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Sector update: Infrastructure - NHAI’s tendering pipeline robust at ~Rs1trn

National Highway Authority of India (NHAI) has built a robust tendering project pipeline worth ~Rs1trn.  We believe a large number of these 113 packages totalling ~4000km would be awarded by the end of FY20. Of these, 17 projects worth Rs120bn are already in advanced stages of being awarded. These packages fall under Delhi-Vadodara, Amritsar-Jamnagar and Amaravati-Chikhli corridors. We expect ordering activity to improve significantly over next 2-3 months, given NHAI’s target to award 4,000km and its large tendering pipeline. Hybrid Annuity Model (HAM) would remain the preferred mode of tendering, given that it comprises 63% of NHAI’s tender pipeline.  NHAI has awarded 1,164km of projects (Rs204bn) YTDFY20E, of which, 100km was on HAM basis, with the remaining on EPC basis until Dec 2019. Ashoka Buildcon, Sadbhav Engineering and PNC Infra are our preferred picks.

• The current tendering pipeline comprises 113 projects worth ~Rs1trn. Of the total tendering pipeline, HAM constitutes Rs633bn (70 projects), Engineering, Procurement and Construction (EPC) is Rs325bn (41 projects) and BOT-Toll is at Rs40bn (2 in number). NHAI has floated new draft model concession agreements for BOT–Toll, which it expects to finalise soon.
• As on 16 Jan 2020, NHAI accepted technical bids for 17 projects worth ~Rs120bn, which are expected to be awarded over the next few days. Of these, development of Delhi-Vadodara corridor constitutes 7 packages worth Rs63bn, Amritsar-Jamnagar corridor constitutes 5 packages worth Rs25bn and Amravati-Chikhli corridor constitutes 4 packages worth Rs24bn.
• The major contenders for these 17 projects are, HG Infra (12 projects worth Rs88bn), Dilip Buildcon (7 projects worth Rs42bn), PNC Infra (7 projects worth Rs63bn), Adani Enterprises (5 projects worth Rs30bn), Ashoka Buildcon (4 projects worth Rs39bn), Welspun Enterprises (4 projects worth Rs24bn), Larsen & Toubro (L&T; 2 large projects worth Rs21bn) and various other private players.
• NHAI has accepted financial bids for two of the 17 packages, both of which fall under the Delhi-Vadodara corridor in Madhya Pradesh and the awardees would be announced over the next few days. Key contenders for the 2 packages (valued at ~Rs9bn each) include HG infra, IRCON, Ashoka Buildcon and PNC Infratech (among other private players).
• Of the 113 projects in the pipeline, ~40 are valued at more than Rs10bn, which we believe should benefit companies with stronger balance sheets               .
• NHAI awarded Rs204bn worth of projects (of ~1,164km) YTDFY20E, of which, EPC constituted Rs147bn (of 1,064km) and HAM comprised Rs57bn (of 100km).
• As per the target set forth by Ministry of Road Transport and Highways (MoRTH), NHAI is expected to award ~4,000km in FY20E. To date, NHAI has awarded ~Rs204bn worth of projects (of ~1,164km). With projects worth ~Rs1trn (of the ~4,000km) under various stages of the ordering pipeline, we expect a spurt in ordering activity over the next two months.

Companies with strong balance sheets to be key beneficiaries: Ashoka Buildcon, Sadbhav Engineering and PNC Infra are our preferred picks. A robust tendering pipeline and increased proportion of HAM projects should bode well for these companies, enabling them to bid for projects at attractive margins/IRR. Additionally, with several projects in the pipeline worth >Rs10bn (37 projects of worth ~Rs508bn), larger players should benefit the most, in our view.