Opportunity in gloom

December 26, 2011

IL&FS Transportation Networks (ITNL) has seen its stock gradually slide from over Rs 360 last September to its new low (intra-day) of Rs 144 on Wednesday, thanks to weak sentiments in the global and domestic markets.

While it is already India’s largest player in road build-operate-transfer (BOT) projects, IL&FS Transportation Network last week added another feather in its cap when it announced the plan of its China foray. Analysts feel the move is unlikely to benefit it in the medium term, but they remain bullish on its Indian business.

ILandFS Transportation Networks Elara Capital Analyst Abhinav Bhandari says: “We are positive on the company due to its leadership position in the domestic road vertical, strong parentage of IL&FS, partnerships and bilateral contracts with state governments and relatively diversified and de-risked business portfolio.” Notably, stock valuations are now attractive, and, with interest rate cycle at its peak, things should improve in the times to come.

PICKING UP SPEED
In Rs crore	FY11	FY12E	FY13E
Net sales	4,048.00	5,418.30	6,824.70
Y-o-Y change (%)	68.5	33.9	26.0
Operating profit	1,155.00	1,347.70	1,627.70
Y-o-Y change (%)	45.5	16.7	20.8
Net profit	433	447.3	527.7
Y-o-Y change (%)	25.9	3.3	18.0
EPS (Rs )	22.3	23.0	27.2
Y-o-Y change (%)	25.9	3.3	18.0
E: Estimates All figures are consolidated Source: Company, Analysts Reports

At Rs 152, the stock trades at one-year forward (FY13) PE of 6.3 times, below its historic band of 7.5-13.5 times, as well as 11.2 times for its closest peer and India’s second-largest BOT player, IRB Infrastructures. Analysts expect an upside of over 50 per cent, given the average sum-of-the-parts (SOTP) of Rs 270.

Towards the Dragon
ITNL has been selected the preferred bidder for 49 per cent stake in Yu He Expressway Company by Chongqing Expressway Group. The project is a four-lane expressway of 58 km, connecting the Chongqing city with Hechuan County, with toll rights till June 2032. The acquisition worth $160 million (49 per cent stake), or around Rs 850 crore, is expected to be funded by debt.

According to a Sharekhan report, the expressway is significant because it connects to a major industrial belt in the Chongqing region, allowing the Chinese company to enjoy a consistent traffic flow through the year and offering a decent growth prospect. Though the project has been operational for the last 10 years and is profitable, the gains for ITNL may be limited in the medium term.

According to ITNL Managing Director K Ramchand, revenue growth will be marginal in the first few years, while addition to net profit will be less than 5 per cent. But it will substantially improve after the next 10 years (total term of the debt).

PINC Research Analyst Vinod Nair adds: “The relatively small size of the project, non-strategic fit (Chinese market not being a long-term policy of ITNL) and the requirement to fund would limit any near-term benefits.”

Stable core business
In India, ITNL’s 22 projects (about 9,458 lane km) is well divided in terms of region, clients (state and central) and revenues model (toll and annuity).

Amid a weakening economy, the company has been selective in bidding for NHAI projects for the past several quarters. The guidance for it was $1 billion worth of order wins in FY12. But it has not won any major order from NHAI so far in FY12. It has bagged only three state government projects worth Rs 870 crore.

However, this is not seen as a concern either by ITNL or analysts. “The cautious bidding would pay off in the long run,” notes the Sharekhan report. Besides, it has enough work, given the order book of Rs 8,900 crore, about four times its FY11 construction revenues.

The management has expressed its intention of continuing its conservative bidding strategy, as it feels competition will continue to remain high. Moreover, the bidding pipeline remains strong at around Rs 68,500 crore (9,500km).

High on debt
For now, high interest cost, given the consolidated debt-to-equity ratio (2.7 times) in the second quarter of FY12 is a concern. In the September quarter, operating profits rose 37 per cent (Rs 383 crore) on 42 per cent rise in income (Rs 1,282 crore), but a 72 per surge in interest costs (Rs 169 crore) restricted gross profit (profit before depreciation and tax) growth to 17 per cent (Rs 214 crore).

