Way paved for Ghaziabad expressway

GHAZIABAD/GREATER Noida: The Ghaziabad Development Authority (GDA) has finally decided to complete work on a number of roads, including the 12-kilometre expressway linking Greater Noida to NH-24 in Ghaziabad.

While 10.5 kilometres of the 12-kilometre expressway having been completed five years ago, a 1.5-kilometre stretch on NH-24 had been encroached upon. Now, GDA vice-chairman SK Dwivedi said compensation and alternative plots of land will provided to residents along the route to clear the area in order to complete the expressway.

Meanwhile, the GDA has decided to go ahead with plans to build a six-lane expressway linking the Hindon bridge at Meerut Road and the Greater Noida-Ghaziabad expressway. The GDA and NHAI have already decided to widen NH 24 from UP Gate to Lal Kuan.

Source: timesofindia.indiatimes.com

Haryana govt inks MoU with NHAI for construction of Delhi-Rohtak six laning road

CHANDIGARH: Haryana  Government has signed a Memorundum of Understainding (MOU) with National Highway Authority of India (NHAI)for construction of six laning of Delhi-Rohtak road costing Rs 487 crore and it would be completed within next 30 months.

This was revealed by the Haryana PWD B&R Minister, Capt. Ajay Singh Yadav while interracting with the mediapersons after flagging of Mobile Highway Maintenance Van here Tuesday.

Capt. Yadav said that this prestigious Delhi-Rohtak project of six laning would be 63 km long and would have 16 fly over and three railway over bridges. He said that 16 km long bypass would be
constructed at Bahadurgarh and 23 km long bypass would be constructed at Rohtak.

The Minister said that the department had executed a record  number of works under National Highway and Central Road Fund Schemes.

He said that Rs 120 crore had been spent on NABARD works besides a sum of Rs 450 crore had been sanctioned during last year by the Ministry of Rural Development under the PMGSY Scheme. While during the previous regime a sum of Rs 100 crore was incurred within a span of five years
under PMGSY scheme.

Capt. Yadav said that similarly under the National Capital Region Planning Board a sum of Rs 1200 crore had been sanctioned while only a sum of Rs 65 crore were incurred during the previous regime under NCR schemes.

He said that during next two years, a sum of Rs 2000 crore would also be incurred for improving the infrastructure in the State under the Rajiv Gandhi Road Infrastructure scheme. This programme was
launched in the State on October 7, 2007 by the UPA Chairperson,  Sonia Gandhi from Dadri district Bhiwani.

The Minister said that NHAI would incur a sum of Rs 5000 crore in the State for strengthening the road infrastructure and a number of works were in the pipeline. He said that  a sum of Rs 588 crore would be incurred on Gurgaon-Nuh-Alwar road and Hodal-Nuh-Patudi road.

He maintained that a sum of Rs 1500 crore was required in the State during next two year to bring the road into a proper shape.

Yadav said that department had decided to procure these funds from various sources which included a sum of Rs 400 crore from National Capital Region Planning Board, Rs 250 crore from NABARD, Rs
350 crore from PMGSY and the rest money would be spent from the state resources.

He said that the department had also incurred a sum of Rs  400 crore for the construction of various government buildings during last year which was more than the total amount spent on construction of public building during previous regime.

He said that a number of bypasses which included Rewari, Sirsa, Kaithal and Dadri were being constructed. He revealed that Nirman Sadan was being constructed in sector 33, Chandigarh and it wouldbe constructed in two phases, the Chief Architect office would be ready within next three months while the office of PWD B&R would be ready by December end.

Capt. Yadav said that the main aim of starting Mobile Highway Maintenance Van to enable carrying out maintenance work of patch work on Highways besides these vans would be eco-friendly, pollution free, economical and very easy to handle. In the first phase, such 10 mobile
vans would come in operation from Wednesday.

The Commissioner and Secretary PWD B&R, K.K. Jalan said that Panipat flyover was almost ready and the final inspection of the same would be made on April 9.

He said that the testing for the same had already been completed and it would be opened for the public in the last of this month or in the first week of May. He said that a commuter had to pay a sum of Rs 20 as toll tax. He said that Panipat over bridge had been completed 8 months before the scheduled time.

