment Maintain Buywith the target price of Rs290/share

Construction revenue visibility kicks in with recent order winsIRB witnessed some slowdown in its construction revenues (flattish on a yoy basis) inFY14 on completion of four of its BOT projects (Talegaon-Amravati, Jaipur-Deoli, Amritsar-Pathankot and Tumkur-Chitradurga). The Ahmedabad-Vadodara projectcontributed the major portion of its construction business revenues at Rs19.6bn, which is76% of FY14 constructionrevenues. However, over the last 4 months, the company haswon three projects worth Rs70bn (EPC scope of Rs62bn), which increases the orderbook to Rs120bn, thereby providing EPC revenue visibility till FY17E. We expectconstruction at Solapur-Yedeshi and Yedeshi-Aurangabad to start in 2HFY15, as NHAIhas already acquired 90% of the land, besides receiving all the required approvals forthe projects, which should ease the commencement of EPC activity. However, we

expect the Kaithal-Rajasthan project to start in FY16E. We expected constructionrevenue CAGR of 5.2% over FY14-16E.

Emerged winner for the Mumbai-Pune Expressway beyond its currentconcession periodThe company has received the letter of award for O&M of the Mumbai-PuneExpressway beyond IRBs current concession period that ends on 9 Aug 2019. Thescope of the project also includes additional works on NH-4 (Mumbai-Pune stretch).Theestimated project cost is Rs20bn, including upfront payment of Rs10bn to MSRDC. Theadditional works have to be completed within 18 months of the award. The upfrontpayment of Rs10bn has to be paid over four years ending Jan 2018. The biddingcriterion in this case was the concession period to be measured from the earlier ofdate of work order or 31 March 2015 which will imply the concession effectively meansan extension of ~4.5 years in its concession period to December 2024 (The TollCollection for the Project will commence from 10th August 2019, resulting into aneffective tolling period of 4 years 3 months and 22 days only.)We estimate this extensionwill add Rs7.5/share to IRBs NPV. It also improves visibility on cash flows and on thecompanys ability to bid for new projects.

8/10/2019 Infra Emkay 151014

18/113

IRB Infrastructure Company Update


Comfortably placed to meet incremental equity; restructuring to also helpGiven that the equity requirement stands at Rs11bn for existing Ahmedabad-Vadodra(Rs5.9bn) and Goa-Kundapur project (Rs5.2bn), the three newly won projects adds toincremental equity requirement of Rs18bn,along with Mumbai pune extension project whichwill entail an equity requirement of Rs6.86 bn which will take the total equity requirement toRs36bn. The company needs the same to infuse funds over the next 3-3.5 years. Webelieve, given the cash balance of Rs15bn, along with operating cashflow from BOTprojects (bulk of this originates from the Mumbai-Pune project), the construction businesswould be sufficient to meet the equity requirement. The recent premium restructuringscheme, which offsetsthe lower negative cashflows from Ahmedabad-Vadodara andTumkur-Chitradurga projects, also supported the cashflows. However, we note that anyfurther award wins in FY15 may put equity funding of new projects from internal cashflowsunder strain.

Exhibit 17: Revenue CAGR of 19% over FY14-16E

1724

3137 37

4753

-

10

20

30

40

50

60

FY10 FY11 FY12 FY13 FY14E FY15E FY16E

Source: Emkay Research, Company

Exhibit 18: EBITDA CAGR of 30% over FY14-16E

811

1416 18

24

30

-

5

10

15

2025

30

35



Exhibit 19: Earnings CAGR of 15.5% over FY14E-16E

4.55.3 5.0

5.6

4.6

5.9 6.1

-

1.0

2.0

3.0

4.0

5.0

6.07.0



Exhibit 20: EPS

1316 15

17

14

18 18

-

5

10

15

20



Exhibit 21: E&C Revenue

10

15

2024

26 2728

0

5

10

15

20

25

30

FY10 FY11 FY12 FY13 FY14E FY15E FY16E Source: Emkay Research, Company

Exhibit 22: BOT Revenue

7 89 10

12

20

25

-

5

10

15

20

25

30

FY10 FY11 FY12 FY13 FY14E FY15E FY16E Source: Emkay Research, Company

8/10/2019 Infra Emkay 151014

19/113



Exhibit 23: Investment Schedule

FY12 FY13 FY14

Project Rsmn Loans & advances Loans & advances Loans & advances

Investments in road projects EquityShort

ermLongterm Total Equity

Shorterm

Longterm Total Equity

Shorterm

Longterm Total

Thane-Bhiwandi bypass 611 18 629 611 611 611 611

Mumbai-Pune Expressway 778 434 1212 778 295 1,073 778 0 778Pune-Sholapur 451 451 451 451 451 451Pune-Nashik 519 15 534 519 519 519 519

Ahmednagar-Karmala-Tembhurni 80 80 80 80 80 80Bridge over Patalganga River-Kharpada 80 80 80 80 80 80Thane-Ghodbunder 222 500 722 222 6 228 222 0 222Bharuch-Surat 872 5,472 6344 872 2680 3,552 872 1068 1940Integrated Road Development in Kolhapur 1,336 227 1563 1336 566 1,902 1336 710 2046Surat-Dahisar 4,653 1,117 5770 4653 848 5,501 5323 0 5323Pathankot-Amritsar 355 162 1,145 1662 774 8 2326 3,109 887 0 2665 3553Talegaon-Amravati 322 151 828 1301 364 352 1093 1,810 364 0 1093 1458

Jaipur-Deoli 780 200 1,837 2817 975 481 2925 4,380 975 0 2925 3900Panji-Goa 311 1,173 1484 311 1173 1,485 311 311Tumkur-Chitradurg 476 476 952 1111 316 1111 2,537 1526 0 1418 2943

Ahmedabad-Vadodara Expressway 1,000 69 2,950 4019 1000 34 2950 3,984 2053 99 4268 6420MVR Infra 802 973 1,775 802 69 870West coast tollway private ltd 440 11 451Subtotal - Investment in road projects 12,846 7,832 8,942 29620 14,939 6,558 11578 33,075 17630 1956 12,369 31955

Investments in other subsidiaries 0 - 0Construction subsidiary 312 1353 1665.2 312 957 1,269 312 6917 7229Real estate subsidiary 586 1 587 586 1 587 586 85 671Hospitality subsidiary 0 119 120 0 182 182 0.09 258 258

Sindhudurg Airport 0 10 10 0 211 211 0 218 218Subtotal - Investment in other subsidiaries 898 1484 2382 898 1351 2,249 898 7478 8376

