Apr 09, 2012, 05.50 PM | Source: CNBC-TV18
Gammon Infrastructure bagged order worth Rs 871 crore for four laning of Sidhi - Singrauli stretch from Madhya Pradesh Road Development Corporation on BOT basis.
Parag Parikh, chief financial officer, Gammon Infrastructure told CNBC-TV18 that the company has bagged this project on a grant of Rs 339 crore. "Singrauli is one of hubs for thermal power projects. There is an estimated investment of more than Rs 50,000 crore coming on Singrauli belt. So, we are expecting to feed that as traffic on our highway," he added.
Apart from this, Gammon secured four other projects recently, all these put together make an estimated project size of little over Rs 5,000 crore, he said.
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: Can you take us through the letter of award (LOA) of around Rs 871 crore which you announced. When does the execution start? What are the margins that we could expect on this?
A: This is an additional project that now we won over a series of wins that we have had over the last few months in terms. This is a belt connecting Sidhi and Singrauli. Though it is being managed by the Madhya Pradesh Road Development Corporation it is being announced as a national highway.
Around Rs 871 crore is estimated cost of the project and we have won this on a grant of Rs 339 crore. The process from hereon for us is to sign the concession agreement. In line with any of such agreements we get six months for financial closure before which we start execution.
The overall concession period is 30 years and the construction phase is two years. If you are aware of these belts of Sidhi and Singrauli – Singrauli is one of hubs for thermal power projects. There is an estimated investment of more than Rs 50,000 crore coming on Singrauli belt. We are expecting to feed that of as traffic on our highway.
Q: What is the time lag from LOA to concession agreements signature signing?
A: Usually, you are being given time period of about 45 days by which the conversion of letter of intent (LOI) happens into a concession period. From thereon six months for the process of appointed date and financial closure.
Q: I have with me a string of either concession agreement or LOAs that you will have won. In February you signed the Patna-Buxar Road Project, in March Vijayawada Gundugolanu Road Project and then the Yamunanagar – Panchkula project also in March and then you have the Borgata project and now the Sidhi-Singrauli what is the total addition to your order book in the last quarter?
A: This has been very interesting time for us because we have won series of projects. All put together these are five projects. Every project is a little over 100 kilometers and while most of them are two laning to four laning, Vijaywada also consist of a six laning road. All these five projects constitutes of estimated project size of little over Rs 5,000 crore. So that is a very healthy set of road assets that we have won.
We have recently commissioned the Kosi bridge annuity project. There are a few more projects which are likely to get commissioned over this year. It is interesting times where existing road portfolio largely moves into an operating phase beginning to generate revenues and on the same hand we have newer assets being won. This adds in a little over Rs 5,000 crore in terms of our asset portfolio to what we already have all put together in the roads portfolio itself of a little over Rs 4,000 crore.
Q: What is the margin for these five projects that you have signed? We hear and we just spoke to Mhaiskar, of IRB Infra as well that the level of competition is still very high what are the margins for you for these five projects?
A: Margins will be more driven in terms of construction profits as we are more infrastructure developers the internal rate of returns are in line with our internal expected hurdles. These projects are being bid at times when the interest rate cost are higher, therefore is also the case in terms of expectation of returns over the debt cost. With time proceeding we are all conscious that we are expecting interest rates to go down closely over the next two quarters. We may also be able to benefit when we come down into the process of financial closure.