ROADS February 2018
Table of Content Executive Summary...3 Advantage India.....4 Market Overview...6 Strategies Adopted......19 Growth Drivers...21 Opportunities.... 31 Success Stories... 34 Industry Associations......38 Useful Information....40
EXECUTIVE SUMMARY One of the largest road networks in the world India had the one of the largest road networks in the world, spanning over a total of 5.6 million kms. Over 64.5 per cent of all goods in the country are transported through roads, while, 90 per cent of the total passenger traffic uses road network to commute Rising budget allocation of road sector During FY18-19, Government of India allocated Rs 71,000 crore (US$ 10.97 billion) for development of national highways across the country. Growing private sector involvement As on September 2017, 312 projects were recommended for development by the Public Private Partnership Appraisal Committee (PPPAC) Investment of US$ 31 billion is expected in PPP by 2020 for national highways Rapid growth in national highways The Government of India plans to increase the length of National Highways from to 200,000 kms. As of November 2017, national highways of 4,944 kms in length were constructed, against a target of 15,000 kms for FY 2017-18, under various road transport and highway projects Overseas Investment for infrastructure development CPPIB (Canada Pension Plan Investment Board) plans to invest US$ 322 million for infrastructural development in India. The Government has received public sector undertakings from countries like Malaysia and Japan for funding the upcoming highway projects in India annuity model 60 per cent of the investment is borne by the private investors 40 per cent by NHAI in 5 equal instalments. In November 2016, Union Government and Asian Development Bank signed US$ 500 million loan agreement to build the longest bridge across river Ganga, in Bihar. The bridge is expected to be ready by 2020. In April 2017, the Government of India agreed to build world-class road infrastructure in the Jaffna region in Sri Lanka. The 3 major stretches being built are Mannar-to-Vavuniya, Dambulla-to-Tricomalee and Jaffna-to-Mannar. Source: MoRTH Annual Report 2015 16, NHAI, Make in India, Aranca Research 3
ADVANTAGE INDIA
ADVANTAGE INDIA Greater connectivity between different cities, towns and villages has led to increased road traffic over the years Growth in automobiles and freight movement commands a better road network in India Rise in the number of 2 and 4 wheelers, increasing traffic supports the growth The Central Government has fast tracked at least 24 roads and highways projects Government is planning to offer a bonus of 10 per cent of the total project cost to firms that construct and deliver highway projects before deadline ADVANTAGE INDIA The government has given a massive push to infrastructure by allocating Rs 5.97 lakh crore (US$ 92.2 billion) for infrastructure in the Union Budget 2018-19. Growing participation of the private sector through Public-Private Partnership (PPP) The Government of India plans to invest Rs 1.45 lakh crore (US$ 22.40 billion) towards road infrastructure in North-East region between 2018-2020. Road infrastructure has been key government priority; sector received strong budgetary support over the years Financial institutions received government approval to raise money through tax-free bonds 100 per cent FDI is allowed under automatic route subject to applicable laws and regulations Notes: NHAI - National Highways Authority of India, MoRTH - Ministry of Road Transport and Highways, E- Estimated Source: NHAI, Make in India, MoRTH, Business Monitor International, Aranca Research 5
MARKET OVERVIEW
ROAD NETWORK IN INDIA IS SUB-DIVIDED INTO THREE CATEGORIES (Total length: 5.6 million Kms) State highways National Highways District and Rural roads Total length: 176,166 kms Share: 3 per cent of the total roads in India Total length: 115,530 kms Share: 2 per cent of the total roads in India Total length: 5,326,166 kms Share: 95 per cent of the total roads in India Notes: All figures as per economic survey 2017-18. Source: Economic Survey 2017-18 7
