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Last Updated : Jun 27, 2019 05:32 PM IST | Source: Moneycontrol.com

Welspun Enterprises focuses on HAM to make it big

The company has bid for Rs 9,000 crore worth road projects, based on the HAM model

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Welpsun Enterprises has bid for road projects worth Rs 9,000 crore, as it looks to selectively build a portfolio based on the hybrid annuity model, or HAM.

This is despite most of the stakeholders, including the National Highway Authority of India, focusing more on projects on the EPC model. EPC stands for engineering, procurement, construction.

The third model, BOT (build, operate, transfer) has fallen out of favour, especially of banks who are said to have burnt their fingers.

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But Welspun Enterprises believes there is enough in HAM itself. "We can become big on the HAM model. And we will become big enough to be a substantial level," MD & CEO Sandeep Garg told Moneycontrol. 

Following on the same principal, the company has bid for four HAM projects, amounting to Rs 9,000 crore.

Garg is careful that each bid is consistent with the returns expected by the company. "There is a threshold I have to pass, no matter what the bid, or how strategic it is, I won't bid if that threshold doesn’t pass," said Garg. He added that the company's threshold for returns from each project is around "mid-teens."

The company, which had completed the Delhi-Meerut Expressway last year, has six ongoing projects. "Two of these projects will be closed this financial year. These are the Gagalheri-Saharanpur-Yamunanagar four-laning project, and the Chutmalpur-Ganeshpur & Roorkee-Chutmalpur-Gagalheri project.

Both the projects, like its first in Delhi-Meerut, will be completed before the deadline, said Garg. "We had received Rs 27 crore as a bonus for completing the Delhi-Meerut Expressway project before the deadline. We expect to get it again for the two projects that will be completed this year," said Garg.

HAM focus

Garg reiterated that the focus on the hybrid model is in accordance with the risk appetite of the company.

In the HAM model, the government brings in 40 percent of the project cost. "I need to look at returns expectations. And the government has to share that risk and be a true partner," said Garg.

Apart from the contribution of the government, under the model, 80 percent of the land required for the project is provided by the administration on the appointed date, when the scheme comes into force.

The land acquisition issue has marred the BOT model.

At the same time, industry observers point out that the HAM model also faces its own issues. Reports say that about one-third of the road projects awarded under the model are stuck for want of mobilisation advance from the government. The advance is made only after the appointed date is reached.

Diversification projects

Taking cognizance of putting all its bets on just one segment, Welspun Enterprises has diversified into the water segment. It has at present one ongoing project and has bid for one more, worth Rs 2,000 crore.

"We don't want to be in a scenario where something goes wrong creating an existential risk," explains Garg about the diversification rationale.

In the water space though, the company does get into the EPC segment.

"In road construction, 60 per cent of the cost is in the construction part, which we outsource. On the other hand, in a water project, 90 percent of the work is regarding engineering and procurement, for which we have proven skills," said Garg.

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First Published on Jun 27, 2019 05:32 pm
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