Mumbai: IL&FS Transportation Networks India Ltd is devising a multi-pronged approach to work around the road blocks that scuttle infrastructure projects in India.
For the Rs.21,000-crore Churchgate-Virar elevated rail corridor project in Mumbai that it plans to bid for, the IL&FS group company is in talks with international firms to partner it.
IL&FS Transportation also hopes to increase its daily collection by way of annuity and toll from Rs.2 crore a day now to Rs.12 crore a day by 2015-16, executive director Mukund Gajanan Sapre said in an interview.
It also plans to explore markets such as Africa and West Asia for new projects and to add to existing overseas operations. IL&FS Transportation acquired road maintenance company Elsamex SA in Spain in 2008 and a road project in China in 2011.
The company will simultaneously focus on projects in Jammu and Kashmir, and Jharkand that are perceived “as riskier projects by other companies for geopolitical reasons”, said Sapre. “We will have three verticals—road, rail and urban transport. As a key learning from our past mistakes, we will have a proper financial structure for all our projects.”
IL&FS Transportation has the largest road asset portfolio based on the build-operate-transfer (BOT) model in India, with 24 projects and 12,000km across 16 states.
But due to poor traffic estimates, the company’s road projects including Vadodara-Halol (started in 2001), Noida Toll Bridge and Ahmedabad-Mehsana (both in 2002) have had to face challenges.
“We had committed mistakes in the past by wrong traffic forecasts. Traditionally, traffic was expected to grow twice that of the GDP (gross domestic product). At present, the composition of the GDP has changed and the traffic may only grow at 1.2-1.5 times,” said Sapre, adding that many public-private partnership road projects have been affected primarily due to wrong traffic estimates.
Poor estimates apart, India’s infrastructure sector is troubled by a cloudy investment climate, weak market sentiments and pre- and post-construction delays, SBICAP Securities Ltd said in an 8 January report.
In recent times, aggressive bidding in the road sector and developers’ growing debt, coupled with banks tightening lending for road projects, have resulted in companies seeking more time to arrange finances for 23 projects and two project awards being cancelled, the brokerage said.
For instance, GMR Infrastructure Ltd had to abandon a plan to widen a 555km highway stretch between Kishangarh in Rajasthan to Ahmedabad in Gujarat. The company walked out of the Rs.6,000 crore project as it had offered too high a revenue share to the government to win the contract, affecting the viability of the project, Mint reported on 7 January quoting two government officials who requested anonymity.
In 2012-2013, the ministry of road transport and highways (including National Highways Authority of India) was expected to award 8,000km of road projects, lower from its earlier target of 9,500km, but it has awarded just 1,010km till date, SBICAP added.
“Given the difficult macro economic conditions and financing issues, we believe NHAI will fall short in achieving its target by 15-20% despite a pick-up in award of BOT and EPC (engineering, procurement and construction) projects during second half of the year,” the brokerage said. “Currently, the road sector is going through bumps, cracks and obstacles—slowing award activity, high leverage leading to funding issues for new projects and land acquisition issues leading to project delays and cost escalation.”
IL&FS Transportation has a good understanding of projects and implementation and the strong backing of its parent group but “the downside of the company is its high debt”, said Daljeet S. Kohli, head of research at brokerage IndiaNivesh Securities Pvt. Ltd.
IL&FS Transportation’s consolidated debt was Rs.12,065 crore in the September quarter, according to an investor presentation of September by the company. Sapre said his company has no immediate plans to raise funds from the market.
Experts said the company is carefully diversifying and it will yield results in long term.
December-quarter revenue for India’s construction sector is expected to have grown by 14% over the preceding three months but slowed by 6% over a year ago because of lower-than-expected order inflows, Kotak Securities Ltd said in an 8 January report.
Margins are expected to remain stable, Kotak said, but cautioned that the “steep increase in working capital requirements as well as borrowings are expected to dent the profitability on yearly basis”.