I N D I A N R O A D S

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1 I N D I A N R O A D S Industry Update December 23, 2016 VIJAYARAGHAVAN SWAMINATHAN raghavan@sparkcapital.in BHARANIDHAR VIJAYAKUMAR bharanidhar@sparkcapital.in

2 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Industry Update - Roads Execution risks and Traffic risks come to the fore Sector View Cautious Industry Update Demonetisation impact on Toll collection and Traffic: Our channel checks (at 25 toll roads in 12 states) indicate that on an average the traffic count has dropped by ~15% (yoy compared to similar period in 2015) and consequently the toll collection has dropped by ~12% (since start of regular toll collection). However, there were stretches where the traffic has either grown yoy in this period or has not been significantly affected (predominantly in West Bengal, Orissa and Gujarat stretches). Stretches in Tamil Nadu wer affected more due to disruption in traffic/ low vehicular movement due to the acting Chief Minister passing-away and due to a strong cyclone. We also noted that in all the stretches that we spoke to, card swiping machines (POS terminals) have been installed in all the lanes and the percentage of card payment has gone up steadily over the last few weeks. NHAI interaction and Industry Update: Project award activity on the national highway front (both by NHAI and MoRTH) has slowed down in the last few months with a total award of 4,592kms till Nov-2016 (18% achievement of the overall target of 25,000kms for FY17). Of this NHAI has awarded 2,509kms (17% achievement of the 15,000kms target) and MoRTH has awarded 2,082kms (21% achievement of the 10,000kms target). Seasonality, land acquisition problems, delay in execution of the projects awarded in 2016 (Delhi Meerut expressway and Meerut Bulandshahr Expressway in particular) and large number of pending Financial Closures (FC) for the Hybrid Annuity Model (HAM) projects (only 8 out of 27 projects awarded has FC, while 2 have been terminated) are the principal reasons for the hold-up in awarding activity. Bankers have been loath to agree for the terms of the HAM model (low compensation in case project is terminated has been an issue); short execution track-record with low equity funding capability from the winning concessionaires also have been the reasons for the delay in financial closures. We expect stronger players like Ashoka Buildcon and PNC Infratech to eventually finalise the financial package for their recently won HAM projects, while projects of newer players are more likely to be terminated. However, with the tender pipeline strong in the end of December and in 4QFY17E, we expect project award activity to pick-up; this should enable NHAI to award atleast 5,000kms in FY17E Effect on Stocks under coverage: Loss of toll revenues is likely to create short term cashflow mismatch for players with several projects in their portfolio (IRB, Sadbhav and Ashoka); though this will be offset in the long-term by mix of cash compensation plus increase in concession term. Toll roads are likely to see very low/ no traffic growth yoy for the next few months due to the impact on economic activity post demonetisation; this is likely to affect IRB, Sadbhav and Ashoka the most in our coverage. Delays in project execution (primarily due to land acquisition) is already evident in the pace of execution in all the Companies we cover. PNC Infratech is the worst affected (80% of road projects awarded since FY16 is delayed) followed by Ashoka Buildcon (47%), Sadbhav (43%) and KNR (19%) We cut our rating for Sadbhav Engineering and PNC Infratech from BUY to ADD due to the risks highlighted above affecting them more than others (traffic risk is likely to have a stronger effect on Sadbhav given the higher D/E ratio and due to higher equity requirement for the 5 HAM projects, while concentration risk is likely to be higher for PNC with 5 projects in U.P. and Bihar not being able to achieve land acquisition). Overall, EPC/road construction companies are expected to be impacted the LEAST from the demonetization process and the execution is likely to recover 1QFY18. EPC companies with strong orderbook, lean balance sheet are likely to benefit from increased spending expected in roads, metros, building and irrigation sectors. This along with reduction in cost of debt is likely to result in better fortunes for the sector. We continue to remain positive on KNR Constructions (due to 37% revenue growth for FY16-18E compared to <20% for the others and with relatively lower project delays) and on Ashoka Buildcon (due to road assets benefitting from mining activity and due to a well funded BOT portfolio). BUY KNR (TP: 185/ share), Ashoka Buildcon (TP: 200/ share); ADD Sadbhav Engineering (TP: 290/ share), PNC Infratech (TP: 130/ share), IRB (TP: 190/ share) Date Dec 23, 2016 Market Data SENSEX Nifty 7979 Market Performance % 1m 3m 12m ASBL 8% -10% -23% KNRC 14% 14% 37% PNCL -8% -15% -3% IRB 8% -21% -20% SADE -8% -10% -23% SENSEX 0% -10% 2% 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% ASBL IN IRB IN SADE IN KNRC IN PNCL IN SENSEX Page 2

