Source :G Seetharaman / DNA:Tuesday, May 11, 2010 4:32 IST
Mumbai: IRB Infra Developers, one of India’s biggest highway developers, closed 2009-10 with a two-fold jump in its consolidated net profit to Rs 385 crore. The company has 10 operational highways, two under construction and one for which it is to receive the letter of intent, in addition to an airport project in SIndhudurg. we caught up with IRB’s chairman & managing director V D Mhaiskar to discuss the road ahead for the company and the funding scenario here and abroad, among others.
What are the margins in highways like?
There are two segments in it. One is the developer’s side model, in terms of tolling. There you have an Ebidta margin of 85%. If you look at the construction business, it’s 15%. That’s why if you look at IRB, the margin is almost 45-50%. That’s because our product mix is almost 50:50.
What are your current daily toll revenues?
On a gross basis, it’s Rs 2.4 crore.
None of the 15 projects in your portfolio is annuity-based. Is it a deliberate strategy not to take up annuity projects?
Not deliberate. We kept on bidding for toll road projects, we
kept getting them so we built a portfolio of toll roads. We are not averse to annuity projects. We will look at them as they come. Annutiy roads can be a 12-13% margin business. That’s more like a deferred payment. You can have margins as in the construction business. What happens in tolling is you have the upside to yourself. If you get the traffic higher than expected, there will be an uptick in your income. But in annuity, which is a fixed payment, there is no upside unless you dramatically reduce interest costs, which cannot happen beyond a point.
Have you put in bids for any annuity projects?
Not yet.
Any new developments on your real estate plans along the Mumbai-Pune expressway?
We are still acquiring land and we will continue to do that for a few more months. We currently have 150 acres.
What sort of real estate development would it be?
It would be a mixed-use township where we would be the key infrastructure developer and we will rope in joint developers.
This model is quite new to India. Jaypee Associates’s Ganga Expressway is one of the first projects to have it. What’s your take on the model?
What we are doing is clean development. This is a private project of the company and has nothing to do with the Mumbai-Pune concession. It’s not like the Jaypee model where the revenue for the project is coming from the real estate development.
When can we expect work to begin on this?
Not for a year.
What is the traffic growth you are seeing?
About 6-8% in the recent past. During the recession, we saw a negative growth in a couple of projects, but we have seen a reversal since. Internationally, or even domestically, it’s normally 1-1.2 times the GDP growth.
What is the current state of the funding scene in India?
All the four new projects that we tied-up funds for, we closed at 10.5% during the construction period post which we have a yearly reset.The repayment schedule is now 15-16 years.
How does the overseas funding avenue look?
We have not tapped it. If we look at it on all-hedged basis, it will be 9.5-10%. So there is not a big differential between domestic and overseas loans.The arbitrage would be 100 basis points at best.
We also hear there is not much appetite for these projects?
No, there is appetite, but only for projects that are operational and that would fall under the ambit of refinancing.
Recently, Power Finance Corporation announced a scheme wherein it would lend towards the equity of a power project against the returns of a commissioned project of the developer. Is there similar for highway builders?
Some banks are doing it. We hear IDBI is doing it aggressively. What they do is they give you a loan at the parent company level, a part of which you can use to invest as equity in a project. We have not looked at it though.
Do you see more funding avenues for infrastructure opening up in India?
I think the corporate bond market is something we are waiting to develop. I think India is the only place where infra funding is still done by banks. Most of the international experience is that companies float corporate bonds for project-related purpose, which are then traded. We are nowhere near.
Are the loans given to a highway special purpose vehicle (SPV) secured or unsecured?
Till now, there was a dilemma. Some banks used to consider them secured and some unsecured. But now it’s been solved with the new classification issued by the RBI.
So will IRB continue to stay primarily in highways, with a bit of real estate?
Yes. We have a small airport project in Sindhudurg. We took that up because it’s a good project and it’s an excellent opportunity, with Sindhudurg’s proximity to Goa and the place being developed as a tourist destination. We don’t rule out venturing out to other areas, but we have not thought of anything.
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