STRONG MOMENTUM IN EXPANSION OF ROADWAYS Value of total roads and bridges infrastructure in India is expected to expand at a CAGR of 13.6 per cent over FY09 17 to US$ 19.2 billion / Visakhapatnam bridges infrastructure port traffic value (million in India tonnes) (US$ billion) In April 2017, the National Highways and Infrastructure Development Corp. bagged a project to build 5 tunnels worth US$3.42 billion. These tunnels, namely, Zojila tunnel at Zojila Pass (14 kms), Vailoo Tunnel at Sinthan Pass (8-10 kms), Z-Morah tunnel (6.5 kms), Pir-Ki- Gali Tunnel on National Highway-244 (8.5 kms) and Daranga Tunnel at Shudh Mahadev (4.5 kms), will help in avoiding road accidents because of avalanches Increasing industrial activity, increasing number of 2 and 4 wheelers would support the growth in the road transport infrastructure projects In January 2017, the government proposed to lay down cycle tracks on all highways and major roads pan India, to promote the use of electric cars and public transport. In April 2017, Chenani-Nashri tunnels that links Kashmir valley with Jammu was inaugurated. It is the longest road tunnel in the country and US$371.86 million were invested in this project Targeted pace of road construction has been increased to 23 km a day. The first phase of construction work of Mumbai's 29.2 km long coastal road is expected to begin in April 2018, after bids are finalised in March 2018. 20 18 16 14 12 10 8 6 4 2 0 CAGR 13.6% 19.20 16.10 13.4 11 8.3 8.6 8.6 6.9 6.8 2009 2010 2011 2012 2013 2014 2015E 2016F 2017F Note: CAGR - Compounded Annual Growth Rate, FY - Indian Financial Year (April - March), F - Forecast, NHDP - National Highway Development Project, SARDP-NE: Special Accelerated Road Development Programme for the North Eastern Region and LWE - Left Wing Extremism Programme; Figures are as per latest data available Source: Business Monitor International (BMI), Ministry of External Affairs, Aranca Research 8
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY20 F INDIAN CONSTRUCTION EQUIPMENT REVENUES ON AN UPTREND By FY20, construction equipment industry s revenue is estimated to reach to US$ 7 billion. Construction Visakhapatnam equipment port traffic industry (million size (US$ tonnes) billion) In FY17, India construction equipment industry grew 40 per cent over the previous year to reach US$ 4.2 billion. 7.5 6.5 5.5 6.5 7.0 4.5 3.5 3.7 3.9 4.3 4.6 4.2 5.1 3.9 4.2 2.5 2.9 3.0 1.5 0.5-0.5 Note: CAGR - Compounded Annual Growth Rate, FY - Indian Financial Year (April-March), E Estimate, YoY Year on Year Source: The Boston Consulting Group, Mahindra Website 9
CONSTRUCTION EQUIPMENT SALE ON AN UPTREND With infrastructure investment set to go up, demand for construction equipment will rise further. The number of construction equipment units sold increased 41.5 per cent year-on-year in 2016 backed an increase in road projects and a low base. 60,000 Total Visakhapatnam number of construction port traffic equipment (million tonnes) units sold Concrete Show India 2017 was held at Mumbai, Maharashtra, with more than 100 Indian and global manufacturers & suppliers from industries such as concrete, construction, construction equipment, etc., participating in the event. Between January-September 2017, about 42,710 units of construction equipment were sold in India, as against 37,346 units between the same period in the previous year. 50,000 40,000 30,000 52,500 49,700 42,600 35,900 36,800 52,100 42,710 20,000 10,000-2011 2012 2013 2014 2015 2016 2017* Note: CAGR - Compounded Annual Growth Rate, FY - Indian Financial Year (April-March), E Estimate, YoY Year on Year, * - January-September 2017 Source: NBM & CW, Mahindra Website, Indian Construction Manufacturers Association 10
RISING DEVELOPMENT OF NATIONAL HIGHWAYS Double-lane highways constitute the largest share of highways in India (40658 kms). Double-lane highways are followed by single/intermediatelane (19330 kms) and 4/6/8-lane (19128 kms) highways The Government has proposed to upgrade 2 lane national highways into 4 lane national highways for which US$ 65 billion has been allocated. This step is expected to reduce the passenger car units (PCU) to 10000 per day In January 2017, Government of Assam announced investment of US$ 2.23 billion for developing 1253 kms of roads in the state, into national highways In response form institutional investors from Canada, Middle East and the US, in February 2017 NHAI floated bids to monetise 10 national highway projects in the country. The National Democratic Alliance (NDA) decided to bring all future road projects such as economic corridors and coastal roads under its aegis, with an aim to give a boost to its Bharatmala Plan. This flagship programme is estimated to cost around US$148.74 billion. Mr Narendra Modi, Prime Minister of India, has proposed an investment of Rs 30,000 crore (US$ 4.67 billion) for development of national highways in the northeast under the Bharatmala Project The government is planning to monetise 105 highway projects, worth US$21.57 billion as a part of new innovative models of financing. Mr Narendra Modi, inaugurated road and highway projects worth Rs 15,000 crore (US$ 2.34 billion) in Udaipur, Rajasthan on August 29, 2017. Road projects worth Rs 34,000 crore (US$ 5.32 billion) are being undertaken by the central government to decongest the road network connecting the National Capital Territory of Delhi, according to Mr Harsh Vardhan, Minister of Environment, Forests and Climate Change, Government of India. India s national highway