3 Valuation Matrix Company Revenues, Rs.mn EBITDA, Rs.mn PAT, Rs.mn RoE Standalone Numbers FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E Ashoka Buildcon 19,667 19,358 20,121 27,121 2,498 2,652 2,802 3,438 1,422 1,594 1,480 1,769 14% 12% 9% 9% IRB 26,579 21,084 31,311 36,238 8,382 7,207 9,597 10,124 3,342 1,925 3,625 3,142 14% 7% 12% 9% KNR Constructions 8,761 9,025 14,081 16,835 1,262 1,553 2,052 2, ,611 1,410 1,423 13% 25% 18% 15% PNC Infratech 15,610 20,142 19,432 24,186 2,166 2,660 2,970 3,234 1,004 2,427 2,506 2,018 15% 23% 17% 13% Sadbhav Engineering 29,698 31,862 34,255 45,330 3,002 3,254 3,702 4,961 1,137 1,338 1,559 2,117 10% 9% 10% 12% Company Revenues, Rs.mn EBITDA, Rs.mn PAT, Rs.mn RoE Consolidated Numbers FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E Ashoka Buildcon 23,197 26,145 27,319 35,277 5,110 7,721 8,146 9, ,356 6% 4% 3% 7% IRB 37,319 38,475 51,302 59,777 17,537 22,117 26,606 30,235 4,591 5,429 6,359 7,134 14% 14% 14% 12% KNR Constructions 9,312 9,951 14,789 17,634 1,268 1,742 2,605 3, ,263 1,085 1,209 10% 17% 15% 14% PNC Infratech 18,609 23,946 25,173 30,072 2,799 4,073 5,648 5, ,161 1,589 1,322 12% 20% 11% 9% Sadbhav Engineering 34,480 38,775 45,401 58,561 5,867 8,035 12,055 15,184 (1,758) (468) 577 1,692-13% -3% 3% 6% Company CMP Shares M.Cap Net Debt to Equity (x) P/E (x) Price / BV (x) Consolidated Numbers Rs. (mn) Rs. bn FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E Ashoka Buildcon Buy IRB Add KNR Constructions Buy PNC Infratech Add Sadbhav Engineering NM NM NM Add Target Price Price (Rs.) Rating Page 3

4 Effect on Toll Collections/ Traffic post demonetisation Decrease Increase Neutral 1. What is the effect of demonetisation on toll collection? (% drop/ growth) 2. Effect on traffic post demonetisation? (% drop/ growth) 3. Are you collecting toll in Cash or have u installed POS machines? Delhi Gurgaon Agra Jaipur Kishangarh Ahmedabad Vadodara Kiratpur Kurali Dhule Nashik Gonde Vadape Dewas Wainganga Parwanoo Gwalior Dewas Hyderabad GUJARAT Panagarh RAJASTHAN Jaipur Kishangarh 1. 25% 2. 30% Ahmedabad Vadodra 1. Normal 2. Normal Lucknow Raebareli Barwa Chandikhol Bhubaneswar Beawar- Pali- Pindwara 1. 15% 2. 20% Godhra - Gujarat / MP Border 1. 20% 2. 20% DELHI MADHYA PRADESH Indore Dewas 1. 15% 2. 15% MAHARASHTRA Delhi Gurgaon 1. 20% 2. 40% MP/Maharashtra Border Dhule 1. 10% % Pimpalgoan - Nashik Gonde 1. 25% Now 5% 2. 5% UTTAR PRADESH Lucknow-Raibrelly 1. 25% % Agra - Gwalior 1. 45% 2. 50% WEST BENGAL Barwa adda- Panagarh % 2. Normal Chattisgarh/Maharashtra Border - Wainganga Bridge % % Vadape - Gonde % % Agra-Aligarh % % PUNJAB Moradabad -Bareilly 1. Not much affected 2. Normal Dhankuni kharagpur 1. Not much affected 2. Normal Kiratpur - Kurali, Zirakpur Parwanoo 1. Not much affected 2. Normal ANDHRA PRADESH ORISSA Bangalore Walajapet Nellore Tada Poonamallee Tambaram Tindivanam Madurai Tuticorin Hyderabad - Bangalore 1. 15% % TAMIL NADU Tambaram-Tindivanam 1. 35% to 40% Tada - Nellore 1. 20% % Madurai Tuticorin 1. Not much affected 2. Normal Bhubaneshwar- Jagatpur - Chandikhole 1. 10% % Walajhapet - Poonamalai 1. 30% 2. 25% Bhadrak - Balasore 1. 5% 2. 10% Page 4