Engineer-in-Chief, Mahesh Kumar said that about 12,000 crore would be spent by the Haryana Government in maintenance, construction and repair of roads and bridges during the tenure of present government. Out of this, a sum of Rs 4500 crore would be incurred by the NHAI and the rest would be incurred by the State Government. He said that a total sum of Rs 5000 crore was required to make six laning road from Dehi to Chandigarh.

On the occasion Chief Engineer, Roads, Mahavir Singh and Chief Engineer, Buildings, G.D. Goel and senior officers of the department were also present.

Source: punjabnewsline.com

DELHI-JAIPUR EXPRESSWAY

The Government had announced 1,000 km of expressway along the corridors of Vadodara-Mumbai (400 km) and six others from which the balance 600 km were to be selected. Delhi-Jaipur was one such corridor. Further decision for Delhi-Jaipur expressway is yet to be taken. However, Delhi-Jaipur section has been approved for six laning and the Build, Operate and Transfer (BOT) concession for the project has been awarded in February, 2008 under National Highways Development Project (NHDP) Phase-V. This information was given by the Minister of State for Shipping, Road Transport and Highways, Shri K.H. Muniyappa in a written reply in the Rajya Sabha today.  Source: http://pib.nic.in

NHAI likely to issue contracts for 10,000km of highways soon

These contracts will be a part of phase III and phase V of the government’s highway project New Delhi: The United Progressive Alliance government wants to award, in the next few months, contracts to build up to 10,000km of national highways, equal to almost 70% the 14,500km of national highways on which similar contracts have been issued since 2000.Long Road Ahead (Graphic)The decision to award the contracts, worth at least Rs70,000 crore, comes with the general election likely to be held either late this year or early in 2009, although an official at the agency that regulates the highways sector in India claimed that this was because procedural issues related to the contracts had now been “ironed out”.The official at the National Highways Authority of India, or NHAI, added that since 2000, when the country’s National Highways Development Programme or NHDP was launched, the regulator had awarded contracts for the construction of 14,500km of highways worth around Rs80,000 crore and that work on 8,500km had been completed.The contracts that will be issued are part of phase III and phase V of NHDP and involve upgrading existing national highways into four-lane and six-lane ones. Five of the seven phases of NHDP involve upgrading existing highways.The stretches will first be offered to private companies to be developed under the ‘build-operate-transfer’ model where the companies will build the highways, operate them and collect toll for a certain period of time, and transfer them to the government at the end of a certain period of time called the concession period. In case this fails to draw bids, the projects will be offered on the ‘engineering-procurement-construction’ method, where private companies build the roads for a stipulated fee but will not have any stake in the project.“Detailed project reports are being created for these stretches and they are expected to be awarded in the next few months,” said a senior government official, who did not wish to be identified. “There was a lull in award of projects because the policy was being ironed out. But now that things are falling into place, you will see more and more projects on offer,” the official added.For almost a year, NHAI has gone slow in awarding projects.“Till now we were waiting for ironing out procedural issues such as preparation of the new model concession agreement and setting up a two-stage bidding process. Those matters have been taken care of now. And now the only serious impediment in the way of awarding these contracts is clearing of the toll policy,” said an NHAI official.The toll policy is to be cleared by the law ministry and this could take a couple of months, the official added.Analysts however said that while the agency was capable of awarding 8,000km of construction a year, exactly how much would get done depends on a number of factors including a legal challenge to the government’s bid process.The National Highways Builders Federation, an industry body, filed a suit in January against guidelines issued by the finance ministry and ratified by the Prime Minister’s committee on infrastructure that favour bidders who have executed large projects. The norms, reported by Mint on 28 December, cap the number of bidders at six, with some individual exceptions.“There are three factors that could affect the process (of awarding contracts),” said Kuljit Singh, a partner with the transaction advisory services practice of audit and consulting firm Ernst and Young Pvt. Ltd.“Technical detailed project reports usually take a while to prepare. Also, things generally slow down a little in an election year. Also, depending on what the court finds (in the case where the National Highways Builders Federation has challenged NHAI’s bidding norms), the process could be affected,” he added.Source: http://www.livemint.com 