network is expected to cover 50,000 kilometres by 2019, with around 20,000 km of works scheduled for completion in the next couple of years, according to the Ministry of Road Transport and Highways. As of October 2017, the land acquisition process and detailed project reports (DPR's) for the Bharatmala Pariyojana are underway and the first project is expected to be awarded before the end of 2018 The state government of Kerala plans to raise Rs 10,000 crore (US$ 1.54 billion) from non-resident Keralites (NRKs) to finance the development of two highways in the state and support NRKs in the long-term. In February 2018, the Cabinet Committee on Economic Affairs (CCEA), Government of India, approved the six-laning of the 61 km long Nidagatta - Mysuru Section of NH-275 on Hybrid Annuity Mode in Karnataka for an estimated cost of Rs 2,919.81 crore (US$ 452.01 million). Source: Media sources, Aranca Research 11
NHAI S SUCCESSFUL IMPLEMENTATION OF PROJECTS NHDP phase/year of Approval Project description Total length (Kms) Cost Development model Phase I / December 2000 Development of Golden Quadrilateral, North South and East West (NS-EW) corridor, port connectivity and other National Highways 13,390 US$ 5.6 billion Engineering- Procurement and Construction (EPC) Phase II / December 2003 Development of North South and East West (NS-EW) corridor and other National Highways 7,142 US$ 6.3 billion EPC Phase III / April 2007 Development of 4-lane National Highways 12,109 US$ 18.5 billion PPP (Build-Operate-Transfer) Phase IV / February 2012 Upgradation of single lane to 2-lane 20,000 US$ 12 billion PPP Phase V / October 2006 Upgradation of 4-lane highways to 6-lane and port connectivity 6,500 US$ 9.3 billion PPP Phase VI / November 2006 Development of expressway The project is targeted to be completed by December 2015 1,000 US$ 3.8 billion PPP-(Design-Build- Finance-Operate) Phase VII / December 2007 Development of ring roads, bypasses and flyovers 700 US$ 4.2 billion PPP (Build-Operate- Transfer) Source: NHAI, Aranca Research 12
SPECIAL ACCELERATED ROAD DEVELOPMENT PROGRAMME FOR THE NORTH EAST REGION The Special Accelerated Road Development Programme for the North Eastern region (SARDP-NE) is aimed at developing road connectivity between remote areas in the North East with state capitals and district headquarters SARDP-NE is vested with the development of double-/four-lane national highways of about 7,530 kms and double-laning improving about 2,611 kms of state roads, as on FY16 Implementation of the road development programme would facilitate connectivity of 88 district headquarters in North Eastern states to the nearest National Highways In December 2017, Mr Narendra Modi, Prime Minister of India, has announced investment of Rs 60,000 crore (US$ 9.33 billion) under SARDP between 2018-2020. The project would be undertaken in following 3 phases: Phase Project description Total length (Kms) Date of completion Improvement of National Highways 3,014 A March 2017 Improvement of state roads 1,085 B Development of double-lane of National Highways 2,392 Double-laning and improvement of state roads 1,331 Investment decision is yet to be taken by government Arunachal Pradesh package of roads and highways Development of roads 2,319 March 2017 Source: NHAI, MoRTH Annual Report 2015-16, PPP in India, Aranca Research 13
LEFT WING EXTREMISM (LWE) PROGRAMME The government approved a Road Requirement Plan (RRP) for the development of 1,126 kms of National Highways and 4,351 kms of state roads in Left Wing Extremism (LWE) affected districts The project would be vested with the Ministry of Road Transport and Highways (MoRTH). The project has been implemented in Andhra Pradesh, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Maharashtra, Odisha and Uttar Pradesh. In December 2016, the Cabinet Committee on Economic Affairs had given its go ahead for a US$ 1.72 billion road project across all 35 LWE affected districts. As of June 2017, 1391-kms of roads had been constructed under the Road Requirement Plan Phase-I (RRP) in the most difficult areas. At the same time, 5,412 kms of roads had been approved under RRP-II. The mobile tower project was started in 2014 to improve coverage in LWE areas. As of June 2017, 2,187 mobile towers have been set up and 2,882 towers are being set-up. As of November 2017, the Government of India has planned an expenditure of Rs 11,000 crore (US$ 1.71 billion) on a programme for connecting LWE districts by March 2020. Under the Union Budget 2018-19, Rs. 2,881.80 crore (US$ 445.13 million) were allocated towards roads construction in the LWE areas. Note: LWE Left wing extremism Source: NHAI, MoRTH, PPP in India, Aranca Research, Media Sorces 14