The management expects the debt burden to remain at higher levels on the back of increased execution of 12 under-construction projects that could keep interest costs high in the interim.

Positively, rates are peaking. Edelweiss Securities Analyst Parvez Akhtar Qazi believes that the company is one the best plays on peaking interest rates. “A 100-basis-point decline in interest rates increases our SOTP estimates of ITNL by 13 per cent,” he points out.

PICKING UP SPEED
In Rs crore	FY11	FY12E	FY13E
Net sales	4,048.00	5,418.30	6,824.70
Y-o-Y change (%)	68.5	33.9	26.0
Operating profit	1,155.00	1,347.70	1,627.70
Y-o-Y change (%)	45.5	16.7	20.8
Net profit	433	447.3	527.7
Y-o-Y change (%)	25.9	3.3	18.0
EPS (Rs )	22.3	23.0	27.2
Y-o-Y change (%)	25.9	3.3	18.0
E: Estimates All figures are consolidated Source: Company, Analysts Reports

Written by ITW Editor · Filed Under BOT, IL&FS

Have completed BOT project in MP before time: Valecha Engg

December 26, 2011

Valecha Engineering has been in the red. The company’s recently commissioned build-operate-transfer (BOT) project is facing execution pressure. However, managing director Jagdish K Valecha indicated that the company has been able to commission its first BOT road project in Madhya Pradesh and Indore 11 months ahead of time.

The company also plans to complete the second BOT project before time instead of 24 months. “This will get us the extra revenue stream by way of toll and tax free revenue stream in the SPV,” he added.

Q: How much are you bidding for in terms of future orders? What will be the breakup of the geographical division?

A: We have got projects in North Delhi, Madhya Pradesh, Gujarat and Arunachal. These are the four-five larger areas where we are concentrating. We have got projects down south in Bangalore and Chennai as well.

Q: Is there any reason to concentrate more on the north or has it always been like that? Where is execution the easiest?

A: In the North, before the Commonwealth Games, we were one of the few companies who delivered most of our flyovers before the Commonwealth Games. We have built up a brand equity towards the North for the infra projects and a lot of projects are happening.

The company has also qualified itself and made bid for the underground metro, which is a high tech fish area in Delhi for Delhi Metro Corporation, along with international joint venture partner.

Q: Could you give us an update on the debt on the books? Will you all be pairing down anything in FY12?

A: The debt on the book is comfortable. It’s around 1:1 ratio. We are not over feared as yet. We are taking selective projects, where most of the projects are going at prices that are like premiums.

We have bagged projects with good IRRs. We are keeping an eye on the EBITDA and then bagging the projects, instead of just going behind the project.

Here is the edited transcript of his interview to CNBC-TV18. Also watch the accompanying videos.

Q: Could you take us through a couple of these exactions concerns that lots of infrastructure companies are facing at this point in time? How is the situation on the ground looking for you all?

A: There are execution challenges with the other infrastructure companies, who have over bagged the orders and this is the reason they are not able to execute.

The good news in the case of Valecha Engineering is that we have been able to commission our first BOT road project in Madhya Pradesh and Indore 11 months ahead of time. This is a record in the road building exercise that the country has embarked upon.

Q: Coming to the other two BOT projects that you bagged about six to seven months back; you were looking to get financial closure, particularly for the third one. Are there any kinds of delays or stress on that account?

A: All the BOT projects have got the financial closure. The recent one in Gujarat (Bhuj to Bhachau) of nearly Rs 500 crore has also received its financial closure last week. This project will also now kick-start in a faster anvil as such.

Q: Concentrate a bit on your Q2 numbers, your net sales were down 19% for the quarter on a year-on-year basis, but you improved in the margins to 11% versus 7% on a year-on-year basis. What sort of operational efficiencies are you undergoing or implementing at this point in time? What is the outlook for the remaining part of the fiscal in terms of margins?

A: We developed a strategy a year back to have 25% sales out of BOT projects and 25% sales out of budgeted projects. In the budgeted projects, we have a mixed client base and mixed geographical base so that the risk is divided.

The current stress of the management with the team at the project side is to implement the projects ahead of time for the recent projects and concentrate on improving the efficiency by quick delivery and turnaround.