Cartelisation highway leads to Delhi

NEW DELHI: The National Highways Builders Federation, a body representing infrastructure companies, has filed a case in the high court against the ministries of finance and surface transport, and National Highways Authority of India (NHAI), stating the recently-announced selection process for infrastructure project bidders is promoting cartelisation within the industry. According to the federation, only bigger players such as GMR, GVK and Reliance Industrial Infrastructure will benefit from the new policies. Fearing cartelisation, smaller players, including Gammon India and Navyug, had lodged an official complaint with the federation. In December 2007, the government had announced a new selection process for infrastructure project bidders. According to the policy, only six bidders with the maximum experience would be eligible to participate in the financial bid stage. However, the policy does not specify the names of the six bidders. Earlier, NHAI had been developing infrastructure projects under another scheme in public-private partnership projects. So far, NHAI had issued a notice inviting tenders that was divided into two parts: technical bid and financial bid. In the technical bid stage, the credibility of the bidder was examined. Those eligible for this round could bid in the financial round. For this, the bidder would either give a grant to the government or give the minimum concession period — the shortest period under which it would return project to the government. “The policies are tilted towards the big players in the industry, whereby the top six companies will always be successful bidders with their kind of experience,” Hammurabi & Solomon senior partner Manoj Kumar told ET. Under the present policy, bidders that do not make it to the top six would automatically be pushed out of the race. “This is unfair and will lead to cartelisation,” sources said. Source: http://economictimes.indiatimes.com 

Mega six-lane projects in offing

With access-controlled expressways attracting massive investments, the Ministry of Road Transport and Highways has decided to conduct the feasibility study for more such expressways.

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  Construction companies eyeing the access controlled, six-lane expressway projects of National Highways Authority of India (NHAI) are likely to get investment opportunities for at least four such projects spread over 495 km over the next few months.They are Chandikhol-Jagatpur-Bhubaneswar (70 kilometre length, estimated cost Rs 761 crore), Delhi-Hapur (47 km, Rs 474 crore), the 198-km stretch of Vijayawada-Elluru-Rajamundri (Rs 1,602 crore) and the 180-km stretch on Delhi-Agra highway (Rs 1,918 crore). The feasibility reports for these projects are already completed and the work is likely to be awarded in about six months, said NHAI officials.Toll collection  These projects are for widening the current four-lane highways into six lanes and operating them for certain durations.Companies would have to bid competitively for these projects on a revenue-sharing basis. Thus companies would have to bid on the extent of toll revenue that they are ready to share with the Government if they are allowed to operate the roads.Since these highways are already four-lane stretches, the road operators can start toll collection even during the project construction phase from an ‘appointed date’ (within six months of winning the project), mutually decided by NHAI and the road operator. The toll revenues will be routed to an escrow account.Recently, the NHAI awarded four such mega projects of 882 km length, which are likely to cost an estimated Rs 10,912 crore.From the NHAI perspective, these projects have emerged as money-spinners, with companies willing to foot the entire construction cost and part with two per cent to 48.06 per cent of their revenues in the initial leg of the project.At the end of the concession period, which is about 12 to 15 years duration, the winning firms have agreed to part with 12 per cent to 59 per cent share of toll revenues.More studies  The feasibility reports for another ten projects of similar nature are under preparation. They are: Kishangarh-Udaipur stretch (315 km, Rs 2,205 crore), Udaipur-Ahmedabad (235 km, Rs 1,645 crore), Varanasi-Aurangabad (190 km, Rs 1,330 crore), Nellore-Chilkaluripet (184 km, Rs 1,288 crore), Krishnagiri-Walajapet (148 km, Rs 1,036 crore), Pune-Satara (145 km, Rs 1,015 crore), Ludhiana-Chandigarh (85 km, Rs 595 crore), Belgaum-Dharwad (80 km, Rs 560 crore), Samakhiali-Gandhidham (56 km, Rs 392 crore), Indore-Dewas (55 km, Rs 385 crore).With access controlled expressways attracting massive investments, the Ministry of Road Transport and Highways has decided to conduct the feasibility study for four such expressways between Delhi-Meerut, Chennai-Bangalore, Vadodara-Mumbai and Dhanbad-Kolkata. This was decided by the Road Ministry officials at a meeting with State Government authorities recently.Source: http://www.thehindubusinessline.com