Total investments in subsidiaries 13,744 9316 8,942 32002 15,837 7,909 11,578 35,324 18,528 9434 12,369 40331Source: Emkay Research, Company

8/10/2019 Infra Emkay 151014

20/113



Exhibit 24: SOTP Fair value at Rs290/share

SPV Asset Operated HoldingaluationMeasure

Discrate

alue (Rsmn) Value/Share

EPC Modern Road Makers EPC Business 100% PER 8 29703 89.4PV of O&M Contracts PV of O&M Contracts 100% NPV 13.5% 3,232 9.7Value of Contruction segment - (a) Value of Construction segment - (a) 32,935 99

BOT Mhaiskar Infrastructure Mumbai Pune Expressway & NH4 (inc ext) 100% FCFE 12.5% 18,996 57.2Surat Dahisar SPV Surat Dahisar 90% FCFE 13.5% 2,593 7.80IDAA Infrastructure Bharuch Surat 100% FCFE 13.5% 2,352 7.1MMK Toll Road Mohol-Mandrup Road 100% FCFE 13.5% -139 -0.4IRB Infrastructure Kharpada-Patalganga Bridge 100% FCFE 13.5% 251 0.8NKT Road & Toll Ahmednagar Tembhurni Road 100% FCFE 13.5% 251 0.8Thane Ghodbunder Toll Road Thane Ghodbunder 100% FCFE 13.5% 1,349 4.1

ATR Infrastructure Pune Nashik 100% FCFE 13.5% 474 1.4 Aryan Toll Road Pune Sholapur 100% FCFE 13.5% 700 2.1Ideal Road Builders Thane Bhiwandi Bypass 100% FCFE 13.5% 1,803 5.4IRB Kolhapur IRDC Kolhapur City Roads 100% FCFE 14.5% 3,703 11.1

Namakkal - Omallur Namakkal - Omallur - NH-7 100% FCFE 13.0% 1,646 5.0 Amritsar Pathankot Amritsar Pathankot 100% FCFE 14.0% 7,623 22.9Jaipur - Deoli Jaipur - Deoli 100% FCFE 14.0% 9,146 27.5

Amravati Talegaon Amravati Talegaon 100% FCFE 14.0% 3,426 10.3Tumkur Chitradurga Tumkur Chitradurga 100% FCFE 14.0% 2,068 6.2

Ahmedabad Vadodara Ahmedabad Vadodara 100% FCFE 14.5% 1,770 5.3Goa - Kundapur Goa - Kundapur 100% FCFE 14.5% 5,813 17.5Solapur yadeshi Solapur yadeshi 100% FCFE 13.5% 1,903 5.7Yadeshi Aurangabad Yadeshi Aurangabad 100% FCFE 13.5% 2,085 6.3Kaithal Rajasthan Kaithal Rajasthan 100% FCFE 13.5% 2,247 6.8Gross value of BOT Gross value of BOT 70,060 211

Less : Net Debt at Parent Level Less : Net Debt at Parent Level -9,630 -29Value of BOT - Net of debt - (b) Value of BOT - Net of debt - (b) 62702.3 188.7

Total Total Value - (a+b) 95,637 288Source: Emkay Research, Company

8/10/2019 Infra Emkay 151014

21/113



Key Financials (Consolidated)

Income Statement Y/E Mar (Rsmn) FY13A FY14A FY15E FY16ENet Sales 36,872 37,319 46,602 53,121Growth (%) 17.8 1.2 24.9 14.0

Expenditure 20,540 19,782 22,133 23,295Employee Cost 1,557 1,799 1,818 1,902Other Exp 0 0 0 0SG&A 1,223 1,482 1,555 1,381EBITDA 16,333 17,537 24,470 29,827Growth (%) 18.9 7.4 39.5 21.9

EBITDA mar gin (%) 44.3 47.0 52.5 56.1

Depreciation 4,415 4,771 8,496 12,144EBIT 11,918 12,766 15,973 17,682EBIT marg in (%) 32.3 34.2 34.3 33.3

Other Income 1,301 1,214 1,092 1,263Interest expenses 6,153 7,562 8,807 10,228

PBT 7,066 6,419 8,258 8,717Tax 1,530 1,823 2,456 2,651Effective tax rate (%) 21.7 28.4 29.7 30.4

Adjusted PAT 5,536 4,596 5,802 6,066Growth (%) 11.6 -17.0 26.2 4.5

Net Margin (%) 15.0 12.3 12.5 11.4

(Profit)/loss from JVs/Ass/MI -31 5 -48 -63Adj. PAT After JVs/Ass/MI 5,536 4,596 5,802 6,066E/O items 0 0 0 0Reported PAT 5,567 4,591 5,851 6,129PAT after MI 5,567 4,591 5,851 6,129Growth (%) 12.2 -17.5 27.4 4.8

Balance Sheet Y/E Mar (Rsmn) FY13A FY14A FY15E FY16EEquity share capital 3,324 3,324 3,324 3,324Reserves & surplus 29,232 32,283 40,210 52,864

Net worth 32,556 35,607 43,534 56,188Minority Interest 1,092 356 308 244Secured Loans 66,349 93,980 129,593 153,937Unsecured Loans 12,712 8,965 8,965 8,965Loan Funds 79,060 102,945 138,558 162,902Net deferred tax liability 259 143 143 143Total Liabilities 112,967 139,051 182,543 219,477Gross Block 57,918 88,803 102,151 143,750Less: Depreciation 2,830 3,259 3,811 4,387Net block 55,088 85,544 98,339 139,363Capital work in progress 49,160 44,867 75,296 78,191Investment 620 145 145 145

Current Assets 27,205 26,482 26,130 19,761Inventories 2,488 2,683 2,385 2,787Sundry debtors 310 267 851 907Cash & bank balance 14,710 15,012 14,376 7,548Loans & advances 9,696 8,519 8,519 8,519Other current assets 0 0 0 0Current lia & Prov 19,106 17,986 17,367 17,983Current liabilities 15,996 15,099 14,479 15,095Provisions 3,110 2,888 2,888 2,888Net current assets 8,099 8,495 8,764 1,779Misc. exp 0 0 0 0Total Assets 112,967 139,052 182,544 219,478