Q: Even for BOT project two and three, will you execute it at a faster clip? When are they likely to get commissioned?

A: The project’s shelf life is 24 months. We are targeting the second BOT project instead of 24 months again like the first BOT project, which will obviously get us the extra revenue stream by way of toll and tax free revenue stream in the SPV. The concentration will be to complete the project ahead of time.

Q: How much are you bidding for in terms of future orders? What will be the breakup of the geographical division?

Q: Is there any reason to concentrate more on the north or has it always been like that? Where is execution the easiest?

The company has also qualified itself and made bid for the underground metro, which is a high tech fish area in Delhi for Delhi Metro Corporation, along with international joint venture partner.

Q: Could you give us an update on the debt on the books? Will you all be pairing down anything in FY12?

We have bagged projects with good IRRs. We are keeping an eye on the EBITDA and then bagging the projects, instead of just going behind the project.

Source: moneycontrol.com

Written by ITW Editor · Filed Under BOT, Valecha Engineering

Supreme wins new BOT road project

December 26, 2011

Supreme Infrastructure India has completed EPC for its first marine project, Kasheli Bridge and commenced tolling operations. The company added orders worth Rs212.30 crore along with a bridge project for Rs124 crore where it is declared L1.
Kasheli Bridge in Thane Vikas Sharma, whole-time director, Supreme Infrastructure, said “We are proud to report completion of our first Marine project Kasheli bridge at Thane. This project has added significant capabilities to our engineering team, which can now undertake complex and larger marine projects. Also, our efforts of expanding our reach in the northern territory is starting to show positive signs. We have also won orders from our existing customers and it is a mark of the good quality work we continue to deliver for our clients and a testimony to our work ethos.”
It has also added a road BOT project in Maharashtra. Further, the company is in advance dialogue with the strategic investors to explore possible investments in its BOT portfolio. The EPC work in the Marine Segment involves building a six lane flyover on old Thane-Nashik highway for a length of 1.2 Km on the Thane Creek for Rs301 core.
This project was awarded to Supreme in 2009 by the Sangam group and has been completed in 36 months. The project involved complex engineering skills to cast pilling with depths ranging from 15–25 meters. This project is an engineering marvel and a reflection of our in house capabilities.
Supreme holds 10 per cent equity stake in the Kasheli Bridge SPV through Kalyan Sangam Infratech. This SPV was involved in the construction of the Kasheli Bridge on a BOT basis. The construction of Kasheli Bridge is completed and tolling operations have commenced.
Construction of Villas and premium apartments have been awarded by BPTP Group, Gurgaon. This is a state-of-the-art project being developed in Gurgaon. Order size is Rs71 crore and is expected to be executed by March 2014.
The group also has project awarded by Ramprastha Group for construction and development of Multi storied tower ‘SKYZ’, at Gurgaon. The scope of work order involves construction of nine towers of 19 stories each. Order size is Rs141.30 crore, which is expected to be competed by March 2014.
The company has been declared L1 by MMRDA for the design and construction of flyovers at Rajnoli Junction and at Mankoli Junction on NH-3 at Thane Nashik road. Order size is Rs124 crore.

Source: constructionweekonline.in

Written by ITW Editor · Filed Under BOT, Projects, Supreme Infrastructure India Ltd.

Plan panel questions four-laning of some national highway sections

December 12, 2011

NEW DELHI: The Planning Commission has kicked off a fresh debate, questioning how National Highways Authority of India ( NHAI) has gone ahead with four-laning of national highways even when the daily traffic volume on these stretches did not qualify them to be widened beyond two lanes.

In a recent letter to highways minister C P Joshi, deputy chairman of Planning Commission Montek Singh Ahluwalia raised questions on five projects, including the 70-km Lucknow-Rai Bareli section. Ahluwalia said there were standards – daily traffic volume – set by the Indian Road Congress (IRC) for considering widening of roads to two lanes, four lanes and six lanes. The letter said these standards were bypassed to push certain projects for four-laning under the build-operate-transfer (BOT) model.

Moreover, Ahluwalia mentioned that such a move could have adverse bearing on the finances available for the highway development programme in the country since the allocated budget could get exhausted in less number of projects.

