ET Intelligence Group: NHAIs second tranche of fund raising by monetizing operational road projects has received weak response.
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.
Australias Macquarie group was successful bidder.For second tranche, NHAI kept base price unchanged at Rs 9.1 crore per km compared with first tranche.
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 NCC.