5 Kms/ day Kms/ day kms kms Industry Update - Roads National Highways award and construction history National Highway Projects Awarded (kms) 230% National Highway Constructed (kms) 37% 14% 9,794-80% 6,321 25% 5% 7,890 8,295 5,013 5,732 4% 4,250 4,440 6,061 1,916-26% FY12 FY13 FY14 FY15 FY16 kms Awarded yoy growth, % FY12 FY13 FY14 FY15 FY16 kms constructed yoy growth, % National Highway Projects Awarded (kms/ day) National Highway Constructed (kms/ day) FY12 FY13 FY14 FY15 FY16 kms awarded per day FY12 FY13 FY14 FY15 FY16 kms constructed per day Page 5

6 NHAI Update slowdown in projects awarded in the last few months; targets set by Govt. unlikely to be achieved National Highways - Project Award Target & Achievement YTDFY17 National Highways - Road Construction Target & Achievement YTDFY17 Total 4,592 25,000 Total 3,591 15,000 MoRTH 2,082 10,000 MoRTH 2,174 7,000 NHAI 2,509 15,000 NHAI 1,417 8, ,000 10,000 15,000 20,000 25,000 30, ,000 10,000 15,000 20,000 25,000 30,000 Achievement (kms) Target (kms) Achievement (kms) Target (kms) Source: NHAI, MoRTH, Spark Capital Research NHAI Project Awards NHAI Project Awards NHAI Project Awards Kms FY16 YTDFY17 nos. FY16 YTDFY17 Rs. mn FY16 YTDFY17 BOT BOT 7 3 BOT 119,341 35,841 EPC 3,149 1,155 EPC EPC 481, ,636 HAM 345 1,022 HAM 9 16 HAM 83, ,784 Total 4,368 2,509 Total Total 683, ,260 BOT Build Own/ Operate Transfer, EPC Engineering Procurement & Construction, HAM Hybrid Annuity Model Page 6

7 NHAI Update only 8 out of 25 HAM projects awarded so far has achieved Financial Closure NHAI - Hybrid Annuity Projects awarded so far Rs. mn Rs. mn # Bidder FC? months since award Road Award Date kms State 1 Agroh Infra No 2 4 laning of Tarsod-Fagne NH-6 Nov Maharashtra 10,210 10,210 2 Agroh Infra Yes 8 4 laning of Kagavadar - Una May Gujarat 7,236 5,550 3 Agroh Infra No 6 4 laning of Kodinar to Veraval NH-8E Jul Gujarat 8,300 6,700 4 APCo Infratech No 12 Meerut - Bulandshahar Jan U.P. 6,832 8,680 5 APCo Infratech No 12 Delhi - Meerut Expreeway PKG III Jan Delhi & U.P. 10,816 10,570 6 Ashoka Concessions No 5 4/ 6 Laning of Kharar to Ludhiana section NH-95 Aug Punjab 13,883 20,700 7 Chetak Enterprises No 5 2 laning Shimla Bypass (Kaithlighat to Shimla Section) Aug H.P. 15,832 15,830 8 Dineshchandra R Agrawal No 7 4 laning Salasar - Nagaur section of NH-65 Jun Rajasthan 6,372 5,330 9 Eagle Infra No 8 4 laning Laddowal bypass linking NH-95 with NH-1 May Punjab 3,920 3, GR Infra No 5 4 laning Phagwara to Rupnagar Aug Punjab 11,696 14, MBL Infra No 7 6 laning of Udaipur Bypass Jun Rajasthan 7,260 7, MBL Infra No 10 4 laning of Chultmalpur - Ganeshpur Mar Uttarakhand and U.P. 14,430 9, MBL Infra No 10 4 laning of Gagalgeri - Yamunanagar Mar U.P. 16,680 11, MEP Infra & Sanjose India Infra No 8 4 laning of Talaja - Mahuva May Gujarat 8,346 6, MEP Infra & Sanjose India Infra No 7 4 laning of Mahuva to Kagavadar PKG-III Jun Gujarat 7,632 6, MEP Infra & Sanjose India Infra Yes 10 4 laning Ring Road / bypasses for Nagpur City PKG-I Mar Maharashtra 5,460 5, MEP Infra & Sanjose India Infra Yes 10 4 laning Ring Road / bypasses for Nagpur City PKG-II Mar Maharashtra 5,917 6, Oriental Structural No 3 4 laning of Binjhabahal - Telebani Oct Odisha 10,090 11, PNC Infratech No 6 4 laning Dausa - Lalsot - Kauthun section of NH-11A Jul Rajasthan 6,887 8, Sadbhav Infra Yes 8 4 laning of Bhavnagar - Talaja May Gujarat 9,982 4, Sadbhav Infra Yes 8 4 laning of Una - Kodinar May Gujarat 7,631 8, Sadbhav Infra No 4 2/4 laning of Tiger Reserve Boundary to Bangalore section Sep Karnataka 9,507 7, Sadbhav Infra Yes 10 4 laning of Rampur - Kathgodam PKG-I Mar U.P. 8,990 6, Sadbhav Infra Yes 10 4 laning of Rampur - Kathgodam PKG-II Mar Uttarakhand and U.P. 7,200 5, Welspun Enterprises Yes 12 Delhi - Meerut Expreeway PKG I Jan-16 9 Delhi & U.P. 7,014 7, Gawar Infra - - Samrala Chowk-Ludhiana Apr-16 Punjab 8,530 10, Overseas Infra - - Kishangarh-Udaipur-Ahmedabad (Package VI) Apr-16 Gujarat - - Only 8 HAM projects have got Financial Closure so far and it is evident that Companies with proven track record and balance sheet ability are not facing significant delays. Two projects (Gawar Infra and Overseas Infra) have been terminated so far due to problems in achieving financial closure NHAI cost Final Cost Page 7

