Brimming with confidence, smaller, pure-play engineering, procurement and construction (EPC) companies, too, are moving up the value chain, increasingly bidding for HAM road projects. For instance, Sunil Hitech Engineers is one such company that has bid and won one HAM project so far. Its director, C Venkataramana, says this new model will attract companies that are serious about the business, unlike in the past. He adds, “The returns are commensurate with the low-risk profile of the model but it is a good way to build up the order book with most of the bigger companies staying away from these projects. We will selectively bid for more HAM projects in future.” As construction picked up pace, the surge in order inflow added to the momentum, with companies reporting a doubling in the order-book-to-revenue ratio to 2.5-3 times, a level that has not been seen in over five years.
Dilip Buildcon announced at the end of August that it had signed a Rs 1,600 crore deal to sell its entire stake in 24 of its road projects. That was the first big-ticket road asset sale in two years since Canadian asset manager Brookfield purchased six road projects from Gammon Infrastructure Projects for Rs 2,935 crore. The deal marked the end to a year of a steady flow of single asset deals with increasing numbers of private equity funds interested in owning road assets in India. The industry continues to be challenged by the usual issues of land acquisition but the equally important problem of procuring finance for such projects seem to have been resolved, at least for now. The numbers bear this out, as road developers with good execution track records and strong balance sheets continue to win projects as well as secure financing for them under HAM. Based on the much-improved performance in 2017, the industry is in for even better times in 2018. However, Shubham Jain, vice-president at ratings and research agency ICRA, advises caution.
He says the government may be constrained by its own fiscal deficit target, especially considering the increase in compensation under the Land Acquisition, Resettlement and Rehabilitation Bill (LARR) 2013, which provides for compensation of four times the value of the land being acquired in rural areas. Jain told Fe,“Considering the private sector’s involvement is going to be limited to about 15-20%, the government’s asset recycling programme under the toll, operate, transfer (TOT) model is going to be critical for them to raise the funds required.”
This might play a spoiler, but all else seems in place for speeding ahead in 2018.