4-LANING OF DELHI-DEHRADUN NATIONAL HIGHWAY

Delhi – Dehradun National Highway has been identified for 4 laning under National Highway Development Project (NHDP) Phase III on Build, Operate & Transfer (BOT) basis. Widening to 4 lane work in Meerut-Muzaffarnagar section is in progress and delayed due to initial problem regarding tree cutting & land acquisition and is targeted to be completed by March, 2009. Widening to 4 lane work in Muzaffarnagar-Haridwar section could not be awarded as only single bid was received and the same was cancelled. For re-bidding of this section, updation of Detailed Project Report (DPR) as per new Model Concession Agreement (MCA) as decided by Public Private Partnership Appraisal Committee (PPPAC) is in progress.The Haridwar-Dehradun section is passing through Rajaji National Park and clearance is to be obtained from the Central Empowered Committee constituted by the Hon’ble Supreme Court of India. After clearance from Central Empowered Committee and PPPAC, bidding process is to be taken up for award of 4 laning work. This information was given by the Minister of State for Shipping, Road Transport and Highways, Shri K.H. Muniyappa in a written reply in the Lok Sabha today.  Source: http://pib.nic.in 

Nine infrastructure firms in customs net

Gammon India, Punj Lloyd, Era among those being investigated for diverting tax-exempt equipment for pvt work

The central intelligence unit of Indian customs here has launched a series of cases alleging import duty evasion by nine infrastructure firms, including well-known names in the field such as Punj Lloyd Ltd, Era Constructions (India) Ltd and Gammon India Ltd.

The companies are alleged to have diverted construction machinery, imported without customs duty specifically for projects financed by the United Nations, other international aid organizations and approved by the government, to private projects, thus evading customs duty.

The money involved in the case is not large in itself, but the development is significant since these firms are involved in construction of roads for projects approved by the National Highways Authority of India (NHAI) and aided by the World Bank, Asian Development Bank and the UN.

Under the Customs Act 1962, equipment imported into India for completion of infrastructure projects financed by the UN or an international organization and approved by the government is exempt from customs duty. The firms had imported machinery, such as piling rigs for construction of roads, and had availed the exemption.

Core of the problem

“We have already booked cases against nine firms and have recovered over Rs12 crore against such illegal import of piling rigs,” said R.K. Mahajan, commissioner (general) of customs, Mumbai.

Apart from Punj Lloyd, Era Constructions and Gammon India, the list of companies provided by the customs includes Afcon Infrastructure Ltd, Ircon International Ltd, Meher Foundation and Civil Engineers Pvt. Ltd, Villayati Ram Mittal Pvt. Ltd (New Delhi), Vijay M Mistry Construction Pvt. Ltd and Maytas Infra Pvt. Ltd.

Each piling rig costs around Rs4 crore and attracts close to Rs1 crore import duty.

“We have also seized piling rigs worth Rs8.25 crore,” Mahajan said. According to him, these companies have evaded customs duty of at least Rs20 crore and the amount could be even more as the investigation is not yet complete.

The infrastructure projects are spread across India. For instance, Punj Lloyd, one of the largest engineering and construction firms engaged in infrastructure projects, had imported piling rigs for its two NHAI-approved projects in Assam, but, according to the customs intelligence unit, these rigs were diverted to New Delhi.

“The company had rented out one of the machines to Delhi Metro Rail Corp. Ltd,” claimed a senior officer of customs who did not wish to be named.

However, the firm admitted it has been “summoned by the central intelligence unit, Mumbai customs, seeking certain clarifications/information pertaining to import of hydraulic operated self-propelled piling rig along with accessories,” imported by it under customs duty exemption scheme.