8 NHAI land acquisition history Land Acquisition, hectares Compensation deposited with Competent Authority State FY13 FY14 FY15 FY16 Rs. mn FY13 FY14 FY15 FY16 Haryana ,662 Uttar Pradesh 4,939 13,210 13,932 49,493 Rajasthan 1, ,723 1,264 Bihar 1,643 5,253 6,308 21,125 Maharashtra 391 1, West Bengal 7,820 9,861 11,744 19,137 Orissa Maharashtra 4,310 9,251 6,103 19,086 Karnataka Haryana 8,037 5,370 22,101 16,624 Bihar Jharkhand ,562 West Bengal Himachal Pradesh 18 5, ,203 Uttrakhand Andhra Pradesh 3,920 4,501 1,192 6,975 Gujarat Tamil Nadu 3,964 3,318 3,117 6,742 Tamil Nadu Rajasthan 816 2,696 4,337 5,320 Andhra Pradesh Orissa 1, ,973 5,202 Uttar Pradesh 473 1, Uttrakhand 2, ,465 Punjab Karnataka 4,003 4,767 7,369 3,421 Himachal Pradesh Gujarat 1,668 1,036 2,166 2,606 Jharkhand Madhya Pradesh 908 5, ,745 Chhattisgarh Kerala 1,375 2,592 2,745 1,547 Madhya Pradesh 483 1, Jammu & Kashmir 905 1, Kerala Chhattisgarh 2, Jammu & Kashmir Meghalaya Assam Assam , Goa Goa Meghalaya Punjab Total India 6,925 8,655 6,733 9,287 Total India 54,043 77,939 90, ,200 We analysed the data given by Ministry of Road Transport and Highways on the land acquisition status of NHAI, key takeaways are: 9,287hectares of land was obtained in possession in FY16 by NHAI for roads (38% yoy growth). Haryana (1,662 Ha), Rajasthan (1,264 Ha), Maharashtra (988 Ha), Orissa (940 Ha), Karnataka (676 Ha), Bihar (539 Ha) are the top states in which most land have been taken into possession Rs bn has been deposited by NHAI in FY16 towards compensation for land (111% yoy growth) vs. Rs. 90.3bn in FY15 U.P. (Rs. 49.5bn), Bihar (Rs. 21.1bn), West Bengal (Rs. 19.1bn), Maharashtra (Rs. 19.1bn), Haryana (Rs. 16.6bn) and Jharkhand (Rs. 15.6bn) are the top states where most compensation had been paid in FY16 Given >40% of the remaining road projects to be awarded by NHAI are in U.P.(10%), Rajasthan, Orissa, Maharashtra, Karnataka we are likely to see large amounts being spent in these states for land acquisition in the future also Intensity of land acquisition in FY17 is likely to be lower which we believe is the reason for 47% lower allocation in FY17 budget to NHAI from Central Road Fund NHAI is looking to acquire 10,000ha for FY17E (4000ha already acquired till September; FY ha). Cost of land acquisition is expected to be ~Rs 300bn in FY17. Our channel checks indicate that the new land acquisition act is hurting the projects badly where the increasing cost of land acquisition pose risk to the sector Page 8

