IRB Infrastructure Developers has bagged a Rs 10,050-crore order to construct the Zozila pass tunnel in Jammu & Kashmir. The company has received a Letter of Award from Ministry of Road Transport and Highways for the construction, operation and maintenance of the longest tunnel in South-East Asia, Zozila pass Tunnel in Jammu & Kashmir, a statement issued to exchanges said."It is the biggest national highway project awarded in India in terms of project cost with a tunnel length spanning 14.08 km and costing of Rs 10,050 crore," company's Chairman and Managing Director Virendra Mhaiskar said. The scope of the project includes constructing approaches on NH-1 (Srinagar Sonmarg- Gumr-i Road) on design, build, finance, operate and transfer (annuity) basis. "This project has a strategic and socio-economic importance as it will provide much needed all weather connectivity between J&K and Leh-Ladakh, which remains cut off during winter due to heavy snowfall and hence assumes national importance," Mhaiskar said.
The project also involves construction of tunnel spanning length of 14.08 km and approach road of 10.8 km with three vertical ventilation shafts, snow gallery of 700 meters and avalanche protection measures.The construction of the tunnel is scheduled to be completed in seven years and the concession period is 22 years.Construction revenues of about Rs 6,500 crore will start from October 2016 while IRB will receive "semi-annual annuity of Rs 981 crore from the government, which will start after completion of construction of the project, twice in a year till the end of the concession period," the IRB chief told CNBC-TV18 in an exclusive interview.Assuming a 75-25 debt equity, the project will net an internal rate of return of about 16 percent, he added.
With this order, IRB expands its base to the ninth state. The company's order book now stands at Rs 16,430 crore.
Reacting to the news, shares of the company were trading at Rs 260, up 6.19 percent around 1030 hrs on BSE.
Below is the verbatim transcript of VD Mhaiskar's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18. Latha: It is just that the terrain is difficult and even for political reasons. So is seven years a reasonable period, can things get delayed?
A: It is a 14 km tunnel, so a usual 14 km tunnel should not take so long. It is only because of the terrain that the construction period has been kept at seven years and the reason is that we can only work for six months a year in that particular terrain. However, if you look at seven years construction period, we get around three-and-a-half years to construct the tunnel which is a fair amount of timeline. Therefore, considering the past project management bandwidth of the company, we are confident that we will be able to complete it in the given timeline.
Latha: The semi annual annuity of Rs 981 crore sounds mouth-watering. Does that mean you get Rs 1,900 crore a year?
A: That's right and that's for 15 years. We have assumed around 75:25 debt equity ratio and the project cost which we have said of Rs 10,000 crore is the total project cost which includes the IDC for seven years and engineering, procurement and construction (EPC) will be around Rs 6,500 crore and the annuity will give us 75:25 equity ratio of around 16 percent internal rate of return (IRR).
Sonia: You said that the construction of this projects start in October 2016?
A: That's right.
Sonia: Realistically when do you expect some revenues to start flowing in from this project?
A: The revenues on the construction side will start from October 2016 which will be realised as a construction revenue and the annuity payment from the government will start only after seven years once we complete the project, but the construction revenue of Rs 6,500 crore will be spread over seven years period, slowly ballooning up.
Latha: What is the margin on the construction?
A: Construction margins would be more or less the same what we have on our usual construction order book, which would be around 10 percent profit after tax (PAT)._PAGEBREAK_
Sonia: The total order book of the company stands at about Rs 16,430 crore. Can you tell us what the orders are looking like for the next 6-12 months? What kind of visibility do you have on earnings?
A: We do not give any guidance as such but we can certainly say that this financial year should be better than the last and the year coming should be better than this - that's the maximum I can say but in terms of new orders, we are seeing good traction on the National Highways Authority of India (NHAI) side as well.
Latha: When did you say the tunnel will be up and running and the annuity will start flowing?
A: I will take you through the structure. It is a 22 year concession period. First seven years will be construction period during which the tunnel will be constructed and the annuity will start after the construction is over. So we get annuity for a period of 15 years.
Latha: So FY23 or something?
A: Yes.
Sonia: Can you give us a sense of what the traffic growth at your major projects is looking like, like Surat-Dahisar, Ahmedabad-Vadodara project etc because in the quarter gone by your toll revenue went up by about 9 percent. Do you expect a better performance in Q3 and Q4?
A: The traffic volume has been fairly steady even in this quarter, so we expect similar kind of growth to continue for some more time. No doubt the base has improved a lot now, so it is definitely going to be challenging to retain that kind of growth quarter-on-quarter but still the growth has been strong, so we have reasons to believe that it will continue for some more quarters. However, on most of the projects, that has been the scenario.
Latha: What is the likely increase in order book? You said that NHAI has been fairly efficient in putting in more orders. Are you L1 in some orders? How much may we expect your order book to grow?
A: We are not L1 as much but with this new order the order book has swell to Rs 16,000 crore which gives us a very good visibility on the construction side for next few years. On the new order pipeline from NHAI, there is good amount of build, operate and transfer (BOT) bidding happening at this point in time and we are looking at few of those bids but there is no L1 kind of a situation because you get to know the result the same day.
Sonia: You were telling us about your toll revenues and the kind of growth that you are expecting to see, but can you tell us a bit about the construction revenues as well and what is the expectation for the second half because the first half was very strong, you saw 21 percent growth in your construction revenues. Is there a possibility of repeating the performance in the second half?
A: The construction revenues for Q3 and Q4 should be slightly better than the first two quarters because in Q2 we usually see monsoon effect but Q3 and Q4 particularly the Q4 should be much stronger even than Q3 because now we have construction going on on almost four-five sites, so the construction turnover should be strong in the Q4.
Latha: How may your interest outgo pan out, are you expecting that to rise or fall because of the cost of money?
A: Interest cost, if we have to look at individual projects, you will see the interest cost going down because of refinancing and renegotiating the rates because of the overall rates coming down but on absolute term if you look at on consolidated basis the interest cost will be going up because more and more projects will get added, the disbursements will come through so the interest cost will keep going up but on an overall basis if you see, that is because of the increase in the asset size.
Sonia: I want to ask you about some of your focused verticals. You do mention that you are looking at proposed real estate development as well along the Mumbai-Pune express way because you own some land there and you are also looking at the greenfield airport project in Sindhudurg. Can you elaborate a bit, what kind of potential do you see in these two?
A: The real estate track of land that we have, we haven't started any development there and we will only be developer there, we will rope in some joint developer as and when we decide to develop that. As regards the airport is concerned, in the overall asset book it is a Rs 300 crore project which is a fairly small project and one-off that we have as a diversification but more or less the focus continues to be only doing toll roads or annuities. However, in this particular annuity project, we also looked at as a part of diversification within the road space because in '23-24 when this project becomes fully operational, we believe that the revenues coming from this one single project will be around 30 percent of the overall revenues that we would have in that particular year from the tolling side or tolling plus annuity together. So that is the basic diversification we are having. We are not doing diversification into any other verticals but we have diversified in terms of going into different geographies. Now we have presence in nine states then further diversification by having some part of the revenue now coming in by way of annuity.
Latha: Give us revenue guidance for the current year and the next, where the visibility will be very clear. FY15 was one of the few years when you saw a dip in revenues, so much better will FY16 and '17 look?
A: We can pencil in around 10 percent growth on both the sides for both the years on a conservative basis.
With inputs from PTI.
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