“Unfortunately, by the time such rig, along with its accessories, touched the boundaries of India it was realized that the said rig etc. could not be optimally utilized at the Guwahati to Nalbari Section of NH31 in Assam project due to non- availability of work… Since the machinery so imported was worth crores of rupees and keeping it idle would not only result in decaying and deterioration but also have an adverse financial impact…the company deemed it prudent to deploy the same to some other appropriate site,” the company wrote in its email.

It admitted that the rig was deployed at the DMRC project “which included construction of roads.” Stating that “by utilizing the…rig at the DMRC project we were in a position to keep the same in running condition,” the company said in its email that the rigs would be used at the Assam project “the moment we receive a green signal…from NHAI.”

“We believe we have acted within the intent and framework of the customs notification and the undertaking and there is no violation of any nature whatsoever and your source on information about the tax evasion on our part is unfounded and baseless,” the email went on to say.

The New Delhi-based Era Constructions, now known as Era Infra Engineering Ltd, was awarded two contracts for construction of roads in Chhattisgarh. However, according to the customs, the machinery was allegedly rerouted to other parts of India. “During the investigation, one of the machines was found at the NTPC Ltd’s site in Dadri in Uttar Pradesh. The other was found in Haryana,” Mahajan said.

Era Infra’s vice-president (commercial) Anil Bhasin said the firm had paid customs duty and interest for the equipment, which was shifted to other nationally important projects of government and public sector undertakings. According to him, the company diverted a few equipment that were not required at the assigned projects to other sites. It actually wanted to return these equipment, but could not do so as there was no provision to return such equipment. “The customs duty for such equipment was paid,” insisted Bhasin.

Gammon India, a Mumbai-based construction firm, according to Mahajan, has violated the rules by diverting machinery to another location for private use. However, he declined to disclose the location where the equipment was transferred and said the case was under investigation.

Gammon India, too, denied being involved in customs duty evasion. “There may be a possibility that some construction companies who have imported equipment under such exemptions could have utilized the same for projects other than for which such exemptions are applicable like, real estate, housing projects, shopping malls, etc. To clarify your doubts, Gammon does not undertake real estate/housing projects which could have been a potential misuse as per your concern. In fact, central intelligence unit had enquired about the utilization from all the importers who had imported equipment under the above exemptions,” said Umakant Tiwari, assistant general manager (procurement), Gammon India, in an email response.

Source: livemint.com

Highways rev into the fast track

Fasten your seat belt and get ready to zoom on Indian highways. The FM has increased the outlay for the National Highway Development Programme from Rs 10,867 crore in last Budget to Rs 12,966 crore this time. With the surface transport ministry just having finalised new model concessionaire agreements and other policies, it is set to put implementation in the higher gear. ”We have a big implementation plan for next fiscal that includes six or four laning of highways. The progress will be at a very fast pace now as the Budget gives NHDP a big push,” said Brahm Dutt, secretary, ministry of surface transport and roads. Among the ongoing projects that will get a push — finishing the 5,846-km golden quadrilateral linking Delhi-Mumbai-Chennai-Kolkata that’s already 96.48% complete and making progress on the 7,300-km north-south and east-west corridors that are 23.36% ready. The FM laid emphasis on Northeast and said the existing 180 km would go up to 300 km in 2008-09. Source: http://timesofindia.indiatimes.com 

Concrete gains

Mega investments in infrastructure and the recent market correction offers an exciting investment opportunity in construction stocks.

The robust GDP growth rate experienced by the country in the last few years is indeed commendable and was aided by investment in infrastructure. To sustain growth rates, it is imperative for India to make higher investments towards setting up world-class infrastructure. As per the planning commission estimates, investments in infrastructure is set to go up by a whopping 130 per cent to $520 billion for the eleventh Five Year Plan (FY 2008-12) as against the $226 billion made during the tenth plan (FY 2003-2007).

Construction companies will be among the first beneficiaries of these investments and will deliver good and sustainable long-term growth.

