Indian Road Sector Report - 11th March'2013

EPC Tender Awarding

Shifts to Fast Gear

Government Outlay is the

Key

Divyata Dalal

[email protected]

022‐61925338

INDIAN ROAD SECTOR

Indian Road Sector Report

Institutional Research

March 11, 2013

Contents

Indian Road Sector: A Long Road Ahead .................................................................................................................................. 1

Widespread Road Network in India, but the path lacks quality .......................................................................................... 2

National Highway Development Programme - Ambitious plan but needs to be accelerated ........................................... 3

Phase wise implementation of NHDP - Status So Far ............................................................................................................ 5

Other Initiatives .......................................................................................................................................................................... 6

Attractive investment potential -State's outlay to see sharp jump ...................................................................................... 7

Private Capital - A Key Growth Driver ...................................................................................................................................... 9

Acceptance of Chaturvedi Committee Recommendations has been a Game Changer ..................................................... 11

Driving significant growth in project awards ....................................................................................................................... 12

Greedy Capital -> Aggressive Bidding -> Environmental Hurdles -> Slowdown ................................................................ 13

But all's not lost -> EPC to drive growth here on ................................................................................................................. 15

Policy focus on roads - A part of wider strategy for infrastructure development .......................................................... 17

OMT Concessions ...................................................................................................................................................................... 18

Risks to our Call ........................................................................................................................................................................ 18

Companies Covered

Ashoka Buildcon Limited .................................................................................................................................................... 19-29

Sadbhav Engineering Limited ............................................................................................................................................. 30-41



March 11, 2013

1

have been successfully completed. 50% of the projects under Phase IIIand Phase V are under implementation, awarded under BOT model.Contribution by private sector is anticipated to go up from 20% of totalinvestment in road & bridges in 11th Plan to 32% in the 12th plan.

• The way forward is execution/ EPC: Upcoming award activity will involveup gradation to two lane highways which fall under NHDP Phase IV where82% of the projects are yet to be awarded. With the traffic density beingless on these roads, most projects will be awarded under EPC mode..Budget 2014 proposes to award 3000 km of road projects in first sixmonths of 2013-14. This coupled with execution of BOT projects awardedat the end of 11th Plan will see improvement in construction activities.

• And the government is doing its bit: The recent clarification by theMoEF on de-linking the requirement of environmental (EC) and forestclearance (FC) will free up projects worth Rs.230 bn that were held forwant of FC. The developers can now start construction on road projectafter obtaining EC leaving aside the portion where FC is awaited.Exemption from seeking consent of gram sabhas will also reduce theproject clearance time. FM,in Budget 2014, proposed to set up regulatoryauthority for road sector .We believe this will help to clear the pendingdisputes and BOT project awarding and execution will gain traction.

• Well funded Balance Sheets to sail through: Portfolio buildup by thedevelopers through aggressive bidding for projects in the past, are nowfacing difficulty in arranging equity and obtaining financial closuredue to stringent norms by the lenders. In such a scenario, companieswith strong cashflows and well funded balance sheets will have theability to bid for new projects as well as execute existing ones.

We are optimistic about the opportunity that the road and highwaydevelopment sector provides and we initiate coverage on AshokaBuildcon Ltd ( BUY) and Sadbhav Engineering (ACCUMULATE).

Executive Summary:India has a road network of over 4.32 mn kms, the second largest inthe world. Government has been aggressively working since last twodecades for development of highways and state roads by implementingprograms like NHDP, Bharat Nirman , Central Road Fund Scheme etc.However, still a lot needs to be done to address hurdles encounteredduring execution regarding delays in environmental and forest clearance,issues of land acquisition and difficulties in achieving financial closure.Owing to these issues, developers have exited from few existing BOTroad projects.

After successfully awarding large number of highways projects under BOTmodel during FY09-FY12, the year to date awarding for FY13 has seendismal response from developers owing to the reasons mentioned above.

NHAI is now sorting out these issues pertaining to land acquisitionand MoEF has clarified to de-link the environment and forest clearance.In order to rescue the sector from financial despair, the Governmentannounced to roll out about 3000-4000 km highway projects on turnkeyEPC basis with 100% financial support. Roads that are financiallyunviable on toll mode would be taken up under this scheme.

