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Last Updated : Dec 12, 2016 10:30 AM IST | Source: CNBC-TV18

IRB Infra expects 16-18% returns from Rajasthan project: Chief

IRB Infra is set to boost with an order win for 90 kms of 6-laning part of NH-79A and NH-79. This is the third order in couple of months and 30 km target has been completed, said VD Mhaiskar, company's CMD.

IRB Infra is set to get a boost with an order win for 6-laning a part of NH-79A and NH-79. This is the third order in a couple of months and 30 km target has been completed, said VD Mhaiskar, company's CMD.

Speaking to CNBC-TV18, he said the internal rate of return (IRR) is expected to be at 16-18 percent for the project," said Mhaiskar. 

Company's share in golden quadrilateral is 20 percent and the company has Rs 14,000 crore in that quadrilateral. The company also expects to achieve financial closure in six months.

Government's demonetisation move has impacted many sectors. Mhaiskar expects National Highways Authority of India (NHAI) to compensate for losses due to the cash clean-up drive.

Compensation is expected in two parts. One part will be in the form of cash compensation and the other part will be in form of extension of concession timeline.

Below is the verbatim transcript of VD Mhaiskar's interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.

Sonia: Can you start by telling us about this exact order win, what is the quantum of the order, the project size and by when could you start to factor this into your revenues?

A: This is the third order in last couple of months in the same corridor. This is 90 kilometre six-laning project and with this almost 330 kilometres target for this year has been completed as far as the company is concerned and would also be happy to share that with this six-lane order, which is a part of the Golden Quadrilateral, the share of IRB in the Golden Quadrilateral length almost inches up to 20 percent. That is around 1,000 kilometres of the 5,000 odd kilometres that the Golden Quadrilateral comprises of. This is around Rs 1,400 crore of order and premium that we will be paying to NHAI because we will be getting the tolling rights on the projects from day one. We expect around six months to get the financial closure done post which the construction on the project should commence. We are yet to get the letter of award but this is a preferred bid at this point in time.

Latha: If you are going to pay a premium, what will be your RoI on the project?

A: We expect the internal rate of return (IRRs) to be positive in terms of around 16-18 percent on this order and the corridor is having very heavy traffic and that is the reason why it has a premium on it.

Latha: What is your order book otherwise?

A: With this order coming in it should be around Rs 11,000 crore.

Latha: There is some more to come?

A: No. NHAI is particular about declaring the bid then and there so there is no other order which is in the pipeline at the moment.

Anuj: We went through a phrase where NHAI orders were not sought after. It wasn’t doing too good for the companies, have you come out of that stage?

A: It is subjective question because it all depends on the price at which one gets the order. So the order flow from NHAI has been extremely robust. There is no doubt about that but whether the order would make money for the developer or the builder who is doing it depends on the pricing at which one has bid. So yes, one has to be cautiously optimistic and keep bidding sensibly.

Anuj: So that is the competitive intensity that existed and even the pig-headedness, which was the word used by one of the developers is that out of the way now?

A: You will have to look at it in two parts -- the Engineering, Procurement, and Construction (EPC) and the hybrid annuity portion and the build–operate–transfer (BOT) part. If I have to speak about the BOT part, I would say yes, it has certainly come off, there are not more than 3-5 bids that are getting placed on the BOT side but if I have to look at the annuity or the EPC part, the aggression continues to be strong on that side.

Latha: Any impact of demonetisation?

A: Demonetisation impact is in two parts. First yes, we had to go through the pain of having a toll suspension for almost 24 days and we are hopeful that NHAI would be soon compensating for those losses.

They have come out with the procedure to clean the losses and we are in the process of doing so. As regard, the impact and post the starting of the toll is concerned, we have seen good amount of people now wanting to buy tickets on debit cards, credit cards, Paytm -- the card sales has gone up. So that is the positive outcome of it. We believe the traffic to be impacted slightly in the near-term but we see a very strong recovery post that.

Sonia: The analysts have cut their traffic growth for the next two years by about 5-10 percent. Can you tell us exactly how much has traffic growth fallen?

A: We haven’t seen very big dip or anything of the kind, that is a fear in our mind that the traffic might slowdown. Having commenced the tolling, we haven’t seen any dip in the traffic numbers.

Latha: Freight rates have fallen so the fear is that obviously demand and therefore volume is falling, you don’t fear that?

A: At the moment, the collection that we are doing have not shown us any such big impact in terms of slowdown or numbers going down as such but yes, that is the fear of the market. So not being an economist, it would not be right on my part to comment on that.

Sonia: Any idea about when you will be compensated by the NHAI and what exactly the quantum of compensation is that you are looking at for those 24 days?

A: We have been given the standard operating procedure under which NHAI would be doing that. Once the numbers are firmed up, we will share the same with you but they are talking about compensating in two parts, one will be a cash compensation and some portion of it will be as per the concession agreement provision by way of extension for the concession agreement.

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First Published on Dec 12, 2016 09:54 am
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