DECREASE IN PUBLIC PARTICIPATION IN THE SECTOR (1/2) As of January 15, 2018, there were 1,534 PPP projects in India, of which 745 were related to roads. Visakhapatnam Total PPP projects port in traffic India (million (January tonnes) 2018) Project awarded under BOT is 18.51 per cent of the total awarded projects as of January 2018. 49% 51% and Bridges Others Source: MoRTH, Aranca Research 15
464 470 369 877 742 1116 873 422 2677 6144 6067 DECREASE IN PUBLIC PARTICIPATION IN THE SECTOR (2/2) Both NHAI and Ministry of Road Transport and Highways awarded projects of around 6,397 kms in FY16. In 2015-16, 7 projects (20 per cent) of the total 4,368 kms of NHAI projects awarded were allocated to BOT mode 7000 Projects Visakhapatnam awarded to port BOT traffic private (million players tonnes) (in Kms) During FY17, projects of about 422.17 kms were awarded to BOT players by NHAI. 6000 5000 4000 3000 2000 1000 0 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY15 FY16 FY17 Note: FY13 - Projects awarded by NHAI; Source: NHAI, Crisil, ITNL Company Annual Reports, Aranca Research 16
PRIVATE PLAYERS GAINING TRACTION IN THE ROADS SECTOR Until 2005, the road construction market was dominated by public sector companies With the emergence of private players over the last decade, the road construction market has become fragmented and competitive; players bidding for projects also vary in terms of size Major projects: Mumbai Pune BOT Project, Pune Nashik BOT Project, Bharuch Surat BOT Project, Thane Bhiwandi by-pass 4 Lane Project, Thane Ghodbunder BOT Project, Ahmedabad Baroda NH- 8, 6 laning of Agra - Etawah bypass Major projects: North Karnataka Expressway, West Gujarat Expressway, Noida Toll Bridge, Ahmedabad - Mehsana Toll Road, East Coast Road, Kotakatta Kurnool Road Project, East Coast Road, Hazaribagh Ranchi Expressway Ltd, Karnataka Toll Bridges Major private sector players Major projects: NH6 Dhankuni to Kharagpur, Sambalpur Baragarh, NH4 Belgaum Dharwad, NH-3 Pimpalgaon Nashik Gonde Road (JV with L&T), Jaora Nayagaon Road, Chennai Outer Ring Road, Modhul Nippani Road, Indore Edalabad Road, Wainganga Bridge, Ahmednagar Aurangabad Road Major projects: Bandra Worli Sea Link, Badarpur Elevated Highway Project, Delhi Faridabad Elevated Expressway, Breakwater construction for new port at Ennore, Chennai, New Railway Line Project from Jiribam - Tupul Major projects: Tuni Ankapalli Highway, Tambaram Tindivanam Highway, Ambala Chandigarh Highway Notes: NH National Highway Source: Aranca Research 17
NOTABLE TRENDS IN THE ROAD SECTOR Demand for urban transport The government s policy to increase private sector participation has proved to be a boon for the infrastructure industry with a large number of private players entering the business through the Public Private Partnership (PPP) model The type of PPP models used in road projects are Build Operate Transfer (BOT) toll and BOT annuity During the next 5 years, investment through PPP is expected to be US$ 31 billion Electronic toll collection NHAI is taking revolutionary steps, like facilitating Online sale of FASTags and offline sale through Common Services Centre (CSC) near toll plazas, to ensure availability of FASTags for Electronic Toll Collection. Paytm Payments Bank has launched Paytm FASTag to enable electronic toll-fee collection on highways across the country. International Investment Infrastructure is the key to supporting double-digit GDP growth in India during the medium to long term Cumulative FDI inflows into the construction development sector, including roads and highways, stood at US$ 24.67 billion till December 2017. Infrastructure initiatives Programmes like Bharat Nirman, JNNURM are designed to pursue nation wide rural connectivity, linking all the unconnected villages with fair weather roads Ministry of Road Transport and Highways has signed an MOU with IL&FS Transportation Networks for construction of 14.15 km bi-directional Zojila tunnel which will be India s longest road tunnel and the longest bi-directional tunnel in Asia. Notes: FDI - Foreign Direct Investment Source: NHAI, MoRTH, Aranca Research 18
Porter s Five Forces Framework Analysis Threat of Substitutes Threat of substitutes is low Even if government wants to renovate rather than going for reconstruction, it is highly likely to go to the same players Bargaining Power of Suppliers Bargaining power of suppliers is very low Several small players exist in the suppliers section that weaken their power Competitive Rivalry Competitive rivalry between big players is quite intense as far as winning projects is concerned due to high price sensitivity Few large players have the expertise for undertaking bigger projects; hence, competition is higher in case of large infrastructural projects Bargaining Power of Buyers Bargaining power is strong due to robust price sensitivity and low costs Buyers are government organisations or major agencies that enhance their buying power Positive Impact Neutral Impact Negative Impact Threat of New Entrants With liberalisation, rules have been eased for the entry Big players block the entry of new players in the roads segment, especially in large projects 19
