INSUBCONTINENT EXCLUSIVE:
Under scheme, government leases out national highways for 30 years to pension funds and private equity players in return of an upfront
payment.
The first tranche of road projects through TOT (toll-operatetransfer) route, which was launched in February 2018 garnered Rs 9,861
crore for 681 kilometers of roads in Andhra Pradesh and Gujarat
Still, highest bidding was at 14 per cent lower amount according to estimates by SBICAP, a local brokerage
The tepid response was due to lower estimate of toll collection and wider geographical dispersion of projects across four states which
increases maintenance costs
In addition, appetite for infrastructure assets seems to have fallen in aftermath of ILFS default.
The government has a target of raising Rs
2 lakh crore via this route in next five years
It has identified 75 operational highways to be leased out through ToT.
Several reasons can be cited for weak response during second tranche
One, toll collection is estimated to be lower for covered routes
The annualised growth rate of toll collection for this route since inception was 16%, which is lower than 18 per cent growth reported by
roads in first tranche.
Another factor is larger geographical stretch
The roads included in second tranche are across states of Rajasthan, West Bengal, Bihar and Gujarat
This increases long-term operating and maintenance costs for investors
This may also reduce return on investment considering rising interest rate scenario.
Given these factors, analysts have expressed concerns
over implementation of Bharatmala project since government has planned to funs it using TOT model
It expects to construct 84,000 km length of road projects by 2022 at cost of close to Rs 7 lakh crore.
Investors who want an exposure to
construction sector should consider companies with better order book-to-bill ratio and lower debt
These companies would not be disproportionately dependent on Bharatmala project to enhance order books
A few prominent construction companies investors can consider are KNR Constructions, Dilip Buildcon, PNC Infratech, Ashoka Buildcon and