The letter came despite the recent experience of how government had to start six-laning of the Golden Quadrilateral project only 6-7 years after its construction because of the high increase in traffic. “We will always compare our infrastructure development with China to push the need to go on overdrive, but we are caught in issues like this. We have seen how four-lane roads built in the past 10 years are becoming inadequate to handle huge traffic. Are we building roads for the next five years or for decades,” asked a senior ministry official.

Engineers working with IRC said it was not mandatory for the government to follow the recommendations set by the professional body. “But we can see how the Planning Commission uses our recommendation as per its convenience. It has downplayed the views of IRC so far as making safe roads are concerned,” said a senior retired engineer from the ministry who is associated with IRC.

In fact, Ahluwalia reiterated the views of his colleagues in the plan panel on such issues. In his letter to Joshi, he wrote that all highways should be at grid (surface) level without any flyover. Besides, he said there was no need to construct service roads all along the highways in rural areas, though accidents are on the rise in these areas. His juniors have been raising these issues, which have been termed impractical and compromises safety aspects.

A source in IRC said they had told the government that it could “downsize” the plan if it did no have “enough funds” rather than build unsafe roads and those which don’t meet operational needs. “Here, the Planning Commission does not find the merit of IRC’s recommendations,” a senior IRC member said.

Source: http://articles.timesofindia.indiatimes.com

Written by ITW Editor · Filed Under BOT, NHAI

Madhucon Projects rallies on large order win

December 12, 2011

Madhucon Projects rose 2.03% to Rs. 52.65 at 13:20 IST on BSE, extending Monday’s 3.8% rally triggered by a large order win.

Meanwhile, the BSE Sensex was down 60.15 points, or 0.37% to 16,106.98.

On BSE, 2,472 shares were traded in the counter as against average daily volume of 4,935 shares over the past one quarter.

The stock hit a high of Rs. 53.50 and a low of Rs. 50.50 so far during the day. The stock had hit a 52-week low of Rs. 47 on 22 November 2011. The stock had hit a 52-week high of Rs.132.90 on 2 December 2010.

The stock has risen 5.9% in two trading sessions from Rs. 49.70 on Friday, 25 November 2011, boosted by a large order win. The company announced the order win after market hours on Friday, 25 November 2011.

The small-cap stock had underperformed the market over the past one month till 28 November 2011, falling 26.34% compared with the Sensex’s 9.2% fall. The scrip had also underperformed the market in past one quarter, declining 31.66% as against 2.01% rise in the Sensex.

The company has an equity capital of Rs. 7.38 crore. Face value per share is Re 1.

Madhucon Projects on Friday, 25 November 2011, said it has bagged an EPC contract worth Rs. 422.06 crore from Bharat Coking Coal, Dhanbad. The project is to be completed in 84 months from the date of acceptance, Madhucon Projects said in a statement.

Madhucon Projects has order book position of around Rs. 6500 crore, inclusive of road, irrigation, power and mining sectors. Madhucon has also been prequalified in EPC works of over Rs. 20000 crore in various sectors, the company said in a statement.

Madhucon Infra, a subsidiary of Madhucon projects, is having road vertical, power vertical and coalmine vertical. There are total 8 road projects under road portfolio costing around Rs. 7000 crore in which 4 toll road projects are commissioned and toll revenues are being collected, Madhucon Projects said in a statement. With regard to 3 more newly secured Build-Operate-Transfer (BOT) projects, financial closure has been completed and the project construction activities have just started, Madhucon added. LOA for one more BOT toll road project between Vijayawada and Machilipatnam, costing around Rs. 760 crore. is received from National Highway Authority of India (NHAI), Madhucon Projects said in a statement.

Madhucon Projects further added Madhucon Infra is also coming up with a 1920 megawatts (MW) coal based power project near Nellore. The first phase of 300 MW power plant is expected to be commissioned by end of this year. The second phase of 300 MW power plant is expected to be commissioned by August 2012. Madhucon Projects has also been declared as preferential bidder in a 300 MW mine mouth power project in Indonesia, which is on BOT basis, the company said in a statement.

