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Event update: Infrastructure - NHAI meeting; Key takeaways - 5 year business plan

At its investor meet, NHAI laid down its business plan to build 35,213km of roads (including roads under Bharatmala Pariyojana I of 24,800km) by FY23E. We present key takeaways:

Status of Bharatmala Pariyojana Phase I of roads under construction: In Oct 2017, Indian government approved Phase I of the Bharatamala (24,800km) project, apart from 10,000kms of balance road works under implementation (under National Highways Development programme). As a result, NHAI was required to construct 35,213kms of roads over next five years (FY18-FY22E). Although the total expenditure on these projects was estimated at Rs5.3trn (Rs150m/km), the overall cost has now risen to Rs6.3trn, to be spent over FY18 to FY23E.

How NHAI expects to fund the projects: Management expects to fund the total outlay of Rs6.3trn through Rs1.1trn of budgetary provisions (17%), Rs0.7trn (12%) of toll receipts, Rs3.6trn (56%) of borrowings and Rs0.9trn of asset monetisation through TOT portfolio. Besides, management is working out alternatives to raise finances, which include: a) asset monetisation through TOT and INVIT, b) land monetisation along the roads (value financing), c) optimising land requirements, d) project-based financing (SPV-based financing from NIIF,) e) based accounting, f) revision in BOT policy, and, g) prioritising road projects, based on viability.

Status of roads awarded and constructed under Bharatmala Pariyojana I: Out of the entire road length of 35,213km, NHAI has already awarded 16,422km and the balance 18,791km is expected to be awarded over FY20E-FY22E (7,731km, 5,530km and 5,530km in FY20E, FY21E and FY22E, respectively). NHAI expects to complete 3,609km, 4,520km, 8,613km, 7,424km, 5,530km and 5,530km of awarding in FY20E, FY21E, FY22E, FY23E, FY24E and FY25E, respectively.

View; To Benefit EPC and Road companies

Order inflow from the roads sector slowed in FY19 and H1FY20 after a robust FY18. Given NHAI’s increased borrowings, concerns over order awards too increased, thereby impacting EPC and road companies. In this backdrop, NHAI attempted to address street concerns about long-term funding plan for road projects under its portfolio to a large extent. It expects to award 7,700km of roads in H2FY20E. Even if the awards and ordering were to be delayed by few months, we expect ordering to pick up FY21E onwards. We expect benefit to EPC and road companies to flow through in about 12-18 months with increased order inflow from NHAI. Key risk is land acquisition, slow traffic growth, low toll collection and low budgetary provisions.