IRB Infra achieved financial closure for its Aurangabad toll project. The total cost of the project is estimated at Rs 3,177 crore, of which Rs 1,756 crore will be funded through project finance and equity contribution by company will be around Rs 863 crore.
VD Mhaiskar, CMD, IRB Infra says the company’s current order book stands at Rs 11,000 crore and the Aurangabad toll project is its second largest after Ahmedabad-Baroda project. The company expects to achieve 18-20 percent equity IRR (internal rate of return) for 26 years. This 26-year period will include construction phase as wel. The company will begin construction now.
Below is the verbatim transcript of VD Mhaiskar's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: What is your order book now?
A: The order book is close to Rs 11,000 crore at this point in time and this particular project forms a big part of it. I would say it is a second-largest project in the portfolio after Ahmedabad-Baroda and we are very thankful to lenders for their support in achieving this closure.
Latha: Your note says that it is 11.75 percent interest rate on that Rs 1,700-crore debt. What is the typical internal rate of return (IRR) for this project over those 26 years that you have concession?
A: We expect to make anywhere between 18 percent and 20 percent IRR depending on how the traffic pans up but on a traffic growth of around 5-6 percent, we should be able to do 18-20 percent equity IRR.
Latha: When does the construction get completed and you start making money?
A: As we have achieved closure, we would be starting the construction now and the construction is supposed to be completed over a period of 30 months post which we get rights to collect toll and the 26 year concession includes the construction period as well.
Latha: A year back there were worries that aggregate traffic in some roads are falling, you reported fairly decent numbers last time around, your revenues from some roads grew even by 50 percent, how is the traffic growth on an average?
A: I think, if we do the analysis of last three quarters, I would say that consistently we have seen the volume growth picking up and as you rightly said, the most projects have reported a double digit volume growth in Q3 gone by. So certainly we are seeing quite comforting growth on the volume side and if that remains then whatever lag we had on the volume may get picked up over a period of next couple of years.
Latha: So for the forthcoming four quarters, would you assume an even higher growth in traffic, what should one go with?
A: There is a definite correlation of volume growth with the gross domestic product (GDP) growth and as you appreciate, most road projects in the IRB portfolio are on the western half of the country, which contribute much higher to the overall national GDP. So certainly you can expect around 0.8-0.9 correlation with GDP growth and if that continues the way it is then certainly the volume growth can remain strong.
Sonia: Give us some indication of when you expect to close these projects, Rajasthan-Kaithal and Mumbai-Pune expressway, will it be in FY16, will it be in FY17 and also will the IRR for these projects be the same as this Yedeshi-Aurangabad project, you mentioned about 18-20 percent, is that the level that you are looking at?
A: IRR yes, they would be in the same range. As regards, dates for these projects, the meetings with certain lenders are lined, so as soon as we get the final sanction, the lead banks for both these projects are already in place and some small amount of tie-up is still balanced so as soon as we get the final sanction, we will report the closure on those as well.
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