Since the investment plans for each of the sub-segments in infrastructure space varies, based on priorities, there is reason to believe that not all the segments or companies will grow at all times. For instance, regional players or less diversified ones may experience volatility in revenues. For companies, faster project execution capabilities and access to key construction machinery (equipment) are equally critical, which in turn will determine the growth rates and profitability margins, respectively for any company. For example some companies are looking at purchasing their own equipment to tackle rising hiring costs and protect margins.

Thankfully, despite issues, the huge opportunity dwarfs concerns. Says Satish Ramanathan, head equities, Sundaram BNP Paribas, “While the future is promising, earnings could be volatile. Choose companies on valuations, order book and services portfolio.”

Last, but not the least, the recent correction in stock markets provides an opportunity to buy good companies in the space at reasonable valuations. Among many stocks, we have picked 10 stocks—four large caps (Read: Bigger the better) and six mid-caps, which are likely to emerge as key beneficiaries of the ongoing investments in the infrastructure sector. Bigger companies are well-established, diversified and less risky. Investors with low risk appetite can consider them. The smaller ones are efficiently managed and are on the growth path with good earnings visibility. Notably, they may also grow faster, given the size of the opportunity and their individual strengths. But, small size also means that there is an element of risk and hence, investors need to review them on a quarterly basis and look at the flow of new business and financial performance.

ON THE HIGHWAY

Era Infra Engineering

Era Infra Engineering, which was earlier into the construction of industrial and commercial space, has diversified into verticals such as railways, roads and highways, airport, urban infrastructure and oil and gas. The company now commands a sizeable order book of Rs 4,100 crore, which is thrice its FY08 estimated revenue.

The company is also developing commercial and residential buildings on its 500 acre land in and around Delhi and Jaipur. Though some of these projects will only be completed by FY10 and FY11, four of them will be completed in FY09 thus providing significant revenue growth.

Besides, the company is also investing about Rs 200 crore in growing the building structure segment. Building structures, which includes the construction of metal structures used at public and private places, is a high growth and high margin business accounting for 21-22 per cent operating margins. The company is currently having total capacity of 45,000 tonne per year of structure, which will be expanded to 185,000 tonne per annum by September 2008. The contribution from new capacity will reflect partially in FY09 and fully by FY10. The expanded capacity at current realisation of Rs 58,000 per tonne can get additional revenue of Rs 750-850 crore per year, assuming 70-80 per cent capacity utilisation.

Additionally, the company is also investing in plant and equipment to scale up its in-house capabilities; currently, 75 per cent of its equipment requirement is met in-house (gross assets at Rs 500 crore). The company will further spend about Rs 200-250 crore over the next year towards purchase of equipment. This will help cut costs and generate additional revenues by way of renting out to third parties.

That apart, Era also plans to increase its Ready Mix Concrete (RMC) capacity 10-fold by installing about 50 new RMC plants over the next 2-3 years, at an estimated cost of Rs 350-400 crore. About 90 per cent of the new RMC production will be sold to third parties. Expect this business to contribute a large chunk to revenues.

Given its in-house equipment and RMC facilities, Era enjoys healthy operating margins of about 20 per cent and RoNW (return on net-worth) of 30 per cent, among the best in the industry. The company’s core business is growing at robust pace, which along with the strong order book and investments will drive growth.

RISING HIGH

Sadbhav Engineering

Sadbhav Engineering, with a focus on the road segment, would be a key beneficiary of the ongoing investments in this segment. Of the company’s current order book of Rs 2,300 crore, road projects account for over 70 per cent, including 32 per cent from BOT projects. Enhanced focus on BOT projects has seen the company win four BOT road projects in consortium with other players over the last six months; Sadhbav’s equity contribution is pegged at Rs 92 crore. Going forward, the BOT projects are expected to contribute significantly to revenues as the company has achieved financial closure of Aurangabad-Jalna and Nagpur-Shinoi project during Q3FY08. It expects the Mumbai-Nasik expressway project to achieve closure by December 2008.

From Q4FY08 onwards, its projects in the relatively higher margin mining segment (9 per cent net margin) would be a positive trigger, and will help in improving its bottom line. The revenue will accrue from its ongoing project with GHCL and the recent Rs 245.24 crore order from the Northern Coalfields. Sadbhav Engineering currently has 15 per cent of its current order book from mining. However, the mix is expected to go up as domestic companies are allotted more mines and thus, reflects huge potential for excavation work.

