Road Projects: Past caution to pay off for NHAI project bidders

Select road companies, which chose not to participate in outrageous bidding just to secure projects in the last few months, are set to benefit from the final round of awarding of road projects by National Highway Authority of India (NHAI).

Armed with a fair amount of cash flow from operations, relatively low debt-equity ratio and few under-construction projects, these companies would have less competition in the forthcoming road projects to be awarded by NHAI.

Companies such as L&T, IRB Infrastructure Developers, Sadbhav Engineering and Reliance Infrastructure are the ones, which would benefit from the forthcoming road projects to be awarded by NHAI. In the current fiscal, NHAI has awarded close to 4,000 km of road projects.

In securing these projects, the competition among players became intense and fierce. On an average, there were twenty bidders for a project. Also, the difference between the top two bidders, on an average, was 30%. However, since November last year competition started loosening.

The number of players and the gap between the top bids got reduced. Today, the number of bidders in a project awarded in the last two months has been less than ten. Also, since many companies do not have enough financial strength to bid and mobilise funds for new projects, there would be fewer companies bidding for these projects.

And those which bid and secure projects have been unable to achieve financial closure on recently awarded projects. These factors have brought down the fierceness in securing projects and hence those players who stayed away earlier would get projects at more meaningful price levels.

For this fiscal, 11 NHAI projects with a total length of nearly 2,000 km are up for bidding. Hence, at a time when those companies, which grabbed projects aggressively, are looking to churn their portfolio by divesting or selling part of their projects, these companies can make the most of these forthcoming projects.

In the coming quarters, the only hitch these conservative players, which would secure projects, would face is the stretching up of their balance sheets. These companies would also be not in a position to grab any more projects in future.

Hence, in the next fiscal, for healthy competition to prevail, interest rates need to soften. An Infrastructure Debt Fund, which would lend at a fixed interest rate for long-term projects, would provide some relief for these companies.