We believe developers that have all clearances in place for BOT projectsportfolio and have also raised funds through various means to executeand operate them, are positioned well compared to their peers. In thenear to medium term we expect new contracts to be awarded as EPCand the construction of already awarded projects to pick up. BOT awardingactivity will remain sluggish until the macro issues of clearances, landacquisition are settled and financing constraints ease out.

• The going has been good so far: Expansion of National Highways network(2% of the total road network) is pre-requisite for economic developmentas it carries 40% of the road-based traffic. To accelerate the pace ofawarding, NHAI put in place the flagship NHDP Programme in 1998under which all projects in Phase I and 83% of the projects in phase II

Indian Road Sector: A Long Road Ahead



March 11, 2013

2

Widespread Road Network in India, but the path lacks quality

• Development of India's extensive road network of about 4.24 mn kms isof prime importance for growth, as around 70% of freight and 85% ofpassenger traffic moves by road.

• According to the ministry's data, traffic on roads is growing at a rate ofup to 10% per annum, while vehicular population growth is nearly 12%per annum.

• Thus rapid expansion and strengthening of the road network is imperativeto provide improved accessibility and better connectivity to rural areas.

Break up of Road Network in India

Other

95%

Other

District

Roads &

Rural Roads

87%

Major District Roads

7%

State Highways

4%

National Highways

2%

A) Quality wise break up of National Highways (NHs)

Lanes Quality Share in NH Length in kms

Four Lane/Six lane/Eight Lane Above required Standards 24% 18436

Double lane Just meet Standards 53% 40714

Single Lane/ Intermediate lane Intermediate Standard 23% 17668

Total Length of NHs 76818

Source: Ministry of Road Transport and Highway (MoRTH) annual report, Draft document 12th five year plan

B) The Secondary system - constitutes of State Highways (SHs) and MajorDistrict Roads (MDRs) -• Total length is estimated at 1,54,000 km for SHs and 3,00,000 km for

MDRs• Comprises about 13% of the total road length and carries 40% of the

total road traffic• State Roads carry medium to heavy traffic and adds significantly

to the development of the rural economy and industrial growthof the country.

C) The Tertiary level - constitutes of Other District Roads (ODRs) and theRural Roads (RR)• Carries 20% of the total road traffic and comprises 85% of the total

road length.• Once fully developed, these roads hold the potential to provide

o Rural connectivity that is vital for generating higher agriculturalincomes and

o Productive employment opportunities.

Only 24% of roads of the total National Highway

network are above standard quality, thuscreating huge opportunity for developers in

highway improvement.



March 11, 2013

3

National Highway Development Programme - Ambitious plan but needs to be accelerated

Taking into consideration the importance of National Highways in the

framework of road network in India, NHAI initiated the largest and

foremost infrastructure program - National Highway Development

Programme (NHDP) in 1998.

The program envisages widening, upgrading and rehabilitation of around

54,000 km of the highways in 7 phases with an investment of around

Rs.2, 47,635 mn till 2015.

Phase I and Phase II were launched in 1998 and were predominantly

implemented under the EPC mode.

From NHDP Phase III onwards, private sector participation was encouraged

and most of the road projects were developed on PPP basis.

Details of various Phases under NHDP:

Phase I: Involves widening (to 4 lanes) and upgrading of 7,498 km of the

national highway network and has four component packages:

• Golden Quadrilateral project - Highway network linking the

four metropolitan cities in India i.e. Delhi- Mumbai-Chennai-

Kolkata, covering a length of 5,846 km.

• Highways along the North-South (NS) and East- West (EW)

corridors, covering a length of 981km

• Port connectivity projects covering a length of 356 km; and

• Other highway projects, covering a length of 315 km

Phase II: Involves widening and improvement of the NS-EW corridors

(not covered under Phase-I) covering a distance of 6,647 km,

besides providing connectivity to major ports on the east and

west coasts of India and some other projects.

Phase III: Launch of projects under Public, Private Partnership (PPP)

via Built, Operate and Transfer (BOT) mode

• Involves up gradation of 12,109 km (mainly four- laning)

of high density national highways.

• Subsequent to the Government decision of awarding all

new projects under PPP, since April 2007 projects under

this phase have been tendered out BOT basis over last

two years.

• ~ 49% of the projects are under implementation. ~15%

of the projects are yet to be awarded.