Cash Flow Y/E Mar (Rsmn) FY13A FY14A FY15E FY16EPBT (Ex-Other income) 5,765 5,205 7,167 7,454Depreciation 4,415 4,771 8,496 12,144Interest Provided 6,153 7,562 8,807 10,228Other Non-Cash items 0 0 0 0Chg in working cap 6,538 -210 -905 158Tax paid -2,422 -1,823 -2,456 -2,651Operating Cashflow 20,448 15,505 21,108 27,333Capital expenditure -29,644 -30,934 -51,720 -56,064Free Cash Flow -9,195 -15,429 -30,612 -28,730

Other income 1,301 1,214 1,092 1,263Investments 1,680 475 0 0Investing Cashflow -25,355 -29,245 -47,194 -46,854Equity Capital Raised 0 0 0 0Loans Taken / (Repaid) 14,815 23,884 35,614 24,343Interest Paid -6,153 -7,562 -8,807 -10,228Dividend paid (incl tax) -1,191 -1,942 -1,357 -1,422Income from investments 0 0 0 0Others 0 0 0 0Financing Cashflow 7,471 14,381 25,450 12,693Net chg in cash 2,565 641 -637 -6,827Opening cash position 18,208 14,710 15,012 14,376

Closing cash position 20,772 15,351 14,376 7,548

Key Ratios Y/E Mar FY13A FY14A FY15E FY16EProfitability (%)EBITDA Margin 44.3 47.0 52.5 56.1Net Margin 15.0 12.3 12.5 11.4ROCE 12.5 11.1 10.6 9.4ROE 18.2 13.5 14.8 12.3RoIC 22.9 20.0 18.6 15.6Per Share Data (Rs)EPS 16.7 13.8 17.5 18.3CEPS 30.0 28.2 43.2 55.0

BVPS 98.0 107.1 131.0 169.1DPS 4.0 2.8 3.5 3.7Valuations (x)PER 13.7 16.5 13.0 12.5P/CEPS 7.6 8.1 5.3 4.1P/BV 2.3 2.1 1.7 1.3EV / Sales 3.8 4.4 4.3 4.3EV / EBITDA 8.6 9.3 8.2 7.7Dividend Yield (%) 1.8 1.2 1.5 1.6Gearing Ratio (x)Net Debt/ Equity 2.0 2.5 2.9 2.8Net Debt/EBIDTA 3.9 5.0 5.1 5.2

Working Cap Cycle (days) -65.4 -63.7 -44.0 -39.6

8/10/2019 Infra Emkay 151014

22/113


Emkay


C o m p a n y

U p

d a

t e




FY13A 18,110 1,558 8.6 127 0.8 -91.0 1.6 262.1 26.1 4.0FY14A 23,581 2,494 10.6 1,258 8.3 588.8 14.1 26.4 16.5 3.5FY15E 28,237 3,095 11.0 1,093 7.2 -13.1 10.9 30.5 13.0 3.2FY16E 31,312 3,566 11.4 1,319 8.7 20.7 11.9 25.2 11.5 2.8

Sadbhav EngineeringGearing up for next leg of growth

October 13, 2014

Rating

Buy

Previous Reco

Buy

CMPRs226

Target PriceRs285



Absolute 6 14 148 274

Rel. to Nifty 6 8 107 181Source: Bloomberg


60

98

136

174

212

250


Rs

-10

28

66

104

142

180%

Sadbhav Engineering (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock DetailsSector ConstructionBloomberg SADE IBEquity Capital (Rs mn) 152Face Value(Rs) 1No of shares o/s (mn) 15252 Week H/L 252/ 59

Market Cap (Rs bn/USD mn) 34/ 558Daily Avg Volume (No of sh) 331,945Daily Avg Turnover (US$mn) 1.2





n Raising funds to fuel growth majority of which to be utilisedtowards working capital requirement, given large orderbacklog of Rs84 bn with improvement in EBITDA Margins weexpect earnings CAGR of 8% over FY14-16E

n Given 60% of the equity investment is operational enhancesvisibility of raising further growth capital at the SIPL level(road projects holding company), stake adjusted toll revenueCAGR of 38% over FY14-16E

n Well placed to fund equity requirement of Rs3.5bn forBOTprojects over FY14-16E by: a) cash flows from theconstruction business, b) ARRIL securitization proceeds andc) dilution at the SIPL level

n Maintain target price to Rs285/share we incorporate trafficshortfall mechanism in Rohtakpanipat, Bijapur hungund,Hyderabad yadgiri, value the construction business at 7x EVEBITDA (Implied P/E 12x)

Approves raising of funds to garner growthSadbhav engineering approved raising funds up to Rs2.5 bn via QIP. The proceeds ofthe issue will be used for purchasing (Rs800 mn) mining equipment and remainingRs1.7 bn will be used towards the working capital requirement. The QIP will lead todilution of 7.2% (assumed issue price at Rs230/share) and promoter stake will comedown to 44.75% from 47.96%.

In the meanwhile the company is in progress with its convertible warrants issue topromoters- to issue 8mn preferential convertible warrants at an exercise price ofRs115.75 per share. SEL would be able to raise about Rs926mn through this issue sofar the promoters have raised Rs231.5mn (25% of the size), and the rest 75% would beraised in the next 13-14months. Post the warrants issue promoter stake will go up to47.3%. The company is in process to create capital of Rs3.5 bn to capture the upcomingopportunity in the mining, Roads (EPC /BOT), and the Irrigation segment.

Strong construction momentum to continue in FY15E-16EWith the ongoing execution of the existing backlog by SEL, the scale-up in its strongconstruction revenue is expected to continue over the next 6-8 quarters. In our view, thecompany has the potential for garnering revenue of over Rs28bn/Rs31bn in FY15-16Ebased on the following factors:

Potential for Rs19bn /Rs 21bn in revenues from the road business (cash plus BOTprojects), with the execution of four BOT projects: Gomati ka Chauraha-Udaipur,Rajsamand- Bhilwara, Rohtak-Hissar, Karnataka State Highway project.