With regard to the coal subsidiary i.e. PT Madhucon Indonesia, in principle clearance for jetty construction has been received and the company is hopeful of commencing the coal production by January/February 2012, Madhucon said in a statement.

Madhucon Projects’ net profit fell 10.1% to Rs. 6.05 crore on 18.3% growth in net sales to Rs.416.05 crore in Q2 September 2011 over Q2 September 2010.

Madhucon Projects is an engineering construction company. The company is involved in projects that include highway construction, infrastructure projects, and construction of hydel and thermal power projects.

Source: indiainfoline.com

Written by ITW Editor · Filed Under BOT, Madhucon

Choked at home, Reliance Infrastructure looks for projects overseas

December 12, 2011

BANGALORE: Reliance Infrastructure is evaluating projects in Vietnam, Turkey, Oman and Nepal as it seeks to build a portfolio of $1.5 billion in two years and expand its footprint beyond India, where analysts say cut-throat competition and land acquisition problems are thwarting projects.

The company, part of the Anil Dhirubhai Ambani Group (ADAG), sees an internal rate of return of 20% from projects, which it aims to execute quickly, a senior company official who did not want to be identified, said.

“There are issues related to land acquisition and environmental clearances which delays projects in India making it unviable. Also the construction period is over five years here against two years overseas,” said a senior official from Reliance Infrastructure’s Road division.

Reliance has stated it is looking at five government road projects in Vietnam under the build, operate and transfer (BOT) model and is preparing to file expressions of interest (EoI) for it. The company is also evaluating, operate-maintain and toll road projects in Turkey, which will help it earn a revenue ofRs 4,000 crore annually.

With orders, especially from the central government, diminishing in the infrastructure sector, the company — which is also executing Mumbai’s Worli-Haji Ali sea link project — is looking at state roads and highways projects in the range of Rs 500-1,000 crore across the country.

“The bidding has been very aggressive with as many as 30-40 infrastructure companies bidding for the same projects. We do not want to dilute our return and portfolio value and RInfra will only choose projects which are high-density traffic corridors and offer 18-20% return,” said the official.

Recently, companies such as GMR Infrastructure, L&T Infrastructure Development Projects and IRB Infrastructure had quoted a premium of over Rs 300 crore for national highway projects. Currently, bids from as many as 30-40 infrastructure companies, most of whom have bid for multiple projects, are awaiting progress. As many as 60 road projects by the NHAI, worth around Rs 40,000 crore, are stuck in clearances with the Planning Commission. In FY12, NHAI has awarded 3,300 km of projects and will award 4,200 km by December 2011.

“Land hassles, high interest rates, adverse currency movement, low ordering environment and intense competition for the few projects that are available are several problems that companies in the India construction and infrastructure space are facing. The private sector’s confidence to invest in capacity creation remains low and that both public and private capex are likely to take longer to recover this time,” Morgan Stanley said in a report.

Separately, Reliance is also in talks to acquire national highway road projects in Tamil Nadu, Gujarat and Karnataka worthRs 2,000 crore. “We are looking at building our portfolio through secondary market and are evaluating some assets. The project should be viable and make healthy return for us,” said the Reliance official.

Reliance Infrastructure has emerged as the largest concessionaire of NHAI and currently has 11 road projects totalling 1,000 km valued at aroundRs 12,000 crore under various stages of execution. Six projects would become revenue operational by March, 2012, while four have already started generating revenues.

These projects include sixlaning of the NH 4 between Pune and Satara of length 140 km in Maharashtra, six-laning of NH 7 between Hosur and Krishnagiri of length 60 km in Tamil Nadu, six-laning of NH 2 between Delhi and Agra of length 180 km in Haryana and Uttar Pradesh. The 10 road projects are expected to be fully-commissioned by 2014 and will generate a revenue of Rs 1,200-1,400 crore annually.

“The company is also looking to bid for mega highway projects upward of Rs 2,000 crore and expects a 10-12% increase in traffic growth annually,” he said. RInfra has 25 infrastructure projects totallingRs 40,000 crore, including these 10 projects under different stage of execution. The company had posted a net profit of Rs 362 crore in the quarter ended September 30, 2011. On Friday, the firm’s stock closed up 1.78% at Rs 413 on BSE.