Phase IV: Two laning of 20,000 km with paved shoulders

• Envisages upgrading of 20,000 km of highways into two-

lane highways, at an indicative cost of Rs.27800 mn

• The Government has already approved strengthening of

5,000 km to 2-lane paved shoulders on BOT (Toll/ Annuity)

under NHDP-IV A at a cost of Rs. 69,500 mn

• ~ 18% of the projects from Phase IV are under

implementation. Large portion of upcoming project for

award will be from this phase.



March 11, 2013

4

Phase V: Six laning of 6500 kms

• Involves 6-laning of the four-lane highways comprising

the GQ and certain other high density stretches will be

implemented under BOT basis.

• ~44% of the projects from this phase are under

implementation and 37% of the projects are left for award.

Phase VI: Development of 1000 km of expressways:

• The Government has approved 1,000 km of expressways

to be developed on a BOT basis.

Phase VII:Other Highways projects of 700 kms

• The development of ring roads, bypasses, grade separators

and service roads are considered necessary for full

utilization of highway capacity as well as for enhanced

safety and efficiency.

~41% of the total length i.e. 22575 km under NHDP is yet to be awarded.

41%

25%

34%

Completed Under execution To be awarded

Current status of NHDP



March 11, 2013

5

Phase wise implementation of NHDP - Status So Far……

Length

Phases Key projects TotalPref. Approved Cost incurred Completed Under To be

(in kms)Mode of

Development projectupto

implemenawarded

Lengthcost 31.10.2012

(in kms)tation

(in kms)(Rs in cr) (Rs in cr) (in kms)

I* 99.90% Completed 7,522 EPC 30300 39171 7503 19 0

Golden Quadrilateral (GQ) 5846

North-South and East-West Corridors 981

Connectivity to Major Ports 356

Other Highways 339

% of total Phase I length 99.7 0.3 0

II Widening of NS-EW corridors, Port Connectivity 6647 EPC 34339 56561 5530 732 385

4/6-laning North South- East West Corridor 6161

Other Highways 486

% of total Phase II length 83 11 6

III - Total Upgradation of High Density National Highways 12109 PPP 80626 55482 4362 5965 1782

III A ^ Upgradation, 4/6-laning 4815 33069 3270 1554 -

III B Upgradation, 4/6-laning 7294 47557 1092 4420 1782

% of total Phase III length 36 49 15

IV Upgradation to 2-Lane Highways 20000 PPP 27800 1037 18 3653 16329

Approved on BOT 5000

Feasibility Studies in Progress 15000

% of total Phase IV length 0 18 82

V 6-laning of GQ and certain High density streches 6500 PPP 41210 19170 1197 2883 2420

Golden Quadrilateral 5700

Selected based on Predefined Eligibility Criteria 800

% of total Phase V length 18 44 37

VI Expressways - to be developed on BOT basis 1000 PPP 16680 11 0 0 1000

% of total Phase VI length 100

VII Development of Ring Roads, Bypasses and flyovers and other structures 700 PPP 16680 1290 18 23 659

% of total Phase VII length 3 3 94

Total 54,478 247,635 172722 18628 13275 22575

As a % of total length 34 24 41

Source: EISEC Research, Guidelines for Investment in Road Sector, pib.nic.in press release- Jan'2013



March 11, 2013

6

Other Initiatives:

A) Special Accelerated Road Development Programme in the North Eastern

Region (SARDP-NE):

The Ministry has taken up the (SARDP-NE) involving widening of 10,141

km of National Highways (4798 km) and State roads (5343 km) in three

phases ensuring connectivity of 88 district headquarters in the North

Eastern Region to the National Highways.

Phase A kmPhase B Arunachal

(preparation of DPR) Pradesh Package

National highway 2041 1285 1472

State Roads 2058 2438 847

Total (in km) 4099 3723(Implementation 2319

likely in 12th Plan)

Target Completion Date March 2015 June 2015

Fund requirement from GBS Rs in bn

i) Phase A including Arunachal package 257.4

ii) Phase B 119.3

Total fund requirement from GBS (i+ii) 376.7

B) Special Programme for Development of Roads in the Left Wing

Extremism (LWE) Affected areas

The Government has approved scheme for development of NHs and

State roads in Left Wing Extremism (LWE) affected areas of 34 districts

in 8 States of AP, Bihar, Jharkhand, Chhattisgarh, MP, Maharshtra, Orissa

and UP at an estimated cost of Rs. 73000 mn.