Rs5bn/Rs5.9 bn in revenues from the mining segment in FY15E/16E (baggedRs7.39bn worth of mining orders in FY14E) and Rs4.2/Rs4.5 bn in revenues fromthe irrigation segment in FY15E/16E

We build in construction revenue CAGR of 15% over FY14-16E

8/10/2019 Infra Emkay 151014

23/113

8/10/2019 Infra Emkay 151014

24/113

Sadbhav Engineering Company Update


Exhibit 25: SIPL IPO Scenario

Scenarios 1 2 3 Our case (SOTP)

SIPL Valuation 35000 40000 45000 33124SIPL 5220 5965 6711 4940Implied P/B 2.0 2.3 2.5 1.9Source: Emkay Research

*assuming xander &norwest opts for offer for sale for 10% Exhibit 26: Equity investment across projects Rsmn

Projects Stake (%) Total Invested Pending AurnagabadJalna 100 830 830 Ahmedabad Ring road 80 417 417Nagpur seoni 100 598 598Dhulepalesnar 27 1294 1294 126Mumbai Nashik 20 241 241Mah Border check post 90 2853 2853RohtakPanipat 100 2427 2427Hydarabad Yadgiri 60 929 929Bijapur hungund 77 1620 1620GomtiKaChauraha 100 3115 1037 2080Rajsamand -Bhilwara 100 1333 1333 0RohtakHissar 100 1077 637 440Karnataka State highway project 100 798 0 798Total 17531 14216 3443Source: Emkay Research, Company

Exhibit 27: Cash flow analysis Rsmn

FCFE from BOT Projects FY15E FY16E FY17E

Net income (less other income adj for tax) (1,234) (790) (1,098) Add: Depreciation 1,150 1,260 2,754Less: Capex (12,475) (12,824) (4,685)

Free cash flow to the firm (12,559) (12,354) (3,029)Debt and repayments 8,655 7,799 2,496Free cash flow to equity (3,904) (4,555) (533)

FCFE from construction buisness 1,746 2,134 -

Cash flow from ARR secuiritisation 2,210 310NCD raised at SIPL level 1,300Cash surplus/Deficit 1,352 (2,111) (533)

Debt repayment adjusted for stake at SIPL level 496 604 766Source: Company, Emkay Research

Incorporated traffic shortfall mechanism in 3 road projects as per concessionagreement As per the concession agreement if the traffic remains below the target date mentioned inthe concession agreement, in case of Bijapur hungund - Target Date 1stoct 2020 - Target PCUs 39,338 Rohtak Panipat - Target Date 1stsep 2019 - Target PCUs 23,800 Hyderabad Yadgiri - Target Date 1stOct 2019 - Target PCUs 34,897In the event Actual Average Traffic have fallen short of the Target Traffic, then for every 1%shortfall as compared to the Target Traffic, the Concession Period shall, subject to paymentof concession Fee, be increased by 1.5% thereof; provided that such increase inConcession Period shall not in any case exceed 20%. As per our estimates the target trafficwill not be achieved within the target and we have assumed an extension not exceeding20%.

8/10/2019 Infra Emkay 151014

25/113



Exhibit 28: SOTP fair value at Rs285/share

Buisiness Value Rsmn % stakeValue adjusted

for stakePer share

(Rs)EPC Business 16488 100 109

Sadbhav Infrastructure Projects 42344 80 33124

Aurangabad Jalna 1986 100 1985.6 10.5 Ahmedabad Ring Road 3263 80 2610.3 14Nagpur-Seoni 267 100 266.8 1Dhule 1736 27 468.7 2.5Mumbai Nasik 5650 20 1129.9 6.0MBCPNL 12599 90 11338.7 60Rohtak-Panipat 2511 100 2511.5 13Hyderabad-Yadgiri 2310 100 2310.3 12.2Bijapur-Hungund 5404 77 4161.3 22Gomti ka Chaurah 1153 100 1153.3 6.1Rajsamanad-Bhilwara 2453 100 2453.1 13Rohtak hissar 1945 100 1944.8 10.3Karnataka 1,067 74 789.6 4.2

BOT Value per share 175

Target price 284Source: Company, Emkay Research

8/10/2019 Infra Emkay 151014

26/113




22.126.8

18.123.6 28.2 31.3

0

5

1015

20

25

30

35

FY11 FY12 FY13 FY14 FY15E FY16E



2.32.9

1.62.5

3.1 3.5

-11223344



Exhibit 31: EBITDA Margin

10.2 10.88.6

10.6 11.0 11.1

0

2

4

6

8

10

12



Exhibit 32: Earnings CAGR of 8% over FY14-16E

7.89.3

2.2

7.0 7.2 8.1

01234567

89

10



Exhibit 33: Order Inflow to remain strong

2433

47

9

24 26

0

10

20

30

40

50



Exhibit 34: Order book

70 76104

89 85 80

0

20

40

60

80

100

120



Exhibit 35: ROE to average 12% over FY14-16E

22.9%20.2%

4.1%

12.8% 10.9% 11.1%

0%

5%

10%

15%

20%

25%



Exhibit 36: ROCE to edge higher

21.3% 23.1%

8.6%11.6% 12.1% 13.2%

0%

5%

10%

15%

20%

25%



8/10/2019 Infra Emkay 151014

27/113




Income Statement Y/E Mar (Rsmn) FY13A FY14A FY15E FY16ENet Sales 18,110 23,581 28,237 31,312Growth (%) -32.3 30.2 19.7 10.9

Expenditure 16,552 21,087 25,142 27,746Raw Material 2,684 3,779 3,981 4,227Employee Cost 428 602 678 750Construction Expenses 12,513 15,671 19,427 21,573EBITDA 1,558 2,494 3,095 3,566Growth (%) -46.3 60.1 24.1 15.2

EBITDA marg in (%) 8.6 10.6 11.0 11.4

Depreciation 323 474 840 892EBIT 1,235 2,020 2,255 2,674EBIT marg in (%) 6.8 8.6 8.0 8.5

Other Income 103 364 123 132Interest expenses 844 1,181 1,062 1,054

PBT 495 1,203 1,316 1,752Tax 368 -55 224 433Effective tax rate (%) 74.3 -4.5 17.0 24.7

Adjusted PAT 127 1,258 1,093 1,319Growth (%) -91.0 890.9 -13.1 20.7

Net Marg in (%) 0.7 5.3 3.9 4.2

(Profit)/loss from JVs/Ass/MI 0 0 0 0Adj. PAT After JVs/Ass/MI 127 1,258 1,093 1,319E/O items 609 -383 0 0Reported PAT 736 874 1,093 1,319PAT after MI 127 1,258 1,093 1,319Growth (%) -91.0 890.9 -13.1 20.7

Balance Sheet Y/E Mar (Rsmn) FY13A FY14A FY15E FY16EEquity share capital 151 383 383 383Reserves & surplus 8,174 9,189 10,175 11,302

Net worth 8,325 9,572 10,559 11,685Minority Interest 0 0 0 0Secured Loans 4,656 4,215 7,500 8,000Unsecured Loans 2,974 4,418 250 500Loan Funds 7,630 8,633 7,750 8,500Net deferred tax liability 317 357 357 357Total Liabilities 16,272 18,562 18,665 20,541Gross Block 5,148 7,264 7,864 8,364Less: Depreciation 1,845 2,282 3,121 4,014Net block 3,303 4,982 4,742 4,350Capital work in progress 0 0 0 0Investment 5,385 5,210 6,960 8,990

