Of the over 16,000 km construction target, NHAI has been entrusted with construction of 6,000 km of national highways.
National Highways Authority of India (NHAI) will need to mop up about Rs 1.3 trillion on the back of increasing cost of land acquisition due to faster construction pace by 2020, as per a report by Kotak Institutional Securities.
“Increase in construction activity thus would possibly drive cost of land acquisition to new highs,” the report said.
While the cost of acquisition has crossed Rs 30 million in FY18, it was “unlikely” that the cost would “remain static for long”.
“The static cost of land acquisition masks the increasing cost per hectare. It is only because of the fall in area of land acquired that overall cost of land acquisition has been stagnant over FY2016-18,” said the report.
The ministry of road transport and highways has pegged construction target at 16,420 kilometre and award at 20,000 km for 2018-19. Last fiscal, a total of 17,055 km of national highway projects were awarded. Of this, 7,397 km was awarded by NHAI.
Of the over 16,000 km construction target, NHAI has been entrusted with construction of 6,000 km of national highways.
The report said that NHAI could raise finance from cess funds, borrowings and asset monetisation programme.
The report specifically mentions Toll-Operate-Transfer (TOT) as a “successful” method to raise funds which could lead to the authority setting up infrastructure investment trust (InvIT) in near future.
“The recent wining TOT bid reflects willingness of bidders to pay for potential under-collection of toll and confidence in their ability to improve collections and their ability to efficiently price in traffic risk diversified over a region,” the report stated.
NHAI successfully closed the country’s first TOT bidding in March, receiving Rs 9,681.5 crore. The bid was won by a joint venture between Sydney-based Macquarie group and Ashoka Buildcon to manage 648 km of National Highways spread across Gujarat and Andhra Pradesh
Kotak said that NHAI has assets worth Rs 1.8 to 2 trillion generating annual toll revenue close to Rs 85 billion.
A similar EV/sales multiple from Macquarie’s winning TOT bid put to overall toll revenues would imply enough cash flows to pay down NHAI’s approximately Rs 1 trillion debt, leaving behind Rs 0.8 – 0.9 trillion of CWIP to monetize incrementally, the report said.
The report, however, raised concerns about the authority’s rising debt quotient in the debt to equity ratio by 1X.
“The static total cost of land acquisition masks the increase in per hectare cost and would start increasing again as quantum of land acquisition starts reflecting the increasing pace of construction. Uptick in construction spending would increase debt-to-equity levels to 1X by end-FY2020,” the report pointed out.
According to Kotak, NHAI’s borrowing is expected to be between Rs 1,299 billion between FY18-20, taking the debt to equity ratio to 1.
Centre launched its flagship programme for national highways construction, Bharatmala, to construct over 60,000 km of NH with a capital outlay of nearly Rs 7 trillion. The first phase will see construction of about 34,800 km of national highways with Rs 5.35 trillion capital.
Cabinet had approved MoRTH to raise Rs 2.09 lakh crore as debt from the market, Rs 1.06 lakh crore as private investments through PPP and Rs 2.19 lakh crore is to be provided out of accruals to the Central Road Fund (CRF), TOT monetisation proceeds and toll collections of the NHAI.
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