Leading private sector road-focused Engineering Procurement Construction (EPC) contractor, Dilip Buildcon has received ‘Letter of Award’ from National Highways Authority of India (NHAI) for a four-laning project worth Rs 911 crore in Maharashtra.The order is to for a 67-kilometer long road project from Tuljapur to Ausa section of National Highway- 361. The company's stock moved higher by 2 percent on the back of this news.
Speaking to CNBC-TV18, the company's Head - Strategy & Planning, Rohan Suryavanshi said it is a hybrid annuity project, which means the entire cost will be borne by the government."The government will pay 40 percent of the project cost during construction period and 60 percent will be raised by the company through debt and equity,” said Suryavanshi.
Remaining 60 percent will be paid back by the government through amity payments which come every 6 months, he added.
The project is slated for completion in two years. Company expects 18 percent margins at Earnings before interest, tax, depreciation and amortization (EBITDA). It is targeting Internal rate of Returns (IRRs) of over 22-25 percent.
The company will be putting about Rs 150 crores of equity in to the project and will be raising about Rs 350 crore of debt, taking the total debt to Rs 600 crore.Below is the verbatim transcript of Rohan Suryavanshi’s interview to Reema Tendulkar & Nigel D'Souza on CNBC-TV18.Nigel: Could you give us some details, we have the number it is around Rs 911 crore what kind of traffic you are expecting on this particular road bay? If you could tell us how you are going to be funding this as well?A: We are very excited about this new project that we have won. It is in the state of Maharashtra. The project is from Tuljapur to Ausa and it is a 67 kilometres long road project. The project cost is Rs 905 crore according to the NHAI estimate and the completion period is two years. This is a hybrid annuity project, so there is no tolling on it. The government will pay us 40 percent of the total cost during construction and 60 percent that now we will raise through a mix of debt and equity. This should be paid back by the government through annuity payments which comes every six months. It is a very safe project. Once you have completed your project within cost and timing and the payments from NHAI come in regular manner, it is a great portfolio without any traffic risk. Throughout our history, we have built significant number of these kind of projects and have seen a very good internal rate of return (IRR) and return on the project.Reema: If you could tell us what are the margins that we should expect in this particular order and even the IRRs?A: The margins that we are expecting on this projects or as we expect on any other Engineering, Procurement, and Construction (EPC) project as well we will look at about 18 percent margins at the EBITDA level and this is to what we are able to consistently deliver as a company and that we have done over the last few years. Interestingly, just to point out we are one of the most profitable companies in our sector because of the fact that we are also the most integrated players in our sector with our own equipment’s and our upward and downward integrations. Now talking about the IRR in this project with the combination of EPC and build–operate–transfer (BOT) the IRR that we are targeting is upwards of 22-25 percent and this is what we have historically seen getting from such projects. So, we are very confident that even from this one we should be getting in that range. Nigel: What is the current debt position? If you could tell us, I think out of Rs 900 crore you said it is a 60:40, so out of the money that you will be bringing to the table what kind of equity will you be raising?A: We will put somewhere about Rs 150 crore plus of equity into the project and we will be raising about Rs 350 crore of debt for this project. Nigel: Takes your total debt too?A: Total debt on the standalone level and for the consolidated level if I look at the company’s debt level is about Rs 3,600 crore as of now. I am just talking about completed projects, so this will add another that much to the total debt.
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