Source: http://articles.economictimes.indiatimes.com

Written by ITW Editor · Filed Under BOT, Reliance

Supreme Infrastructure secures 2 new Road BOT projects

December 12, 2011

Supreme Infrastructure India Limited has added Two Road projects on BOT basis and a project in building vertical.

Jaipur Ring Road – This project is for the development of the outer ring road in Jaipur city. The project has been bagged by Supreme Infrastructure India Ltd. (SIIL) and its JV partner Constructora Spain S.A. (Sanjose ). The cost of the project is estimated at Rs. 1,045 crore and will be a 60:40 JV between Sanjose and Supreme Infrastructure India Ltd. (SIIL). The project is awarded by Jaipur Development Authority (JDA). The EPC work will be executed jointly by Supreme and Sanjose in equal proportion. This project will be housed in the SPV, Sanjose Supreme Tollways Development Private Limited.

Patiala Malerkotla Road – Supreme Infrastructure India Ltd. has taken over a partially completed project from the original concessioner. The project is in the State of Punjab and necessary approvals from Punjab Infrastructure Development Board has been taken by the Company in this respect. The project cost is estimated at Rs. 93 crore and is expected to get completed in 4 months. This project is housed in the SPV Supreme Infra Projects Private Limited. The entire equity of this SPV is held by Supreme Infrastructure BOT Private Limited, a 100% subsidiary of Supreme Infrastructure India Limited. The EPC work will be executed by Supreme Infrastructure India Ltd.

The company also received a work order for ESIC Hospital – Phase 2, Mumbai Work for the construction of 2nd Phase of ESIC Hospital, Mumbai has been awarded to the Company. The 2nd phase of the Hospital is in addition to the 1st Phase of the Hospital which is already under execution by the Company. Order size is Rs. 110 Crore and is expected to be executed by December – 2013.

The stock was trading at Rs.183, up by Rs.2.85 or 177%. The stock hit an intraday high of Rs.188.95 and low of Rs.177.

The total traded quantity was 10912 compared to 2 week average of 6825.

Source:http://www.equitybulls.com

Written by ITW Editor · Filed Under BOT, Supreme Infrastructure India Ltd.

Madhucon bags EPC Contract of Rs 422.06 crore

November 28, 2011

Madhucon Projects Ltd has announced that the company has bagged an EPC contract of Rs 422.06 crore from Bharat Coking Coal Ltd, Dhanbad, for a mine it is executing in Barora.

The project, which covers surface mining, extraction and transportation of coal located in Phularitand Colliery of Barora area, is to be completed in 84 months from the date of acceptance.

The company’s arm Madhucon Infra Ltd, which is currently executing road projects with a total outlay of Rs 7,000 crore, has secured one more BOT (build, own and transfer) toll road project from NHAI to be executed between Vijayawada and Machilipatnam, with a total outlay of Rs 760 crore.

The Hyderabad-based infrastructure company, which is also executing power projects and taking up mining activity, has an order book of Rs 6,500 crore and has been pre-qualified for orders worth Rs 20,000 crore

Source: indiainfoline.com

Written by ITW Editor · Filed Under BOT, Madhucon

CRISIL assigns valuation grade of 5/5 to KNR Construction

November 28, 2011

CRISIL assigns valuation grade of 5/5 to KNR Construction CRISIL Research has come out with its initial coverage on KNR Construction . The research firm has maintained the fundamental grade of 3/5 to the company in its November 25, 2011 report.

KNR Construction (KNR) is a Hyderabad-based company focussing on road infrastructure projects. It has a healthy order book of Rs 25.1 bn (2.4x TTM revenues), which provides sufficient revenue visibility. Though order flows are expected to be healthy given traction in project awards, the company’s ability to bag new orders in a competitive scenario without compromising on margins will be a challenge. KNR also has one of the lowest gearing in the industry; as on FY11, KNR’s net debt-equity ratio stood at 0.1x compared to peers’ average of 2.5x. CRISIL Research assigns KNR a fundamental grade of 3/5, indicating that its fundamentals are good relative to other listed securities in India.