Phase I Awarded in CY12Completed

Total Estimated

uptofund requirement

Nov'2012in 12th Plan (Rs bn)

from GBS

Kms Rs mn Kms Rs mn

Total Length 5477 km 701 14110 1080 NA 53.8

National Highways 1126 km

State Road 4351 km

Phase IIProgramme

Total Length -yet to be

8014 kms107.0

approved

C) In 2009, MoRTH had proposed National Expressway Grid of 18,637 kmof access-controlled greenfield Expressways, out of which 13,411 kmto be developed on DBFOT(Toll) basis by 2022 in 3 phases. This plan iscurrently under planning stage and MoRTH is working on suitable PPPstructuring and toll policy for the same.Source: Report of the Working Group on Central Roads Sector for 12th Five Year Plan



March 11, 2013

7

Investment Outlay for expansion of Road Network under 12th Five

Year Plan

ParticularsAnticipated

% shareInvestment ( Rs in trn)

National Highways 4.83 40

State Road and MDR 5.22 43

Rural Roads 1.99 17

Total 12.04 100.0

Source: Report of the Working Group on Central Roads and Rural Roads Sector for 12th Five Year Plan

A) National Highways to attract considerable Investment:

Keeping in pace with the ongoing outlay since last couple of years, the

12th Five Year Plan (FYP) will require investments of Rs.4.81 trn in the

national highway segment. Of this, NHDP projects will entail 67%,

followed by 12% for non-NHDP national highways being developed by

state public works departments. 8% for the Special Accelerated Road

Development Programme in the North-East (SARDP-NE) including the

Arunachal Pradesh Package.

Rs in mn Total % share

NHDP 3237740 67%

Non- NHDP 579988 12%

SARDP-NE 386658 8%

Total 4833230

Source: Report of the Working Group on Central Roads Sector for 12th Five Year Plan

The share of private sector participation in the national highways investment

during 12th FYP is estimated to be at 37% (52% for NHDP projects) with

the balance 63% being funded by budgetary sources, cess and toll revenue

surplus.

Estimated Surplus from Toll

revenue

6%IBER

14%

ABS for Special Packages*

17%

ABS for SARDP- NE & J&K

2%

GBS

11%

External Assistance

2%

Cess

11%

Share of private sector

37%


Attractive investment potential - State's outlay to see sharp jump

Funding of National Highways under the 12th FYP

Private Funds

37%

Public Funds

63%



March 11, 2013

8

Private Funds

21%Public Funds

79%

Source: Report of the Working Group on Rural Roads Sector for 12th Five Year Plan

C) Rural Roads:In order to enhance the rural connectivity in a more systematic way,Pradhan Mantri Gram Sadak Yojana (PMGSY) a centre-funded schemewas launched in Dec'2000.

Pradhan Mantri Gram Sadak Yojana funding requirementsParticulars Expected Investment ( Rs in mn)

Funds required for completion of works already sanctioned 342180

Funds required for balance sanctions 1854380

Total funds needed 2196560

Funds available in year 2011-12 200000

Net fund required during 12th FYP (at 2010-11 prices) 1996560

• The 12th FYP aims to connect remaining habitations by constructing about1, 58,000 km of new roads and upgrading 84181 km of existing roads

• The Planning Commission estimates a funding requirement of Rs.2 trnunder the PMGSY. This includes Rs.60 bn for the launch of PMGSY-IItowards the end of 12th FYP.

Inspite of rising contribution by the private sector, financing thedevelopment of road network continues through public funds. ForState road development, share of public financing accounts for 79%of the total financing requirement and rural roads are pre-dominantlyfunded through public channel.

However the share of private sector funding is increasing in NHDPprojects (63%) thereby providing significant opportunities for roaddevelopers and EPC contractors.

B) State Roads - Development to continue:

• Investment of Rs.5.2 trn is anticipated in the development of

secondary system during the 12th FYP.

• 75% of this will be spent towards development of core network of

states (comprising state highways and major district roads with

high traffic density).

• State road investment to be higher in Maharashtra, UP and Karnataka.

• Private sector investment is expected to be around 21%. For this

purpose, PPP would be encouraged through Viability Gap Funding

(VGF) window available with the Central Government.