Current Assets 16,221 20,087 22,049 23,415Inventories 1,022 1,638 1,779 1,973Sundry debtors 7,782 7,517 8,200 8,750Cash & bank balance 218 762 775 904Loans & advances 7,043 9,707 10,831 11,324Other current assets 157 464 464 464Current lia & Prov 8,636 11,717 15,086 16,214Current liabilities 8,636 11,717 15,086 16,214Provisions 0 0 0 0Net current assets 7,585 8,370 6,963 7,201Misc. exp 0 0 0 0Total Assets 16,272 18,562 18,665 20,541

Cash Flow Y/E Mar (Rsmn) FY13A FY14A FY15E FY16EPBT (Ex-Other income) 1,001 456 1,194 1,533Depreciation 323 474 840 892Interest Provided 0 1,181 1,062 1,054Other Non-Cash items 810 267 0 0Chg in working cap -1,069 -241 1,420 -109Tax paid -368 55 -224 -433Operating Cashflow 697 2,191 4,291 2,938Capital expenditure -695 -2,116 -600 -500Free Cash Flow 1 75 3,691 2,438

Other income 103 364 123 132Investments -2,627 174 -1,750 -2,030Investing Cashflow -3,219 -1,577 -2,227 -2,398Equity Capital Raised 29 232 0 0Loans Taken / (Repaid) 3,096 1,003 -883 750Interest Paid -844 -1,181 -1,062 -1,054Dividend paid (incl tax) -105 -124 -106 -106Income from investments 0 0 0 0Others 0 0 0 0Financing Cashflow 2,176 -70 -2,051 -411Net chg in cash -346 544 13 130Opening cash position 563 218 762 775

Closing cash position 218 762 775 904



Working Cap Cycle (days) 148.5 117.8 80.0 73.4

8/10/2019 Infra Emkay 151014

28/113


Emkay

C o m p a n y

U p

d a

t e





FY13A 18,527 3,719 20.1 610 3.9 -47.4 9.6 34.6 11.8 2.0FY14A 17,949 3,945 22.0 706 4.5 15.8 9.8 29.9 13.0 1.7FY15E 22,985 5,606 24.4 1,019 6.5 44.4 10.4 20.7 11.2 1.5FY16E 25,719 7,827 30.4 849 5.4 -16.7 8.3 24.9 8.4 1.4

Ashoka BuildconScalable with assured growth

October 13, 2014

Rating

Buy

Previous Reco

Buy

CMPRs133

Target PriceRs166



Absolute 3 -9 79 179

Rel. to Nifty 3 -14 49 110Source: Bloomberg


40

67

94

121

148

175


Rs

-20

16

52

88

124

160%

Ashoka Buildcon (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock DetailsSector ConstructionBloomberg ASBL IBEquity Capital (Rs mn) 792Face Value(Rs) 5No of shares o/s (mn) 15852 Week H/L 159/ 42



Promoters 67.5 67.6 67.6 FII/NRI 2.5 N/A N/A



n Well-funded portfolio, sufficient internal cash flows to caterequity requirement, moderately levered vis--vis peers (cons.debt equity at 2.45x, standalone debt equity at 0.25x)

n Biggest beneficiary of road projects to be tendered out in2HFY15E, scalability potential/capacity to bid enhances assecure funding for current and future growth, qualified to bidfor a single project worth Rs31.8bn

n EPC order book at Rs30.4 bn provides reasonable revenue,likely to scale higher from newer project wins,EarningsCAGR of 10% over FY14-16E The stock trades at FY15E/16EP/B of 1.5x/1.4x and EV/EBITDA 12x/8x of Maintain buy withthe target price of Rs166

Order backlog provides reasonable EPC earnings visibility Ashoka Buildcon Ltd. (ABL) enjoys a 1.7x (ex-Cuttuck Angul) visibility on FY14construction revenues, with order backlog of Rs30.4bn. On account of the recently wonprojects (distribution projects in Bihar worth Rs8.6bn, road project in Karnataka ofRs4.5bn), along with order inflow assumption of Rs24bn in FY15E-16E, we expectconstruction revenue CAGR of 11% over FY14-16E. We believe the exclusion of theCuttuck-Angul project (not included in the ACL portfolio), which had cost overruns of 8-10%, provides further scalability to bid for new projects. The company has executed aconcession agreement for the KSHIP road project, which is expected to startconstruction in 2HFY15E.

Funding secured for future growth, equity requirement of Rs1bn over thenext 2 yearsThe current equity requirement stands at Rs1bn, which needs to be infused over thenext 2-3 years. The company needs to pump in Rs400mn in Dhankuni-Kharagpur,Rs280mn in KSHIP road project, Rs100mn in Sambalpur, and Rs300mn in the ChennaiORR project. ABL has received the fourth tranche of investment of Rs1.33bn from SBIMacquarie. ABLs business ramp-up is ideally complemented by its lucrative cashgenerating portfolio and strong execution skills, which will ensure that ABLs transition toa full-scale national level player is smooth with limited dilution. We believe the companyremains the biggest beneficiary for re-bidding of contracts, which will be tendered in2HFY15.

8/10/2019 Infra Emkay 151014

29/113

Ashoka Buildcon Company Update



8.013.0 15.0

18.5 17.923.0 25.7

0.0

5.0

10.0

15.0

20.0

25.0

30.0

FY10 FY11 FY12 FY13 FY14 FY15E FY16E



2.1 2.5 3.3 3.7 3.9

5.67.8

-1.02.03.04.0

5.06.07.08.09.0



Exhibit 39: EPS

5.46.5

7.3

3.9 4.5

6.55.4

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0



Exhibit 40: EBITDA Margin

26.919.4 21.7 20.1 22.0

24.430.4

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0



Exhibit 41: EPC Revenue CAGR of 10% over FY14-16E

5.510.3 11.4

14.8 14.417.9 17.5

-

5.0

10.0

15.0

20.0



Exhibit 42: BOT revenue to surge higher

1.7 1.9 2.6 2.9 2.9

4.2

7.3

-

1.0

2.0

3.0

4.0

5.0

6.07.0

8.0



8/10/2019 Infra Emkay 151014

30/113



Exhibit 1: SOTP fair value @166

Cost of Equity Equity value Stake ABL ValueABL per

share/Value

Ashoka Concessions Ltd.

