NHAI may Monetise More Than ₹1-L cr Assets by FY24 End

NHAI’s Successful Monetization: A Boost for Infrastructure

Source and Citation: Article published by ET Bureau in Economic Times on January 19, 2024.

Analysis for a Layman

The National Highways Authority of India (NHAI) has showcased remarkable success in infrastructure asset monetization over the past five years. Since 2018-19, NHAI has raised over Rs 70,000 crore by attracting private investment into completed highway stretches using innovative models like Toll Operate Transfer (TOT), Infrastructure Investment Trusts (InvIT), and toll securitization.

This fiscal year (2023-24) could witness the highest-ever monetization proceeds, crossing Rs 40,000 crore, surpassing a haul of Rs 1 lakh crore over six years. The TOT model involves selling rights to operate toll highways to investors for 30 years, the InvITs allow taking mature toll roads public through a trust, and securitization means toll concessions being purchased by other institutional investors.

Impact on Retail Investors

For retail investors, NHAI’s monetization avenues, like Infrastructure Investment Trusts (InvIT), offer an opportunity to participate in essential infrastructure assets like roads. Units of publicly listed InvITs, such as IndInfravit, securing key highway stretches, pay out regular dividends.

This option acts as a fixed income-like component, balancing risks in a retail investment portfolio, being largely insulated from stock market swings. Attractive yields are on offer compared to traditional instruments like bank FDs and debt funds while keeping risks generally contained compared to volatile equities.

The expansion of highway stretches in the 2030 road network expansion plans indicates significant scope for NHAI to sustain such InvITs, channeling savings into productive assets, aiding India’s infrastructure growth with reasonable rewards.

Impact on Industries

NHAI’s asset monetization opens up substantial private capital inflow for India’s roads and highways sector, enabling it to scale up the execution of public projects through viable partnership models. Various ancillary industries also stand to gain.

Infrastructure developers and operators get expanded avenues with de-risked operational roads. Engineering, procurement, and construction (EPC) contractors benefit from accelerated project awarding. Transporters and logistics players gain from faster movement on better quality highways, aiding just-in-time services. Growth in automobile volumes, tourism, and resultant fuel consumption aids revenue prospects for oil marketing companies.

Cement, steel, and allied raw material suppliers for highway construction also enjoy stronger and more stable demand flows rather than sporadic public spending. Connectivity boosts prospects for industrial investments in smaller towns and expansion for industrial real estate.

Long Term Benefits & Negatives

NHAI’s asset monetization approach provides sustainable financing to speed up building India’s highways infrastructure without overly burdening public resources. This scalability helps catalyze long-term economic growth prospects.

Smooth highways connectivity aids efficiency for sectors like agriculture and manufacturing, helping establish competitive advantages for India. Tourism, job creation, and urban development in smaller towns witness tangible gains over a 20-30 year horizon. Attracting foreign capital builds expertise within India for infrastructure project development.

In terms of downsides, reasonable safeguards are required regarding toll pricing oversight and preventing exploitative terms skewed excessively towards investors over decades-long concession periods. Fair balancing is needed to enable investor returns while preventing burdensome user charges. Responsible and transparent governance is vital.

Another common criticism is monetization being an unofficial way of underreporting fiscal deficits through creative accounting. But in the highways sector, asset sales enable the creation of valuable developmental assets rather than merely funding revenue gaps.

Short Term Benefits & Negatives

In the near term, crossing Rs 1 lakh crore haul over 5-6 years validates NHAI’s asset monetization approach, allowing accelerated asset creation through responsible private partnerships.

This growth uptrend indicated in 2023-24 with potential record proceeds aids investor sentiment for participating in upcoming InvITs, TOT bundles seeing scalability of this model. Serviceability factors seem strong.

The high margins induced also incentivize contractors, developers, and operators to aggressively pursue upcoming highway projects, indicating healthy competitive intensity. This positively impacts quality and speed.

In terms of flip sides, certain conflicts may emerge regarding toll pricing strategies, revenue-sharing agreements, etc., requiring regulatory oversight between NHAI and private partners during the initial years of operating control transfer. Responsible investor selection criteria and balanced contractual terms are vital.

But overall, the short-term impact seems significantly positive from all stakeholder perspectives, owing to proper planning. Significantly front-ended capital availability enables staying ahead of project requirements.

Potential Impact of NHAI’s Asset Monetization on Companies:

Indian Companies that could gain:

1. Infrastructure Investment Trusts (InvITs):
   • IRB InvIT Fund: Increased NHAI monetization through InvITs could boost asset under management (AUM) for existing players like IRB InvIT, leading to potential fee income growth.
   • India Infrastructure Trust (InvIT): Similar to IRB InvIT, India Infrastructure Trust might benefit from increased NHAI asset offerings and attract new investors, boosting its market share.
2. Construction and Engineering Companies:
   • Larsen & Toubro (L&T): Increased NHAI projects through monetization could create new construction and engineering opportunities for L&T, potentially driving revenue and order book growth.
   • KEC International Ltd.: Companies specializing in power transmission and distribution, like KEC International, could benefit from infrastructure development associated with NHAI projects.
3. Toll Booth Operators:
   • Fastag Operators: Companies like Paytm Payments Bank and Axis Bank, involved in FASTag toll collection, might see increased transaction volume due to more toll roads under NHAI monetization.
   • Road Infrastructure Developers: Infrastructure players like Dilip Buildcon and Oriental Structural Engineers may gain subcontracting opportunities for toll plaza construction and maintenance under NHAI monetization projects.

Indian Companies that could lose:

1. State-owned construction companies:
   • National Buildings Construction Corporation (NBCC): Increased private participation through NHAI monetization might reduce opportunities for government-owned construction companies like NBCC.
   • IRCON International Ltd.: Similar to NBCC, IRCON’s potential project opportunities from NHAI might decrease as private infrastructure players take on a larger role.

Global Companies that could gain:

1. International Infrastructure Investors:
   • Blackstone Infrastructure LP: Global investment firms with an infrastructure focus, like Blackstone, could participate in NHAI’s InvIT offerings or project financing, gaining access to the Indian infrastructure market.
   • Macquarie Infrastructure and Real Assets (MIRA): Similar to Blackstone, MIRA might find attractive investment opportunities in NHAI assets, providing them with potential returns and portfolio diversification.
2. Construction and Engineering Equipment Manufacturers:
   • Caterpillar Inc.: Increased construction activity due to NHAI projects could boost demand for heavy machinery from global manufacturers like Caterpillar.
   • Volvo Construction Equipment: Volvo and other construction equipment manufacturers might see increased sales in India due to the potential infrastructure boom from NHAI monetization.

Global Companies that could lose:

• Companies relying on government contracts: Global infrastructure players primarily focused on government-funded projects might experience reduced opportunities if NHAI relies heavily on private financing through monetization.

Note: These are potential impacts based on the provided information. Market sentiment is complex and influenced by various factors. Please consult financial professionals for specific investment advice.