9 Competition for projects NHAI projects won Rs. mn kms No. of projects Bidder FY16 YTDFY17 FY16 YTDFY17 FY16 YTDFY17 Larsen & Toubro 57,039 17, PNC Infratech 52,747 6, Dilip Buildcon 42,512 24, IL&FS Transportation 41, Gayatri Projects 39,653 25, Jaiprakash Associates 37, MBL Infra 31,110 7, Punj Lloyd 31, Sadbhav Engineering 27, GR Infra 22,497 11, Oriental Structural Engineers 22,483 10, KNR Constructions 22,324 16, HCC 21, Gammon India 21,370 11, Essel Infraprojects 21, ApCo Infratech 17, IRB Infra 16,572 24, Jai Kumar InfraProjects 16, Sadbhav Infra 16,190 27, Ashoka Buildcon 15,645 4, Corsan Corviam Construction 14, Uniquest Infra Ventures 13, BSCPL Infra 11, MEP Infra & Sanjose India 11,377 15, Backbone Enterprises 10,697 2, Welspun Enterprises 7, Others 40, , Total 683, ,260 4,368 2, Competitive intensity for EPC projects remain similar to FY16 with more than 20 active bidders still in the fray; due to non achievement of Financial Closure of HAM projects, competition has significantly reducedto <5 players at present for HAM projects; competition for BOT projects is comparatively lower at around 5 players Players like Dilip Buildcon, Gayatri Projects, MEP Infra and GR Infra continue to be aggressive and show enough appetite to win more projects L&T and PNC Infratech who were the top winners in FY16 have not won as many projects in YTDFY!& FY17 so far has also seen newer players like Agroh Infratech, KMC Constructions, Eagle Infra, H G Infra and Dineshchandra R Agarwal Infracon winning several projects In the companies under our coverage, Sadbhav, KNR and Ashoka Buildcon all continue to win projects in FY17 as well Page 9

10 Status of orders won recently for Companies under coverage Progress of Road Projects won since FY16 Original Cost Remaining Work Year Months Mode Awarder State Rs. mn Rs. mn Ashoka Buildcon/ Ashoka Concessions 6 lane Eastern Peripheral Expressway PKG-IV Aug-15 FY16 17 EPC NHAI Uttar Pradesh 7,890 7,131 JNPT Port Road Phase-II PKG-IV Sep-15 FY16 16 EPC NHAI Maharashtra 4,140 3,834 Bagewadi-Bailhongal-Saundatti Sep-15 FY16 16 Annuity State Karnataka 2,350 2,543 Hungund-Muddebihal-Talikot Sep-15 FY16 16 Annuity State Karnataka 2,050 2,466 Islampur By pass Oct-15 FY16 15 EPC NHAI West Bengal 2,770 2,761 Road network of Hulhumale Oct-15 FY16 15 EPC Maldives Maldives 1,239 NA 2 laning Pasighat-Mariyang Nov-15 FY16 14 EPC NHIDCL Arunachal P. 917 NA Govindpur-Tundi-Giridih & Dumka-Hannsidha Feb-16 FY16 11 EPC State Jharkhand 4,016 3,863 2 laning of Pasighat to Bomjur Mar-16 FY16 10 EPC NHIDCL Arunachal P. 763 NA 4/2 laning of Govindpur-Chahs-WB border Jul-16 FY17 6 EPC NHAI Jharkhand 4,860 4,854 4/6 Laning of Kharar-Ludhiana Aug-16 FY17 5 HAM NHAI Punjab 12,737 12,737 Total 43,732 40,189 % of slow moving orders 47% KNR Construction Chittagong City Outer Ring Road Mar-15 FY15 22 EPC Bangladesh Bangladesh 2,577 2,577 4 laning Madurai Ramanathapuram Apr-15 FY16 21 EPC NHAI Tamilnadu 9,371 6,526 Upgrading Kanchipuram - Vandavasi Apr-15 FY16 21 EPC State Tamilnadu 1,852 1,315 Upgrading Arcot Villupuram road Apr-15 FY16 21 EPC State Tamilnadu 3,213 2,787 Upgrading Malliyakarai-Erode road Apr-15 FY16 21 EPC State Tamilnadu 2,271 1,682 4 laning of Kazhakkottam to Mukkola May-15 FY16 20 EPC NHAI Kerala 6,691 4,985 Mohanpur Behat Mau & Behat Mau Jul-15 FY16 18 EPC State Madhya P. 2,556 2,018 2 tier flyover in Salem Feb-16 FY16 11 EPC State Tamilnadu 2,951 2,724 Dindigul-Bangalore Road (Pollachi to Coimbatore Section) May-16 FY17 8 EPC MoRTH Tamilnadu 4,149 4,149 4 laning of Hubli - Hospet section of NH-63 Aug-16 FY17 5 EPC NHAI Karnataka 6,680 6,674 Total 42,311 35,437 % of slow moving orders 19% Source: Company, Spark Capital Research Remaining works is as at Sept 2016 Page 10