Considering its current order book, which is over three times its FY08 estimated revenue, the company is expected to maintain revenue growth of over 50 per cent for the next two years. Also, with the increasing share of mining and the captive resources, the operating margins are expected to improve from 11.9 per cent in the FY07 to 12.5 per cent in FY08 and 13 per cent in FY09. The expansion in margins will also lead to the higher earnings growth. While these positives are partly reflecting in the higher valuations, the stock has good potential.

Pratibha Industries

Pratibha Industries is emerging from being a small player handling projects with an average size of Rs 10-20 crore to a bigger player. The most recent order bagged by the company is as big as Rs 300 crore. The company, which was primarily into the water projects (about 70 per cent), has diversified into other construction segments such as industrial projects, roads, urban infrastructure, airports, railways, pipeline and tunneling. The company has a strong focus and expertise in handling water-related projects, accounting for 60 per cent of its total order book.

Further, to grab the growing opportunities in the water segment, micro tunneling and piping projects, the company has formed a JV with Ostu Stettin of Austria, the world’s third largest tunneling company. It will help getting complex projects involving tunneling for laying pipes in high density urban areas for underground tunneling.

Besides, the company is also integrating backwards into manufacturing of SAW spiral pipes, with a capacity of 90,000 tonnes per annum. These pipes will be used for captive consumption as well as commercial sales to other companies for use in water transmission, oil and gas, sewerage and other industrial usage.

Within construction, the company has also diversified into some of the high potential segments, having undertaken (either independently or jointly) construction of complexes, buildings, airports and roads.

A strong order book of almost 4.5 times its FY08 estimated revenue and better outlook for urban infrastructure and water-related projects, indicates a robust future for the company. Besides, growth would be driven by the increasing revenue share of pipe manufacturing business in FY09. According to estimates, the SAW pipe segment alone can add about Rs 240 crore of revenue in FY09 at 60 per cent capacity. Overall, the stock is attractive from a long-term perspective.

Ahluwalia Contracts

Ahluwalia Contracts, primarily into construction of residential and commercial projects, is now diversifying into the urban infrastructure space. Although urban infrastructure still contributes just 3 per cent of its revenues, the company plans to increase its share to 20-25 per cent over the next three years.

On these lines, the company will bid for select BOT projects, especially multi-level car parking and bus terminus. The company has already been awarded a BOT project in Rajasthan for constructing a bus terminus, which also includes a commercial complex, wherein the targeted IRR (internal rate of return) is a sound 20 per cent. There is huge opportunity in the multi-level car parking segment, as over 30 projects are likely to be awarded in Delhi alone.

The company being an established player in the National Capital Region (NCR) is expected to gain from the residential and commercial projects consequent to the 2010 Commonwealth Games, to be held in Delhi and also the all round infrastructural development in the NCR region. It has already won some of these projects, including the recently bagged Rs 688 crore Commonwealth Games 2010 village residential project.

Considering its growth plans and projects in hand, the company is incurring a capital expenditure of around Rs 55 crore in FY08 and Rs 110 crore in FY09. This will also include the expansion of its RMC capacity from 210 cubic meter per hour currently to 300 cubic meter per hour in FY09. The RMC division, which contributed over 18 per cent to revenues in FY07 (Rs 81.40 crore), should see its revenues grow at a healthy pace over the next two years.

The healthy order book (3.24 times of FY08 estimated revenues) provides earnings visibility over next two years. Over the long-term, growth will be aided by the company’s diversification.

Tantia Construction

North East and eastern India are considered to be underdeveloped. Investments are required towards construction of roads, ports, power and other infrastructure facilities. The Centre has already indicated that it intends to spend Rs 50,000 crore towards construction of roads and another Rs 2,000 crore for rail connectivity in the North-East over the next five years.

Tantia, which generates about 96 per cent of its revenue from the eastern and north eastern region by undertaking roads and railway projects, will be the key beneficiary.