STRATEGIES ADOPTED
STRATEGIES ADOPTED Diversification Most players are now opting for inorganic growth routes and are diversifying into other businesses (IIML, a subsidiary of IL&FS is into private equity business with over US$ 3.2 billion under management) Many players are entering into technical partnerships with foreign players to match their R&D levels with MNCs Training of labour Companies are hiring and training staff to reduce the shortage of skilled manpower and focusing on policies to retain labour Firms plan to increase minimum wages in the construction sector as well as women participation Companies are partnering with technical institutes and colleges such as CSTI (L&T and Govt. of Odisha) Ministry will give grant of US$ 152,765 to private companies and state road transport corporations willing to set up or upgrade driver training schools Promotion of R&D Companies are ramping up investment for better and cost effective ways of road construction Stepping up R&D to develop better roads in areas which suffer from congestion, delays and accidents, according to world standards As of November 2016, three memorandum of understanding (MOUs) were signed between National Green Highways Mission (NGHM) and ITC Ltd, Yes Bank Ltd and Teri for setting up a Centre for Innovations in Green Pathways in order to enhance research and innovations in the field. Geographical expansion Indian companies are increasing their footprints abroad, thus tapping outside market IL&FS won a road contract worth US$ 216.7 million in Botswana, through its subsidiary Elsamex SA 21
GROWTH DRIVERS
STRONG DEMAND AND POLICY SUPPORT DRIVING INVESTMENTS Growing demand Policy support Increasing investments Rise in 2 and 4 wheeler vehicles Greater government focus on infrastructure NHAI implementing one of the largest road projects Increasing freight traffic Inviting Standardised processes for bidding and tolling; clear policy framework Resulting in Rising private sector participation Strong trade and tourist flows between states Tax sops, FDI, FII encouragement Strong projected demand making returns attractive Source: Make in India, Aranca Research 23
KEY CATALYSTS BEHIND INCREASING DEMAND FOR ROADWAYS Higher individual discretionary spending has led to increased spending on cars, motorbikes and scooters Growing domestic trade flows have led to a rise in commercial vehicles and freight movement Increasing financing on vehicle loans Road s traffic share of the total traffic1 in India has grown from 13.8 per cent to 65 per cent in freight traffic and from 32 per cent to 90 per cent in passenger traffic over 1951 2017 Rising income leading to increasing number of vehicle owners Growing movement of goods within the country due to economic integration Higher road traffic Better quality roads makes road travel cheaper and safer Increasing roadways leading to greater accessibility between different cities/towns/villages Growth in small and medium enterprises in India Notes: 1Including rail and road transport Source: MoRTH, World Bank, Make in India, Aranca Research 24
567.7 760.7 929.1 832.6 699 698.3 782.8 810.28 RISING VEHICULAR TRAFFIC KEY FACTOR FOR EXPANSION OF ROADWAYS Sales of passenger vehicles increased at a CAGR of 10.24 per cent during FY06-17 and reached 3.8 million in FY17 Sales of commercial vehicles in the country increased at a CAGR of 5.21 per cent in FY10-17, with the number reaching 810,286 during FY17 Rising per capita income and growing middle class coupled with easier access to finance and a wider price range of vehicles have boosted car sales. Production of passenger vehicles increased at a CAGR of 10.24 per cent to reach 3.8 million in FY17 from 1.3 million in FY06. Production of commercial vehicles increased at a CAGR of 5.21 per cent to reach 810,280 in FY17 from 567,000 in FY10. 4.0 3.0 2.0 1.0 0.0 Trends Visakhapatnam in passenger port vehicle traffic Production (million tonnes) (in million) 1.3 1.3 1.6 1.8 2.4 CAGR 10.24% 3 3.1 3.20 7.1 6.9 3.40 3.80 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Trends Visakhapatnam in commercial port vehicle traffic Production (million tonnes) (in 000) 1000 CAGR 5.21% 800 600 400 200 0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Source: SIAM, Aranca Research 25