11 Status of orders won recently for Companies under coverage Progress of Road Projects won since FY16 Original Cost Remaining Work Year Months Mode Awarder State Rs. mn Rs. mn PNC Infratech 4 laning Bhojpur to Buxar Aug-15 FY16 17 EPC NHAI Bihar 4,770 4,770 4 laning Koilwar to Bhojpur Aug-15 FY16 17 EPC NHAI Bihar 4,540 4,540 2 laning Aligarh - Moradabad Mar-16 FY16 10 EPC NHAI U.P. 6,450 6,450 4 laning of Varanasi - Gorakpur PKG-II Mar-16 FY16 10 EPC NHAI U.P. 8,690 8,690 4 laning of Nagina - Kashipur Mar-16 FY16 10 EPC NHAI U.P. 11,560 11,560 Sharda Sahayak Feeder Canal Roads Mar-16 FY16 10 EPC State U.P. 2,057 NA 4/2 laning Dausa-Lalsot-Kauthun Jul-16 FY17 6 HAM NHAI Rajasthan 8,810 8,810 Total 46,877 44,820 % of slow moving orders 80% PNC infratech s NHAI projects that it won in FY16 is facing severe land acquisition issues with land availability of only ~60% at the Varanasi Gorakhpur, Nagina Kashipur, Bhojpur Buxar and Koilwar Bhojpur projects Sadbhav Engineering/ Sadbhav Infrastructure Project UP/Haryana border-yamuna Nagar- Panchkula PKG II May-15 FY16 20 EPC NHAI Haryana 4,680 3,770 UP/Haryana border-yamuna Nagar- Panchkula PKG I May-15 FY16 20 EPC NHAI Haryana 4,360 3,180 4 Laning Tapa to Bathinda Jun-15 FY16 19 EPC MoRTH Punjab 2,314 1,890 6 lane Eastern Peripheral Expressway PKG-I Aug-15 FY16 17 EPC NHAI Haryana /U.P. 7,920 6,050 6 lane Eastern Peripheral Expressway PKG-II Aug-15 FY16 17 EPC NHAI Haryana/ U.P. 7,560 6,230 4 laning of Rampur-Kathgodam PKG-I Mar-16 FY16 10 HAM NHAI U.P. 6,030 6,030 4 laning of Rampur-Kathgodam PKG-II Mar-16 FY16 10 HAM NHAI U.P. 5,250 5,250 4 laning of Bhavnagar - Talaja May-16 FY17 8 HAM NHAI Gujarat 6,500 6,500 4 laning of Una - Kodinar May-16 FY17 8 HAM NHAI Gujarat 4,950 4,950 2/4 laning of Tiger Reserve to Bangalore Sep-16 FY17 4 HAM NHAI Karnataka 8,550 8,550 Total 58,114 52,400 % of slow moving orders 43% Source: Company, Spark Capital Research Remaining works is as at Sept 2016 Though financial closure exists for the HAM projects, Appointed Date is pending for these projects as Company is waiting for 80% of land to be made available Page 11

12 Construction Business Orderbook, P&L Construction Business Rs. mn FY16 FY17E FY18E Construction Business Rs. mn FY16 FY17E FY18E Ashoka Buildcon KNR Construction Order Inflow 27,016 47,390 32,000 Order Inflow 28,905 23,587 24,000 Roads 27,016 37,604 26,000 Roads 28,905 16,829 20,000 Others 0 9,786 6,000 Others 0 6,758 4,000 Order Book 28,328 56,871 63,072 Order Book 34,634 44,308 51,473 EPC Revenues 17,819 18,847 25,799 EPC Revenues 9,025 13,913 16,835 growth, % -2% 6% 37% growth, % 3% 54% 21% EBITDA 2,652 2,804 3,441 EBITDA 1,553 2,027 2,436 margin, % 14% 14% 13% margin, % 17% 15% 14% PAT 1,594 1,481 1,772 PAT 1,611 1,388 1,421 growth, % 12% -7% 20% growth, % 18% 10% 8% EPS, Rs./ share EPS, Rs./ share EPC biz FY18 EPS 142 EPC biz FY18 EPS 152 Construction Business Rs. mn FY16 FY17E FY18E Construction Business Rs. mn FY16 FY17E FY18E PNC Infratech Sadbhav Engineering Order Inflow 39,740 30,000 30,000 Order Inflow 38,114 55,000 48,200 Roads 38,067 28,600 28,500 Roads 38,114 40,000 35,000 Others 1,673 1,400 1,500 Others 0 15,000 13,200 Order Book 55,370 65,938 71,752 Order Book 74,871 95,616 98,486 EPC Revenues 20,142 19,432 24,186 EPC Revenues 31,862 34,255 45,330 growth, % 29% -4% 24% growth, % 7% 8% 32% EBITDA 2,660 2,970 3,234 EBITDA 3,254 3,702 4,961 margin, % 13% 15% 13% margin, % 10% 11% 11% PAT 2,427 2,506 2,018 PAT 1,338 1,559 2,117 growth, % 142% 3% -19% growth, % 18% 17% 36% EPS, Rs./ share EPS EPC biz FY18 EPS 118 EPC biz FY18 EPS 185 Page 12