Dhankuni - Kharagpur 14.0% 6,160.3 100.0% 6,160.3 39.0Sambhalpur - Baragarh 14% 5,279.9 100.0% 5,279.9 33.4

Belgaum - Dharwad 15% 1,336.7 100.0% 1,336.7 8.5Pimpalgaon - Nasik 15% (334.5) 26.0% (87.0) (0.6)Value for Under construction projects 12,442.40 0.0% 12,690.0 80.4

Jaora - Naigaon 14% 10,979.6 37.5% 4,117.3 26.1Durg - Chhattisgarh 14% 1,518.9 51.0% 774.7 4.9Chhattisgarh - Bhandara 15% 67.3 51.0% 34.3 0.2Chennai ORR 13% 2,191.7 1,095.8 6.9Value of ACL at 66% stake (b) 27,199.8 11,841.7 80.6

Indore - Edalabad 14% 2,238.6 100.0% 2,238.6 14.2Waiganga river Bridge 14% 525.8 50.0% 262.9 1.7Pune - Shirur 14% 824.4 100.0% 824.4 5.2

Dewas Bypass 14% 718.8 100.0% 718.8 4.6Katni Bypass 14% 306.8 99.9% 306.4 1.9A'nagar - Karmala 14% - 100.0% -A'nagar - Aurangabad 14% 139.5 100.0% 139.5 0.9Nasirabad Road ROB 14% - 100.0% -Mudhol Maharashtra Road Project 13% 1,575.5 51.0% 803.5 5.1Sherinallah Bridge 14% 47.6 100.0% 47.6 0.3Dhule Bypass 14% - 100.0% -Anwali Kasegaon 5.0%FOBs - Eastern Exp H'way - 6 14% 20.6 100.0% 20.6 0.1Value for operating projects (c) 5,362 34

Total BOT Fair value (a + b + c) 17,222 114.7

Add: Net holding company cash/debtNet Value of BOT 17,222 115

Add: EPC valuation 8,088 51Fair value per share 24,708.8 166Source: Company, Emkay Research

8/10/2019 Infra Emkay 151014

31/113




Income Statement Y/E Mar (Rsmn) FY13A FY14A FY15E FY16ENet Sales 18,527 17,949 22,985 25,719Growth (%) 23.5 -3.1 28.1 11.9

Expenditure 14,808 14,003 17,379 17,892Employee Cost 502 583 764 870Other Exp 0 0 0 0SG&A 482 432 904 1,022EBITDA 3,719 3,945 5,606 7,827Growth (%) 14.4 6.1 42.1 39.6

EBITDA mar gin (%) 20.1 22.0 24.4 30.4

Depreciation 1,324 1,389 1,632 2,031EBIT 2,395 2,556 3,973 5,796EBIT marg in (%) 12.9 14.2 17.3 22.5

Other Income 294 173 173 182Interest expenses 1,395 1,335 2,361 4,396

PBT 1,295 1,394 1,786 1,582Tax 685 688 767 733Effective tax rate (%) 52.9 49.4 42.9 46.3

Adjusted PAT 610 706 1,019 849Growth (%) -47.4 15.8 44.4 -16.7

Net Marg in (%) 3.3 3.9 4.4 3.3

(Profit)/loss from JVs/Ass/MI 389 425 365 357Adj. PAT After JVs/Ass/MI 610 706 1,019 849E/O items -157 -157 0 0Reported PAT 842 974 1,384 1,206PAT after MI 999 1,131 1,384 1,206Growth (%) -19.9 13.2 22.3 -12.8

Balance Sheet Y/E Mar (Rsmn) FY13A FY14A FY15E FY16EEquity share capital 675 790 790 790Reserves & surplus 9,832 11,838 13,222 14,428

Net worth 10,507 12,628 14,012 15,218Minority Interest 2,787 4,645 4,320 2,116Secured Loans 23,469 29,621 42,275 45,925Unsecured Loans 0 1,411 0 0Loan Funds 23,469 31,032 42,275 45,925Net deferred tax liability 0 0 0 0Total Liabilities 36,763 48,306 60,607 63,260Gross Block 20,275 46,718 83,364 120,010Less: Depreciation 5,275 6,467 8,100 10,130Net block 15,000 40,250 75,264 109,880Capital work in progress 96,100 79,621 52,639 20,675Investment 2,824 2,847 2,623 2,454

Current Assets 9,672 11,609 11,318 11,654Inventories 5,399 6,272 5,456 4,816Sundry debtors 862 1,305 1,775 1,674Cash & bank balance 518 945 868 1,061Loans & advances 2,893 3,087 3,253 3,640Other current assets 0 0 0 0Current lia & Prov 87,624 86,877 82,128 82,293Current liabilities 87,624 86,877 82,128 82,293Provisions 0 0 0 0Net current assets -77,953 -75,268 -70,810 -70,639Misc. exp 0 0 0 0Total Assets 35,971 47,450 59,717 62,370

Cash Flow Y/E Mar (Rsmn) FY13A FY14A FY15E FY16EPBT (Ex-Other income) 1,451 1,394 1,786 1,582Depreciation 1,324 1,389 1,632 2,031Interest Provided 1,395 1,335 2,361 4,396Other Non-Cash items -335 -50 0 0Chg in working cap 61,230 -38 -4,568 518Tax paid -702 -702 -767 -733Operating Cashflow 64,749 3,593 444 7,794Capital expenditure -69,694 -10,802 -9,865 -4,833Free Cash Flow -4,945 -7,210 -9,421 2,962

Other income -274 1,605 0 0Investments -772 -23 223 169Investing Cashflow -70,740 -9,220 -9,641 -4,663Equity Capital Raised 11,798 14,054 0 0Loans Taken / (Repaid) -4,395 -6,663 11,243 3,651Interest Paid -1,395 -1,335 -2,361 -4,396Dividend paid (incl tax) 0 0 0 0Income from investments 0 0 0 0Others 0 0 238 -59Financing Cashflow 6,008 6,056 9121 -805Net chg in cash 17 428 -77 192Opening cash position 500 518 945 868

Closing cash position 518 945 868 1,061

Key Ratios Y/E Mar FY13A FY14A FY15E FY16EProfitability (%)EBITDA Margin 20.1 22.0 24.4 30.4Net Margin 3.3 3.9 4.4 3.3ROCE 8.3 6.4 7.6 9.7ROE 9.6 9.8 10.4 8.3RoIC -7.3 -5.1 -24.6 28.0Per Share Data (Rs)EPS 3.9 4.5 6.5 5.4CEPS 14.7 16.0 19.1 20.5