8.06 9.18 11.43 22.08 23.31 24.07 24.18 24.29 24.67 PRIVATE FUNDING BEING ENCOURAGED TO REDUCE FINANCE CONSTRAINTS (1/2) Cumulative FDI inflows into the construction development sector, including roads and highways, has increased at a CAGR of 17.07 per cent from US$ 8.06 billion in FY10 to US$ 24.29 billion till March 2017. Cumulative FDI stood at US$ 24.67 billion as on December 2017. 30 Visakhapatnam Cumulative FDI port Inflows traffic (million (US$ billion) tonnes) A Memorandum of Understanding (MoU) has been approved by the Union Cabinet between India and the UAE on bilateral cooperation in road, transport and highways sector. The MoU includes collaboration in planning administration and management of road infrastructure, technology and standards for roads/highways construction and maintenance. 25 20 15 10 5 0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18* Note: * - Data till December 2017 Source: DIPP, Aranca Research; 26
14.80% 29.60% 83.10% 95.90% 100% 100% 100% PRIVATE FUNDING BEING ENCOURAGED TO REDUCE FINANCE CONSTRAINTS (2/2) NHDP s Phase I and Phase II were mostly developed by public funds with BOT s share at 14.8 per cent and 29.6 per cent, respectively The PPP model will be the favoured route for executing the remaining phases of NHDP 120.00% % Visakhapatnam of BOT share in port different traffic (million phases of tonnes) NHDP In May 2017, the Road Ministry signed 34 MoUs with investment potential of around US$ 29.74 billion with private and public companies such Adani Logistics, Ascendas, Chennai Port Trust, etc., to improve multi-modal logistics. 100.00% 80.00% 60.00% 40.00% 20.00% 0.00% Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Phase 6 Phase 7 Note: NHDP - National Highway Development Phase, BOT - Build Operate Transfer, Year of Approvals for Phase I: December 2000, Phase II: December 2003, Phase III: April 2007, Phase IV: February 2012, Phase V: October 2006, Phase VI: November 2006, Phase Vii: December 2007 Source: NHAI, MoRTH, Aranca Research 27
POLICY INITIATIVES IN THE RIGHT DIRECTION (1/2) Infrastructure a key government priority Support from the Union Budget Rural Development Infrastructure investment is a major focus area for the government The government has given a massive push to infrastructure by allocating Rs 5.97 lakh crore (US$ 92.2 billion) for infrastructure in the Union Budget 2018-19. The planned outlay under the Union Budget 2018-19 for the road sector is Rs 1.21 lakh crore (US$ 18.69 billion). Moreover, Rs 71,000 crore (US$ 10.97 billion) have been allocated specifically for the development for the national highways in the country. The Prime Minister s Gram Sadak Yojana (PMGSY) is a scheme for development of rural roads in India. The Government of India has succeeded in providing road connectivity to 85 per cent of the 178,184 eligible rural habitations in the country under the scheme. All villages in the country are expected to be connected through a road network by 2019, as against 2022 previously, under the PMGSY. Under the Union Budget 2018-19, Government of India allocated an investment of Rs 19,000 crore (US$ 2.93 billion) for the Pradhan Mantri Gram Sadak Yojana (PMGSY) The Government of India will spend around Rs 1 lakh crore (US$ 15.26 billion) during FY18-20 to build roads in the country under Pradhan Mantri Gram Sadak Yojana (PMGSY). Taxes and other sops Value Engineering Programme Companies enjoy 100 per cent tax exemption in road projects for 5 years and 30 per cent relief over the next 5 years Companies have been granted a capital of up to 40 per cent of the total project cost to enhance viability The Ministry of Road Transport and Highways, Government of India plans to implement 'Value Engineering Programme' in order to promote use of new technologies and material in highway projects being executed in India. Notes: FDI - Foreign Direct Investment, FII - Foreign Institutional Investors Source: Make in India, Union Budget 2016-17, Union Budget 2017-18, Aranca Research 28
POLICY INITIATIVES IN THE RIGHT DIRECTION (2/2) Issue of tax-free infrastructure bonds Infrastructure finance companies, such as India Infrastructure Finance Corporation (IIFCL), National Highways Authority of India (NHAI), Housing and Urban Development Corp (HUDCO), Power Finance Corporation (PFC) and India Railway Finance Corporation (IRFC), have been permitted to issue tax-free bonds for a total value of US$ 3.27 billion for FY15; promotion of infrastructure debt funds is the top agenda Encouragement of Infrastructure Debt Funds (IDFs) Government of India has set up the India Infrastructure Finance Company (IIFCL) to provide long-term funding for infrastructure projects Interest payments on External Commercial Borrowings for infrastructure are now subject to a lower withholding tax of 5 per cent vis-à-vis 20 per cent earlier IDF income is exempt from income tax Central Road Fund (CRF) The Central Road Fund (CRF) assists the state government and union territories in the development of state roads The Central Road Fund (Amendment) Bill, 2017 has been passed by the Lok Sabha, Government of India which would result in revenues of Rs 2,300 crore (US$ 358.7 million) for national waterways in the country. Goods and Services Tax (GST) The GST on construction equipment has been reduced to 18 per cent from 28 per cent, which is expected to give a boost to infrastructure development in the country. Investment in roads and other infrastructure Existing excise duty on petrol and diesel has been changed to road cess to the extent of INR 4 per litre to fund investment in roads and other infrastructure. In Union Budget 2018-19, the government provided an outlay of Rs 1.21 lakh crore (US$ 18.69 billion) for the road sector. 29