13 Cash flow comfort in the Companies under coverage Ashoka Buiidcon Rs. mn FY16P FY17E FY18E Standalone Cash Flow: OCF 3,366 3,158 3,803 Less: Interest Less: Tax Less: Working Capital 5,787 (2,168) 1,848 KNR Construction FY16P FY17E FY18E Standalone Cash Flow: 2,964 2,414 2, (22) PNC Infratech FY16P FY17E FY18E Standalone Cash Flow: 2,861 2,799 3, (423) (396) (798) 1,760 Sadbhav Engineering FY16P FY17E FY18E Standalone Cash Flow: 3,060 3,702 4, , (493) (385) Apart from KNR all the other 3 Companies resorted to raising funds in the Equity markets to meet their funding requirements Less: CAPEX Less: Dividend Cash Flow Before Equity & Debt (4,363) 3,568 (1) Add: Equity 4, Add: Debt Net Cash available 553 3, , ,990 1, ,173 2, (339) 4, , (339) 1, ,025 2,909 4, ,291 2,025 2,909 KNR funded the loss of the Walayar Vadakkancherry project through promoters infusion and internal accruals Road Assets CashFlow (Stake adjusted) Revenues 8,453 10,342 11,302 EBITDA 6,647 8,326 9,220 Less: Interest 4,810 5,508 5,627 Less: Tax Less: Repayment Net Cash 916 1,780 2,127 Starting Cash 1,679 4,676 Cash from EPC 3,568 0 Road Assets CashFlow (7) , (2,052) (1,078) (116) 450 1,225 1, Road Assets CashFlow 4,386 6,733 6,625 1,743 3,545 3,332 1,341 2,312 2, ,333 (25) 466 (328) 1, (339) SIPL Cash flow 7,422 11,367 13,452 4,773 8,577 10,447 6,398 6,769 6,665 (95) ,930 4,341 2,640 (7,460) (2,738) 885 1, ,025 2,909 KNR and PNC Infratech are the most comfortable in meeting their cash requirements of the Road Asset portfolio as they have fewer assets and fewer/ no BOT or HAM project yet to put-in equity Cash from BOT 1,780 2,127 (1,078) (116) 466 (328) (2,738) 885 Less: Equity for BOT/ HAM projects 2,350 3,000 Ending Cash - Consolidated 1,679 4,676 3,803 Debt Standalone 2,883 Consolidated 41, ,225 1, , , (689) 60 17, ,760 1, ,123 10,588 79,522 Debt at KNR and PNC Infratech is low when compared to Ashoka Buildcon and Sadbhav Engg Page 13

14 Valuation Summary SoTP Valuation Ashoka Buildcon Stake Valuation Method Projects ACL's Stake ASBL's Stake Total Equity Value ACL's Value ASBL's Value per share Rs. mn Rs. mn Rs. mn Rs. % Nashirabad Railway-Over Bridge 100% FCFE using 14% CoE % KSHIP WAP-2 - Modhul Nipani 100% FCFE using 14% CoE % Total Value for ABL's Road Assets (a) % NH-6 Bhandara Road 51% 31% FCFE using 14% CoE 1, % NH-6 Durg Bypass 51% 31% FCFE using 14% CoE 3,365 1,716 1, % Jaora Nayagaon Road 73% 45% FCFE using 14% CoE 8,027 3,026 4, % NH-4 Belgaum-Dharwad Road 100% 61% FCFE using 14% CoE 3,392 3,392 2, % NH-6 Sambalpur-Baragarh Road 100% 61% FCFE using 14% CoE 1,839 1,839 1, % NH-6 Dhankuni to Kharagpur Section 100% 61% FCFE using 14% CoE 4,873 4,873 2, % Chennai ORR 50% 31% FCFE using 14% CoE 4,552 2,276 1, % Total Value for ACL's Road Assets (b) 27,987 18,112 13, % Construction & RMC Business 100% 15x FY18E EPS 22,847 22, % Total Value for Construction Business (c ) 22,847 22, % Ashoka Buildcon (a) + (b) + (c ) 51,521 18,112 37, % Page 14