Particulars Expected Investment Possible element of

(Rs in mn) private finance

Development of Core Network including SHDP 3942500 1083000

Other SHs and MDRs including SARDP-NE 1260000 0

Training and Skill Development 20000 0

Total 5222500 1083000


SHDP - State Highway Development Programme

Targets for 12th FYP and Funding

State Highways Major District Roads

Kms % of Existing/ Kms % of Existing/

Total Lengths Total Lengths

2 - laning 30000 30 20000 8.5

4 - laning 5000 8 1000 4

Strengthening 41500 25 66500 25

IRQP 50000 30 80000 30



March 11, 2013

9

Private Capital - A Key Growth Driver

In order to reduce strain on the government finances and enable effectiveutilization of resources, dependence on public-private partnership

projects for road development has increased.

• The NHDP has been one of the biggest PPP initiatives till date. Of theRs295bn invested under the NHDP during FY11, about 52% came fromthe private sector. NHAI expects this contribution to increase to about55% by FY13.

• As per report of the working group on Central road sector, 63% of thetotal NHDP funding requirements for 12th FYP are estimated to be fundedby private sector funds.

• Use of standardized bidding documents providing clarity and foundedon a well-defined policy framework has significantly enhanced theconfidence of developers and financiers, and has encouraged privatesector investments.

PPP is gradually proving to be a successful mechanism for developingand maintaining the National Highways, as is evident from the increasedprivate sector participation in projects till date.

PPP projects awarded by NHAI

1 1 0 0 311

1

2924

10 8

41 4448

7

0

10

20

30

40

50

60

19

98

19

98

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

Nu

mb

er

Source: Planning Commission

• Period from 1998-2004 involved projects in NHDP Phase I, IIimplemented largely on EPC basis.

• Award under PPP mechanism picked up from 7 projects in 2005 to 48 in2012.

• 2008 saw a dip in project awards due to slowdown in financial markets

Awarding activity under NH PPP (km)

1 18 0

146545

120 0

16781278

843 885

2489

5363

4865

6491

0

1000

2000

3000

4000

5000

6000

7000

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

Source: NHAI

• From 1998-2004, only 830 km was awarded under PPP.

• Project award picked up 3 fold to 2489 km in 2009, after slowing to 843km in 2007 due to financial meltdown

• Length of 23892 km were awarded from 2005-2012, with ~ 72% awardedin last 3 years.

• More than 24000 km of road project have been awarded on PPP basistill March 2012.



March 11, 2013

10

Steps taken by Government to draw private sector funds:

• Providing capital grant of 40% of the project cost to enhance viability, ifthe project is not commercially viable through collection of tolls andother revenue mechanism.

• 100% tax exemption for 5 years and 30% relief for next 5 years, whichmay be availed of in 20 years.

• Concession period allowed up to 30 years

• In BOT projects entrepreneur are allowed to collect and retain tolls

• 100 per cent FDI under the automatic route for all road developmentprojects

Size of PPP opportunity for 12th FYP

Overall Investment opportunity for the 12th FYP is pegged at Rs.12.0trn, comprising of investment worth Rs.4.8 trn in national highwaysnetwork and Rs.5.2 trn in state highways network. Of this, the investmentprospects under PPP projects is expected to be at Rs.2.8 trn , containing61% or Rs.1.7 trn for NHs and 39% or Rs.1.08 trn for SHs.

BOT projects in limelight

PPP Road projects in India adopted by the NHAI are implementedprimarily on:

• Design, Build, Finance, Operate & Transfer (DBFOT) Contracts on Tollbasis and

• DBFOT contracts on Annuity

• Till date, nearly 300 projects have been awarded on a PPP basis, coveringmore than 25000 km entailing a total investment of nearly Rs2.1trn. Ofthese, 70 projects (accounting for 4650 km and investment of Rs378 bn)have been completed.

Summary of BOT (Toll) and BOT (annuity) Projects under NHDP

Format No.of Projects Length in km Cost (Rs in bn)

Toll

Awarded 186 17973 1576.5

Completed 51 2948 199.2

Total (A) 237 20921 1775.7

Annuity

Awarded 51 3547 302.8

Completed 20 1103 74.8

Total (B) 71 4650 377.7

Total(A+B) 300 25571 2153.3

Source: Guidelines for Investment in Road Sector (as on 31st Dec'2012)

As per the Government decision of April, 2007 all new projects under differentPhases of NHDP will be taken up on Public private Partnership (PPP) byawarding them first on Built Operate and Transfer (BOT ) - Toll, failing whichto be taken up on BOT (Annuity) and failing which through EngineeringProcurement Construction (EPC) basis with the approval of the Government.