Working Cap Cycle (days) -1,546.0 -1,549.8 -1,137.7 -1,024.1

8/10/2019 Infra Emkay 151014

32/113


Emkay

C o m p a n y

U p

d a

t e





FY13A 66,448 18,379 27.7 5,202 26.8 14.3 16.5 6.5 9.4 0.9FY14A 65,870 18,896 28.7 4,630 18.8 -29.9 10.7 9.3 11.9 0.9FY15E 72,389 22,315 30.8 3,781 15.3 -18.3 9.8 11.3 10.5 0.8FY16E 74,045 24,362 32.9 3,922 15.9 3.7 7.1 10.9 10.2 0.8

IL&FS TransportationHigher leverage to suppress earnings

October 13, 2014

Rating

Hold

Previous Reco

Buy

CMPRs174

Target PriceRs223



Absolute -16 -17 49 79

Rel. to Nifty -15 -20 26 32Source: Bloomberg


90

122

154

186

218

250


Rs

-10

12

34

56

78

100%

IL&FS Transportation (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock DetailsSector ConstructionBloomberg ILFT IBEquity Capital (Rs mn) 2,467Face Value(Rs) 10No of shares o/s (mn) 24752 Week H/L 258/ 95






n Robust order backlog (4x FY13 construction rev) to help aconstruction income CAGR of 18% over FY14-16E, but a highmargin fee income to stagnate, to exert pressure on EBITDA

n Standalone leverage to surge higher to 2x, as ITNL pumps inequity (Rs10bn) to complete the projects. High leverage inthe absence of meaningful rate cuts to exert pressure onstandalone profitability

n Issue of preference share capital doesnt address leverageconcerns, given the redeemable nature, the debt equitystands at 2.3x/4.48x,

n As leverage surged higher and ITNL earnings highlyleveraged to new orders, equity funding gap would still putpressure on balance sheet. Maintain Hold rating, target priceof Rs220

Construction revenue growth intact, fee income to be driven by newlywon projectSupported by back-ended FY13 order wins (Rs38bn), ITNLs order book currentlystands at healthy Rs110bn. With robust revenue visibility (4x FY14E constructionrevenues), we expect the standalone construction revenues to surge at a CAGR of 18%over FY14-16E. ITNL has booked a fee income of Rs6.8bn in FY14, which, we believe,almost completed the entire fee income booking from existing projects. The fee incomewill be driven by newly won project Srinagar Sonmarg Tunnel way . Winning new awardsmay help ITNL in generating more fee income, but would simultaneously compoundbalance sheet leverage concerns. The commissioning of Gurgaon Metro, Pune-

Sholapur, Narketpally-Addanki and Moradabad-Bareilly projects should increase interestand depreciation costs in the P&L, which would challenge near-term earnings.

Leverage to surge higher, putting pressure on standalone profitabilityDue to a lower contribution of fee income to the overall revenue, we see ITNL resortingto taking further debt on the standalone book to infuse equity requirements towardsfunding its new projects. Hence, we see a surge in debt on the standalone balancesheet from Rs46.2bn (debt equity of 1.55x) in FY14 to Rs55bn (debt equity of 1.98x) byFY16E, which would lead to a further deterioration in its leverage ratios, which, in turn,would increase the interest burden on ITNL. In order to address the balance sheetconcerns, the company has so far issued three tranches of preference shares, totaling376.45mn shares or Rs7.5bn in FY14. Given their compulsorily redeemable nature, webelieve it to be more like debt than equity. ITNL reported FY14 standalone/consolidatedleverage at 1.55/3.76x; however, if preference shares are treated as debt, then leveragewould have been 2.29/4.48x, respectively. However, in case leverage increases further,it would become essential for the company to maintain its EBITDA at Rs5bn andRs5.5bn in FY15E and FY16E excluding other income respectively, to service interestcosts at the standalone level.

8/10/2019 Infra Emkay 151014

33/113

IL&FS Transportation Company Update


Exhibit 2: Consolidated Revenue


Exhibit 3: Consolidated EBITDA


Exhibit 4: Consolidated PAT


Exhibit 5: Consolidated ROE


Exhibit 6: Consolidated EPS


Exhibit 7: Fee Income


Exhibit 8: Fee income as a % total revenue


Exhibit 9: Standalone Revenue


8/10/2019 Infra Emkay 151014

34/113



Exhibit 10: Standalone PAT


Exhibit 11: Standalone EBITDA margin


Exhibit 12: Consolidtae debt


Exhibit 13: Standalone debt


8/10/2019 Infra Emkay 151014

35/113



Exhibit 14: SOTP Fair value at Rs220/share

SPV HoldingValuationMeasure

Discrate

EquityValue

(Rs mn)

StakeValue

(Rs mn)Value/Share

BOT

Gujarat Road and Infrastructure company ltd 83.6% Operational FCFE 13% 9,212.9 7,702.9 31.2

WGEL 100.0% Operational FCFE 13% 2,021.3 2,021.3 8.2Delhi - Noida 25.4% Operational FCFE 13% 8,653.6 2,193.7 8.9Gomti - Beawar 100.0% Operational FCFE 13% 4,167.6 4,167.6 16.9RIDCOR 50.0% Operational FCFE 13% 10,164.0 5,082.0 20.6RIDCORII 50.0% Under development FCFE 14.50% 4,475.9 2,237.9 9.1Pune Sholapur NH-9 Road Project 100.0% Under Construction FCFE 14.50% 4,722.0 4,722.0 19.1Chadrapur Warora Road Project 35.0% Under development FCFE 14.50% 1,997.6 699.1 2.8Narkatapally to Addanki Road Project 50.0% Under development FCFE 14.50% 3,949.7 1,974.8 8.0Moradabad Bareili Road Project 100.0% Under development FCFE 14.50% 8,416.4 8,416.4 34.1Kharagpur - Baleshwar 100.0% Under development FCFE 14.50% 1,089.7 1,089.7 4.4Kiratpur Ner Chowk 100% Under development FCFE 14.50% 8,238.2 8,238.2 33.4Sikar Bikaner 100% Under development FCFE 14.50% 2,525.9 2,525.9 10.2Khed Sinnar 100% Under development FCFE 14.50% 730.1 730.1 3.0Barwa adda panagarh 100% Under development FCFE 14.50% 1,209.3 1,209.3 4.9Toll Projects - (A) 71,574.1 53,011.1 215

North Karnataka expressway ltd Road Project 94% Operational FCFE 13% 1,156.4 1,081.2 4.4Thiruvananthpuram Road Development Company LtdRoad Project