15 Valuation Summary SoTP Valuation - IRB Infra Developers IRB's Stake Valuation Method Equity Value Value to IRB per share % Projects % Rs. mn Rs. mn Rs. Mumbai Pune BOT, MPEW & NH4 100% FCFE using 14% CoE 7,664 7, % Surat Dahisar Road, NH 8 90% FCFE using 14% CoE 4,779 4, % Bharuch Surat BOT, NH 4 100% FCFE using 14% CoE 1,181 1, % Thane Ghodbunder Toll Road BOT 100% FCFE using 14% CoE (841) (841) (2) -1% Tumkur Chitradurg, NH 4 100% FCFE using 14% CoE 1,501 1, % Talegaon Amravati, NH 6 100% FCFE using 14% CoE 2,082 2, % Thane Bhiwandi Bypass BOT 100% FCFE using 14% CoE % Pune Nashik BOT, NH % FCFE using 14% CoE 1,779 1, % Pune Sholapur BOT 100% FCFE using 14% CoE 1,096 1, % Pathankot Amritsar, NH % FCFE using 14% CoE (1,563) (1,563) (4) -2% Jaipur Deoli, NH % FCFE using 14% CoE 5,651 5, % Ahmedabad Vadodara -NH 8 & Ahmedabad Vadodara 100% FCFE using 14% CoE Expressway 6,300 6, % Goa/ Karnataka Border to Kundapur, NH % FCFE using 14% CoE 6,695 6, % Omallur -Salem Namakkal Section of NH-7 74% at investment value 1, % Solapur -Yedeshi section of NH % FCFE using 14% CoE 5,764 5, % Yedeshi Aurangabad section of NH % FCFE using 14% CoE 6,514 6, % Kaithal Rajasthan Border section of NH 152/65 100% FCFE using 14% CoE 8,489 8, % Agra - Etawah 100% FCFE using 14% CoE 8,527 8, % Total Value Road Assets 66,918 66, % Other investments - Airports, Real Estate 100% at investment value % IRB Infrastructure Developers Page 15

16 Valuation Summary SoTP Valuation - KNR Constructions - Stake Method Project Equity Value Value for KNR per share % BoT Projects KNR Walayar Tollways Private Ltd 100% FCFE with 14% CoE 1,545 1, % KNR Muzaffarpur Barauni Tollway Private Ltd 51% FCFE with 14% CoE (510) (260) (2) -1% Total for BOT Projects 1,036 1, % Standalone/ EPC Business 100% 15x FY18E EPS 24,426 24, % Total Value for KNR Constructions 25, % Page 16

17 Valuation Summary SoTP Valuation PNC Infratech PNC's Stake Valuation Methodology Equity Value PNC's Share per share value % Standalone EPC Business (a) 100.0% 15x FY18E EPS 30,275 30, % Road Assets Gwalior Bhind Road 100.0% FCFE using 14% CoE % Kanpur Kabrai Road 100.0% FCFE using 14% CoE % Ghaziabad Aligarh Road 35.0% FCFE using 15% CoE 3,136 1, % Rae Bareli Jaunpur Road 100.0% FCFE using 14% CoE (21) (21) (0) 0% Bareilly Almora Road 100.0% FCFE using 14% CoE % Industrial Estate Asset PNC Delhi Industrialinfra Pvt Ltd 100.0% FCFE using 14% CoE % Road Toll Collection Concession PNC Kanpur Ayodhya Tollways Pvt Ltd 100.0% FCFE using 14% CoE % Total Value for Assets (b) 5,534 3, % Total PNC Infratech (a) + (b) 35,808 33, % Page 17

18 Valuation Summary Total Equity Value to Sadbhav per SoTP Valuation - Sadbhav Engineering Stake Valuation Method Value SIPL Value Engineering share % Projects SIPL's stakesel's stake Rs. mn Rs. mn Rs. mn Rs. EPC Business Sadbhav Engineering Standalone 100% 15x FY18E EPS 31,762 31, % Sadbhav Infrastructure Project Ltd (SIPL) Aurangabad Jalna 100% 68% FCFE using 13% CoE 2,409 2,409 1, % Ahmedabad Ring Road 100% 68% FCFE using 13% CoE 2,497 2,497 1, % NH-7 Nagpur - Seoni 100% 68% FCFE using 13% CoE % Maharashtra Border Checkpost 78% 53% FCFE using 13% CoE 12,058 9,405 6, % NH-13 Bijapur - Hungund 77% 53% FCFE using 13% CoE 8,234 6,340 4, % NH-202 Hyderabad Yadgiri 100% 68% FCFE using 13% CoE 3,900 3,900 2, % NH-3 Dhule - Palesnar 100% 68% FCFE using 13% CoE 4,515 4,515 3, % NH-71A Rohtak Panipat 100% 68% FCFE using 13% CoE % NH-8 Shreenathji - Udaipur 100% 68% FCFE using 13% CoE 6,036 6,036 4, % Total Value for Operational Road Assets 40,611 36,064 24, % NH-758 Bhilwara - Rajsamand 100% 68% FCFE using 14% CoE 2,249 2,249 1, % NH-7 Rohtak - Hissar 100% 68% FCFE using 14% CoE % SH-3 Mysore Bellary 74% 51% FCFE using 14% CoE 4,428 3,277 2, % Total Value for Under Construction Road Assets 7,585 6,433 4, % Less: Net Debt at SIPL standalone in FY17E 68% 7,516 7,516 5, % Total Value for SIPL 40,679 34,981 23, % Value of SIPL after giving holdco discount 25% holdco discount 30,509 26,236 17, % Total Value for Sadbhav Engineering 62,271 49, % Page 18

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