Proven execution track record in roads; entering into other segments
A mid-sized player, KNR has demonstrated good execution capabilities in the road segment and has so far constructed more than 4,000 km of roads. Of late, it has diversified into water, irrigation and urban infra projects. However, roads still comprise the major chunk (~90%) of its order book.

Order book stands at 2.4x TTM; provides sufficient revenue visibility
KNR’s current order book is Rs 25.1 bn (2.4x TTM revenues) which provides revenue visibility for the next 24-30 months. The order book has been boosted by recent project awards worth Rs 11 bn including an EPC order from Sadbhav Engineering for Rs 5.8 bn. It also has L1 status for projects worth Rs 1 bn.

Forayed into asset ownership model
In FY08, KNR bagged two BOT projects in JV with Patel Engineering. Both these projects have been completed and the government has begun making the annuity payments. KNR has also securitised one of the projects for Rs 4 bn which will ease funding requirement for future projects.

Risk: Operating margins could decline due to increasing competition
KNR has higher operating margins due to benefits from backward integration of sourcing aggregates from its captive quarrying mines. However, we believe that going forward there is a risk of margin decline given the current competitive scenario, when it may have to bid aggressively for projects, resulting in lower margins.

Revenues and PAT to grow at a two-year CAGR of 19% and 4%
We expect revenues to grow at two-year CAGR of 19% to Rs 14.6 bn in FY13. PAT growth is expected to be lower at 4% to Rs 696 mn in FY13 compared to Rs 640 mn in FY11 due to high interest costs and initial losses in BOT projects.

Valuations – current market price has ‘strong upside’
CRISIL Research has used the sum-of-the-parts method to value KNR. The contracting business has been valued based on the P/E method at Rs 142 per share and the BOT projects have been valued using the discounted cash flow method at Rs 15 per share. We initiate coverage on KNR with a fair value of Rs 157 per share and a valuation grade of 5/5.

To read the full report click on the attachment

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL’s opinions as on the date of this Report. The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

Source: moneycontrol.com

Written by ITW Editor · Filed Under BOT, KNR Constructions

Government may change way road contracts are awarded

November 21, 2011

The government may change the way it awards road projects that it finances itself, in an attempt to make the bidding process more transparent.

The highways ministry, the National Highways Authority of India (NHAI) and the Planning Commission held a series of meetings recently to consider allowing contractors to carry out engineering work as well under so-called engineering, procurement and construction (EPC) projects, two officials from NHAI and the Planning Commission said, requesting anonymity.

Contractors typically execute only procurement and construction under EPC contracts, while engineering and design are done by government-contracted consultancies.

The government’s preferred method of awarding road contracts is the build, operate and transfer (BOT) mode, under which the bid winner finances, constructs and maintains a road for a specified “concession period”. The developer collects tolls or is paid an annuity by the government for the concession period.

Projects bid out as EPC contracts are typically those deemed unattractive for the private sector because they lie in areas that are either insurgency-hit or low in traffic.

The 12th Five-Year Plan, which gets underway in 2012, allocates more than 20,000km of highways to be bid out as EPC projects.

Contractors currently make their bids on the basis of costs incurred for every material that goes into road construction. Officials said this makes it easy for them to overcharge the government.

The Planning Commission now wants to award such contracts on a turnkey basis, under which the lowest bidder will be awarded the contract and will be responsible for building the road and maintaining it for a specified period, said the NHAI official mentioned above.

Analysts said handing over engineering work to private contractors may lead to fresh problems for the government.

As all roads constructed as EPC projects are handed over to the government a few years after construction, contractors could cut corners on engineering work, said Parvesh Minocha, managing director of Feedback Infrastructure Services, an infrastructure services company.

Minocha said that as concession tenures for BOT contracts are much longer, contractors deliver high-quality engineering and design works on such contracts.

To make EPC projects more attractive for contractors, the government should package smaller and less-profitable stretches of two-laned roads or service roads to be given on EPC contracts with lucrative expressways or highways to be given on BOT contracts, Minocha said.

Source: www.livemint.com

Written by ITW Editor · Filed Under BOT, Road

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