50% Operational FCFE 13% -301.0 -150.3 -0.6

Andhra Pradesh expressway ltd Road Project 100% Operational FCFE 13% -816.2 -816.2 -3.3East Hyderabad expressway ltd Road Project 74% Under Construction FCFE 13% 783.3 579.7 2.3Hyderabad Ring Road 26% Under Construction FCFE 13% 76.9 20.0 0.1Hazaribaug Ranchi expressway ltd Road Project 74% Under Construction FCFE 14% 599.7 443.8 1.8Jharkhand - Ph - I Road Project 100% Under Construction FCFE 14% 204.0 204.0 0.8

Jharkhand Ph - II Road Project 100% Under development FCFE 14% 193.8 193.7 0.8Shillong Jorbat Road Project 50% Under development FCFE 14% 1,807.6 903.8 3.7Chenani Nashri Road Project 100% Under development FCFE 14% 4,081.7 4,081.7 16.5Annuity Projects - (B) 14% 7,381.1 6,241.6 25.3

Vansh Nimay infraprojects Limited 100% Operational FCFE 14% 301.6 301.5 1.2ITNL ENSO Rail system limited 70% Under Construction FCFE 14% 4,332.4 3,032.6 12.3MP Check post 51% Under development BV 1x 1,174.2 1,174.2 4.8YuHe Project - Chonguin Road project 49% Opeartional BV 1x 1,470.0 6.0Urban Infra Projects - '(C) 14% 5,808.2 5,978.3 24.2

Investments in Elsamax 100% BV 1.0x 11.0 2,722.2 11.0Investments in other Companies 1,109.3 1,109.3 4.5

Other Subsidiaries - (D) 1,120.4 3,831.6 15.5E&C business EV/EBITDA 3.5x 20,274 20,274 82.2

Construction business - (E) 20,274 20,274 82.2

Net Debt at parent levels -34,309 -34,309 -139

Total Value (A+B+C+D+E) 71,741.4 54,920.2 223Source: Company, Emkay Research

8/10/2019 Infra Emkay 151014

36/113




Income Statement Y/E Mar (Rsmn) FY13A FY14A FY15E FY16ENet Sales 66,448 65,870 72,389 74,045Growth (%) 18.5 -0.9 9.9 2.3

Expenditure 48,070 46,974 50,074 49,683Employee Cost 3,819 4,142 4,672 4,758Other Exp 4,132 5,063 2,016 2,016SG&A 3,204 4,222 5,714 5,825EBITDA 18,379 18,896 22,315 24,362Growth (%) 25.4 2.8 18.1 9.2

EBITDA marg in (%) 27.7 28.7 30.8 32.9

Depreciation 944 1,510 1,939 2,537EBIT 17,435 17,386 20,376 21,825EBIT marg in (%) 26.2 26.4 28.1 29.5

Other Income 1,440 2,155 3,837 2,154

PBT 7,684 4,831 7,650 4,760Tax 2,274 265 2,295 1,428Effective tax rate (%) 29.6 5.5 30.0 30.0

Adjusted PAT 5,202 4,630 3,781 3,922Growth (%) 8.9 -15.6 17.3 -37.8

Net Marg in (%) 8.1 6.9 7.4 4.5

(Profit)/loss from JVs/Ass/MI 208 -65 288 -590Adj. PAT After JVs/Ass/MI 5,202 4,630 3,781 3,922E/O items 0 65 -288 590Reported PAT 5,202 4,630 5,067 3,922PAT after MI 5,202 4,630 5,067 3,922Growth (%) 14.3 -11.0 9.4 -22.6

Balance Sheet Y/E Mar (Rsmn) FY13A FY14A FY15E FY16EEquity share capital 1,943 5,707 5,707 5,707Reserves & surplus 34,456 44,331 47,886 50,597

Net worth 36,398 50,038 53,593 56,304Minority Interest 3,577 4,588 4,876 4,286Secured Loans 135,070 177,903 145,553 149,917Unsecured Loans 8,522 10,262 52,649 63,080Loan Funds 143,592 188,165 198,202 212,997Net deferred tax liability 2,315 1,810 1,810 1,810Total Liabilities 185,881 244,602 258,482 275,397Gross Block 103,756 141,500 160,192 174,452Less: Depreciation 5,799 7,953 9,892 12,429Net block 97,957 133,548 150,300 162,023Capital work in progress 67,446 85,358 85,358 85,358Investment 6,871 4,691 4,738 4,785

Current Assets 33,518 47,550 47,865 53,640Inventories 169 172 311 311Sundry debtors 7,517 9,875 11,487 13,613Cash & bank balance 4,202 6,713 6,062 8,381Loans & advances 14,170 20,763 23,128 23,383Other current assets 7,460 10,028 6,878 7,952Current lia & Prov 19,911 26,546 29,780 30,410Current liabilities 17,297 23,573 27,111 27,741Provisions 2,614 2,973 2,669 2,669Net current assets 13,607 21,004 18,085 23,230Misc. exp 0 0 0 0Total Assets 185,881 244,601 258,481 275,396

Cash Flow Y/E Mar (Rsmn) FY13A FY14A FY15E FY16EPBT (Ex-Other income) 7,684 4,831 7,650 4,760Depreciation 944 1,510 1,939 2,537Interest Provided 10,110 13,618 16,563 19,220Other Non-Cash items 167 -93 0 0Chg in working cap 2,005 515 2,269 -2,826Tax paid -1,583 -2,505 -2,295 -1,428Operating Cashflow 19,328 17,877 26,127 22,263Capital expenditure -49,341 -40,844 -18,692 -14,259Free Cash Flow -30,013 -22,967 7,435 8,003

Other income 983 666 0 0Investments 67 505 -47 -47Investing Cashflow -48,290 -39,673 -18,739 -14,307Equity Capital Raised 0 7,529 0 0Loans Taken / (Repaid) 41,847 35,554 10,037 14,795Interest Paid -13,713 -20,460 -16,563 -19,220Dividend paid (incl tax) -907 -943 -1,512 -1,212Income from investments 0 0 0 0Others 2536 1226 1,965 0Financing Cashflow 29,762 22905 -6,073 -5,637Net chg in cash 800 1108 1,315 2,319Opening cash position 2,838 3,638 4,747 6,062

Closing cash position 3638 4,747 6,062 8,381



Working Cap Cycle (days) 51.7 79.2 60.6 73.2

8/10/2019 Infra Emkay 151014

Documents

Infra Emkay 151014