RECENT BOT PROJECTS AWARDED BY NHAI Project Length (Km) Cost (US$ million) Year Company C and C Constructions NA 447.87 2017 NA 4 laning of Buxar-Patna 25 NA 2017 NA Patna Gaya Dhobi 126 167.95 2017 NA Chardham Highway NA 1780 2017 NA Jaipur - Ring Road 47 52.06 2017 NA Kundli Manesar Paliwal 83 NA 2017 Easel Construction Ltd and HLS Ltd. Gujarat 8 highways 1200 1780 2017 NA New Delhi Bharat Mala Programme NA 5206 2017 Easel Construction Ltd and HLS Ltd. 6 Laning of Chittorgarh to Udaipur 93.5 169.94 2016 TRIL Pvt Ltd 6 Laning of Gujrat to Rajasthan 113.8 192.17 2016 IRB Infrastructures Developers Ltd 6 laning of Kishangarh Udaipur Ahmedabad 124.78 191.51 2016 IRB Infrastructure Developers Ltd 6 Laning of Kishangarh to Gulabpura 90 159.40 2016 IRB Infrastructure developers Ltd Notes: BOT - Build Operate Transfer, UB - Union Budget, Km Kilometre Source: NHAI, MoRTH, Aranca Research 30
2.8 3.5 3.2 6.6 6.5 7.1 7.8 8 14.5 14.67 18.69 BUDGETARY OUTLAY FOR ROADS Roadways has been the key focus area for budget allocations over the years Outlay for roads under the respective Union Budgets Visakhapatnam port traffic (million tonnes) (US$ billion) As per Union Budget 2018-19, the government provided an outlay of Rs 1.21 lakh crore (US$ 18.69 billion) for the road sector Between FY09 and FY19, budget outlay for road transport and highways increased at a robust CAGR of 20.91 per cent Under Union Budget 2017-18, GOI is planning to develop 2,000 kilometres of coastal connectivity roads in India. 20 18 16 14 CAGR 20.91% 12 10 8 6 4 2 0 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 Note: CAGR - Cumulative Annual Growth Rate, GOI Government of India, NHAI National Highway Authority of India Source: Respective Union Budgets, Aranca Research 31
OPPORTUNITIES
FUTURE PROSPECTS REMAIN BRIGHT FOR THE ROAD SECTOR (1/2) National Highway Development Project (NHDP) is a 7 phase project amounting to US$ 60 billion. The projects aims to widening, upgradation and rehabilitation of 47,054 kilometres of national highways NHAI awarded 77 road projects covering 4,335 kilometres in FY 2016-17. The Government of India has decided to invest Rs 7 trillion (US$ 107.82 billion) for construction of new roads and highways over the next five years. The NHAI has invited bids for projects of 4,900 km as of November 2017 and is expected to invite bids for 3,500 km of projects by December 2017 and has already awarded projects worth Rs 22,100 crore (US$ 3.43 billion) covering 1170 kms in its efforts to speed up the construction of highways. 7000 6000 5000 4000 3000 2000 1000 0 Visakhapatnam Projects awarded port traffic (in kilometres) (million tonnes) 6491 1165 1435 5000 6397 Projects awarded (in kilometres) by NHDP as of Visakhapatnam port traffic (million tonnes) 31st May 2017 4335 FY12 FY13 FY14 FY15 FY16 FY17 The Ministry of Road Transport and Highways, intends to take the total of projects awarded in FY2017-18 to 20,000 km and targets to award projects of 25,000 km in FY 2018-19. 14000 12000 10000 8000 11809 13203 6000 4000 2000 7142 6500 1000 700 0 NS &EW Ph I & II NHDP III NHDP IV NHDP V NHDP VI NHDP VII Notes: NHDP stands for National Highways Development Project Source: NHAI, MoRTH, Aranca Research 33
FUTURE PROSPECTS REMAIN BRIGHT FOR THE ROAD SECTOR (2/2) In India, roads remain the most important means of transport, accounting for around 80 per cent of the passenger traffic and 65 per cent of the freight traffic Number of total vehicles in India increased at a CAGR of 9 per cent during the period of FY06-17, from 9.7 million to 25.3 million As of FY17, 2 wheelers accounted for 78.73 per cent of the total number of vehicles in India 30 25 20 15 10 5 0 10 Visakhapatnam Total vehicle s port growth traffic (million units) tonnes) 11 11 11 14 CAGR 9% 18 21 21 7.1 6.9 24 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 25 Visakhapatnam Bifurcation of vehicles port traffic by category: (million tonnes) FY17 3.20% 3.90% Two wheelers 14.98% Passenger vehicles Commercial vehicles 78.73% Three wheelers Notes: SIAM - Society of Indian Automobile Manufacturers Source: SIAM Report, Aranca Research 34
SUCCESS STORIES
