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NHAI Surpasses Asset Monetisation Target (Explained for Investors)

NHAI Awards Highway Contracts Exceeding the 2023-24 Asset Monetisation Goal, Attracting Private Investment

Analysis for Layman

The National Highways Authority of India (NHAI) has recently awarded two bundles of highway contracts worth Rs 9,384 crore under the Toll Operate Transfer (TOT) model. This achievement has pushed NHAI’s total earnings from asset monetisation to over Rs 15,968 crore for the fiscal year 2023-24, surpassing its target of Rs 10,000 crore.

Under the TOT model, private companies are given operational rights to collect toll fees on NHAI roads for 20 years in exchange for an upfront fee paid to the government. This approach allows NHAI to monetise completed road assets, attracting private capital while freeing up its own funds for new infrastructure projects. In October 2023, 400 km of roads were earlier monetised under TOT bundles 11 and 12, generating Rs 6,584 crore.

NHAI Surpasses Asset Monetisation Target (Explained for Investors)

Impact on Retail Investors

For retail investors, NHAI exceeding its asset monetisation target is a positive sign of increased private investment in India’s infrastructure sector. This process unlocks the value of operational public roads while providing funding for new projects. Retail investors can benefit by investing in infrastructure and construction companies that participate in BOT/TOT models.

Well-established companies like KNR Construction, PNC Infratech, Ashoka Buildcon, and IRB Infrastructure stand to gain orders and growth opportunities from additional NHAI road contracts through TOT. However, it’s crucial for investors to assess these companies’ financial health, past project execution performance, and management quality before considering long-term investments. In the short term, positive news about asset monetisation and infrastructure investments may boost the stock prices of well-managed construction and infrastructure firms.

Impact on Industries

NHAI’s success with asset monetisation through the TOT model provides a significant boost to the roads and highways sector, highlighting India’s appeal to institutional investors. Major construction companies interested in operational annuity assets are likely to bid aggressively for upcoming TOT bundles. This includes players such as L&T IDPL, Macquarie, Shrem Group, Adani Enterprises, and more.

This transaction also underscores the maturity of India’s infrastructure financing ecosystem. Moreover, industries supplying inputs to road builders, such as the steel and cement industries, will benefit from increased private capital expenditure. Additionally, transport and logistics companies are poised to gain from rising vehicular traffic as highway connectivity continues to improve. Financial institutions like Andhra Bank and Union Bank may see an upside from funding electro-mechanical works related to toll collection technology.

Long Term Benefits & Negatives

Over the long term, sustained emphasis on asset monetisation allows NHAI to allocate capital toward new expressways and economic corridors, enhancing all-weather connectivity across India. Allowing private sector efficiencies in toll operations and maintenance over 20-year concessions results in better asset utilization. However, challenges like toll pilferage and congestion at toll plazas persist for private operators, despite advanced systems. Furthermore, award criteria favoring upfront fees over efficiency incentives may lead operators to prioritize short-term gains over long-term technological improvements. Striking a balance is crucial to ensure the quality of assets over the next 10-15 years.

Short Term Benefits & Negatives

In the short term, exceeding the ambitious asset monetisation target for 2023-24 reaffirms NHAI’s ability to offer investors readily operational road assets with steady returns linked to annual traffic growth. This may stimulate bidding interest for future TOT rounds. However, the pressure to meet the stretched target may have pushed NHAI to bundle slower-growing road assets, affecting short-term cash flow predictability for successful bidders. Additionally, global economic slowdown concerns pose uncertainty regarding demand for toll operators in the initial years. While participation appears strong, the financial closure of deals relies on investor confidence in NHAI’s traffic volume assumptions.

Indian Companies:

Gainers (5-10 companies):

  • Infrastructure Construction Companies: Larsen & Toubro (L&T), KEC International, Patel Engineering: Increased highway construction activity due to the awarded projects could lead to new contracts and increased revenue for these companies.
  • Cement & Steel Companies: ACC Ltd., Ambuja Cement, Tata Steel, JSW Steel: Higher demand for construction materials like cement and steel driven by the projects could benefit these companies’ sales and potentially boost their stock prices.
  • Road Construction Equipment Manufacturers: Voltas Ltd., Larsen & Toubro Infotech: Increased infrastructure spending might lead to higher demand for construction equipment, benefiting these manufacturers.
  • Logistics & Transportation Companies: TCI Ltd., Container Corporation of India: Improved road infrastructure can lead to improved efficiency and lower transportation costs for logistics companies, potentially improving their profitability.
  • Tourism & Hospitality Companies: Indian Hotels Company Ltd. (Taj Group), Mahindra Holidays & Resorts: Upgraded highways could boost tourism by opening up new destinations and reducing travel times, potentially benefiting travel and hospitality companies.

Losers (5-10 companies):

  • Toll Booth Operators: IRB Infrastructure Developers, MEP Infrastructure Developers: The TOT model replaces traditional toll booths with concessionaire-operated stretches, potentially impacting their current toll collection business.
  • Alternative Road Operators: Private highway developers with existing projects might face increased competition for traffic from the new NHAI-operated routes, potentially affecting their toll revenues.

Global Companies:

Gainers (5-10 companies):

  • Global Infrastructure Firms: Vinci SA, Hochtief AG, AECOM: These companies with expertise in infrastructure development may participate in sub-contracting work or future NHAI projects, creating potential business opportunities.
  • Heavy Machinery Manufacturers: Caterpillar Inc., Komatsu Ltd., Volvo Construction Equipment: Increased demand for construction equipment due to the projects could benefit these global manufacturers with operations or dealerships in India.
  • Technology Companies: Siemens AG, Accenture: The projects might involve smart highway technology deployments, creating potential opportunities for these companies with relevant expertise.

Losers (5-10 companies):

  • Global Construction Materials Companies: LafargeHolcim, HeidelbergCement: These companies face increased competition from local cement and steel companies for the NHAI projects.

Note: This analysis is based on the provided information and potential future developments. Market movements are complex, and other factors can influence individual companies. Conduct your own research and analysis before making any investment decisions.

Citation: “NHAI Awards 2 TOT Projects for ₹9,384 cr.” The Economic Times, 19 Dec. 2023.

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