To further capitalise on this, the company is foraying into other segments of infrastructure and BOT projects. Its relatively smaller size and limited presence is reflecting in the lower valuation it enjoys vis-à-vis its peers, which should hopefully correct as the market gains confidence in the company. What is currently playing in its favour are opportunities and relatively less competition in the North East.

Considering the industry outlook and healthy order book to be executed over the next 30 months, the company may maintain revenue growth of over 50 per cent in the next two years.

Gayatri Projects

In a recent development, Gayatri Projects signed an MoU with DLF to jointly undertake construction of road projects on BOT basis. The new entity will leverage the capabilities of the two companies and, is expected to develop projects worth over Rs 1,000 crore every year. The tie-up with DLF is also expected to provide Gayatri Projects an entry into the real estate business; it would be developing properties along with DLF. Gayatri Projects is a focused player in the construction of roads and irrigation segment, which account for about 98 per cent of its order book. The company is now venturing into urban infrastructure and the water treatment segments, which will not only help diversify revenue streams but also improve margins; these are already high at over 15 per cent compared with the industry average. That’s because, the company owns nearly 100 per cent of the project related equipments.

Apart from constructing infrastructure, like other companies, the company is looking at capitalising on the growing opportunities in the BOT segment. It currently has five BOT road projects, which have already achieved financial closure. Of this, revenue from three projects is expected to start flowing from March 2010. Analysts value the BOT projects at Rs 120-170 per share, based on the discounted cash flow method. The BOT projects will provide a sustainable or steady cash flow in the long run and help in improving its profitability on the back of higher margins.

Given the high opportunities in the infrastructure sector and diversification into other geographies and segments, the cash contract (non-BOT) business will continue to grow at a robust rate, over the longer term. For the next two years though, earnings will grow on a sustainable basis, backed by the strong order book of Rs 3,400 crore (almost 4.5 times its FY08 estimated revenue) executable over the next 30 months. At current price levels, the stock is trading at a relatively lower valuation, compared with its peers and, is capable of delivering good returns.

Bigger the better

Bigger companies score heavily on size, services portfolio, strong execution capabilities and have a proven track record, all of which provide great comfort and hence justify premium valuations.

IVRCL Infrastructures & Projects

The increasing allocation towards water-related projects augurs well for IVRCL, which generates 57 per cent of its revenue from it. Besides, IVRCL is also present in other growing segments such as roads, building & structures and power. Its order book of Rs 11,000 crore provides strong revenue visibility. Analyst value the company at Rs 550-650 per share on a sum-of-parts valuation of its different businesses and investments in subsidiaries like Hindustan Dorr Oliver and IVR Prime.

Hindustan Construction Company

A dominant player in transport segment, Hindustan Construction is now focusing more on profitable segments such as water and power. Of its order book of Rs 9,050 crore, power projects accounts for 44 per cent and water projects 22 per cent. This diversification will not only help it grow faster but also improve margins. Long-term growth will be aided by improving revenue mix, strong order book and its real estate business (12,500 acre Lavasa project, valued at Rs 60-100 per share. On a sum-of-parts basis, analysts value its share between Rs 210-260.

Nagarjuna Construction

Nagarjuna Construction has been growing at 58 per cent annually over the last four years and is expected to grow at about 40-45 per cent during FY08-10. The growth will be driven by robust order book coupled with expansion of volumes and margins, led by diversification into segments like metal, oil & gas and real estate development. Nagarjuna is investing in BOT projects; has five road projects, two hydro power and two sea port projects. Its businesses are valued at Rs 315-395 per share.

Punj Lloyd

After acquiring Singapore-based Sembawang in FY07, Punj Lloyd tapped the growing global energy market with extended services portfolio. In the domestic market, it has forayed into onshore drilling, real estate and ship building business with 25.1 per cent stake in Pipavav Shipyard. Its consolidated order book of Rs 18,500 crore, provides reasonable comfort. Going forward, net profit is expected to grow faster on the back of turnaround of Sembawang; consolidated operating margins are expected to improve to 10 per cent by FY09 (8 per cent in FY07).

Source: Jitendra Kumar Gupta : business-standard.com

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