IRB INFRASTRUCTURE LIMITED (1/2) IRB Infrastructure is one of the leading BOT operators in India, with a built-length of around 9,846 lane kilometres Revenue Trend: IRB Infrastructure Limited Visakhapatnam port traffic (million tonnes) (US$ million) IRB has 20 BOT projects, of which 14 are operational, as on March 2017 As of 31 March 2017, IRB Infrastructure s order book aggregated US$ 1.55 billion The company has an 18.79 per cent share in the Golden Quadrilateral project as of March 2017. During FY10-17, company s revenue increased at a CAGR of 14.11 per cent 1000 900 800 700 600 500 548.6 CAGR 14.11% 695 702.9 619.1 657.0 783.7 931.5 400 300 369.8 200 100 0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Notes: CAGR - Compounded Annual Growth Rate, BOT Build Operate Transfer Source: Company Annual Report and Corporate Presentation, Aranca Research 36
IRB INFRASTRUCTURE LIMITED (2/2) Was awarded an order for 1,129 lane kilometres for a total value of US$ 1.5 billion Won a US$ 312 million contract for the 6 laning Barwa-Adda-Panagarh sector of National Highway 2 2011 2012 2015-17 2013 2014 Was awarded a contract for 1,086 lane kilometres for a total consideration of US$ 1.5 billion 4 laning of Beawer- Gomti Road Project Won a road contract worth US$ 216.7 million in Botswana, through its subsidiary Elsamex SA Commercial operation of Warora Chandrapur Ballarpur Bamni Road Project has been started Won a project to widen roads of 127 km long Patna-Gaya-Dobhi section of NH 83 in Bihar for a consideration of US$ 205 million In FY17, company s revenues stood at US$ 931.5 million Source: Company Annual Report, News articles, Aranca Research 37
NOIDA TOLL BRIDGE COMPANY LIMITED (NTBCL) Infrastructure Leasing and Financial Services Ltd (IL&FS) promoted National Toll Bridge Company Ltd (NTBCL) as a special purpose vehicle (SPV) for the development of the 22-km Delhi-Noida Direct (DND) flyway on a Build Own Operate Transfer (BOOT) basis 25 Revenue trends: Noida Toll Bridge Visakhapatnam port traffic (million tonnes) (US$ million) Incorporated in Uttar Pradesh, India, in 1996, NTBCL is a publicly listed company and operates only in the country Salient features Eight-lane dual carriageway connecting Noida and Delhi One major and 3 minor bridges over Yamuna river Eight-lane approach road on embankment 32-lane, 200m-wide, fully computerised toll plaza 20 15 17.2 17.9 18.9 19.9 19.8 19.4 20.4 19.7 13.4 Extensive tree planting and landscaping 10 Noise barriers and river training works 5 0 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY 17 Source: Company Annual Report, Aranca Research; 1Data for April 2016 September 2016 38
KEY INDUSTRY ASSOCIATIONS
INDUSTRY ASSOCIATIONS Ministry of Transport and Highways Transport Bhavan 1, Parliament Street New Delhi 110001 Phone: 91-11-23719097, 23719955 E-mail: ifcmost@nic.in National Highway Authority of India G 5 and 6, Sector 10, Dwarka New Delhi 110 075 Phone: 91-11-25074100, 25074200 Fax: 91-11-25093507, 25093514 Indian Congress Sector 6, (Near RBI Quarters), RK Puram, New Delhi 110022 Phone: 91-11-26185303 Secretariat: 91-11-26716778, 26183669, 26185273, 26185315, 26185319 Fax: 91-11-26183669 E-mail: secretarygen@irc.org.in 40
USEFUL INFORMATION
GLOSSARY BOT: Build Operate Transfer CAGR: Compound Annual Growth Rate EPC: Engineering, Procurement and Construction FDI: Foreign Direct Investment FY: Indian Financial Year (April to March) So FY10 implies April 2009 to March 2010 GOI: Government of India INR: Indian Rupee LCV: Light Commercial Vehicles MoRTH: Ministry of Transport and Highways NH: National Highway NHAI: National Highway Authority of India NHDP: National Highway Development Project US$ : US Dollar Conversion rate used: US$ 1= INR54.43 42
EXCHANGE RATES Exchange Rates (Fiscal Year) Exchange Rates (Calendar Year) Year INR INR Equivalent of one US$ 2004 05 44.81 2005 06 44.14 2006 07 45.14 2007 08 40.27 2008 09 46.14 2009 10 47.42 2010 11 45.62 2011 12 46.88 2012 13 54.31 2013 14 60.28 2014-15 61.06 2015-16 65.46 2016-17 67.09 Q1 2017-18 64.46 Q2 2017-18 64.09 Q3 2017-18 64.74 Year INR Equivalent of one US$ 2005 43.98 2006 45.18 2007 41.34 2008 43.62 2009 48.42 2010 45.72 2011 46.85 2012 53.46 2013 58.44 2014 61.03 2015 64.15 2016 67.21 2017 65.12 43
DISCLAIMER India Brand Equity Foundation (IBEF) engaged Aranca to prepare this presentation and the same has been prepared by Aranca in consultation with IBEF. All rights reserved. All copyright in this presentation and related works is solely and exclusively owned by IBEF. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF. This presentation is for information purposes only. While due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of Aranca and IBEF s knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. Aranca and IBEF neither recommend nor endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed on this presentation. Neither Aranca nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation. 44