BOT Toll• Nearly 75% of the total projects awarded under the PPP model are in this format.

• Going forward too, the ministry plans to tender the maximum numberof projects on a BOT (toll) basis in order to reduce the government'sfiscal liability arising from annuity payments.

• The concessionaire bears the traffic/tolling risk in these contracts

BOT Annuity• Road projects are awarded on the BOT (annuity) basis where:

i) Envisaged traffic density is below a certain threshold, and

ii) Where the toll revenue generation opportunity is small, as in thestates of Bihar, Jammu and Kashmir, Jharkhand, Orissa, WestBengal, and Uttar Pradesh

• The bidder quoting the lowest annuity is awarded the project. Theannuities are paid semi-annually by NHAI to the concessionaire andlinked to performance covenants.

• The concessionaire does not bears the traffic/tolling risk in these contracts

Nearly 75% of theprojects are

awarded underBOT (Toll) format



March 11, 2013

11

Acceptance of Chaturvedi Committee Recommendations has been a Game Changer

• Adoption of the B.K. Chaturvedi report recommendations in Nov 2009 by NHAI has cleared the long pending issues related to Model Concession

Agreement (MCA) & RFP, RFQ

Key Changes Measure Impact

Bidding Method flow

Depending upon financial viability & threshold traffic volume,

concurrent bidding in all modes (toll, annuity or cash contracting)

is possibleWill cut procedural delays

Single bidNHAI empowered to award single bid projects after examining

its reasonablenessRe-bidding for projects not necessary

VGF extensionDevelopers to be paid entire grant amount (40% of project cost)

during construction periodWill enhance equity IRRs of developers

Exit clause Concessionaires allowed to completely exitAllows developers to exit projects at enhanced IRRs

and recycle capital

projects two years after CoD

To encourage financial investors take up stake in

operational projects, as the construction risk will

be eliminated post-COD.

Termination clauseProvisions relating to termination due to higher than capacity Eases private sector concerns by providing

traffic eased downside protection

Security for lendersLenders allowed to create a charge on the project escrow To improve access to debt and marginally lower

account to afford them greater security the borrowing rate

Conflict of Interest clause Conflict of interest threshold increased to 25% from 5% earlierTo increase participation opportunities for

developers and enhance competition

Pre-qualification criteriaPre-qualification to be made an annual exercise and not to be

conducted for each project separatelyWill save considerable time and effort

Source: B. K. Chaturvedi recommendation report



March 11, 2013

12

Driving significant growth in project awards

• Consequently, the road sector has seen increased private sector interest

and a significant pick up in the awarding activity.

• As can be seen from the adjacent graph, 3360 km of new projects were

awarded in FY09-10 compared to just 643 km in FY08-09.

• Most of the projects awarded were lucrative with high traffic density

under NHDP Phase III

4783

1739

3360

5059

7300

2205

1234643

25001784

2693

635753

1682

0

1000

2000

3000

4000

5000

6000

7000

8000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Awarded Work (km) Completed Work (km)

Source: NHAI

Projects awarded at premium/ Negative grant:

After the resolution of policy issues in 2009-10, following the

implementation of B.K.Chaturvedi Committee, awarding of national

highways projects picked up pace in 2010-11. This continued in 2011-

12, and as an outcome of competitive bidding process, many projects

with high traffic volumes were awarded on premium basis

Giant Leap in awarding projects during FY12:

• The MoRTH along with NHAI, awarded the highest-ever 7,957 km of roadprojects in 2011-12 in 62 projects.

• Out of 49 bids awarded in NHAI 32 fetched premium. The total premiumoffered was about Rs 30 bn.

• In the Ministry out of 13 projects awarded, 5 fetched premium of a totalof Rs 380 mn.

• Since the premium is payable yearly increasing by 5% every year, theNet Present Value (NPV) of the total premium offered is about Rs 304.0bn over the concession period of 20 years.

• Significant aspect of the success story of FY 2011-12 has been the stateagencies (PWDs and State Road Development Corporations) making agiant leap in awarding projects under public private partnership (PPP)under NHDP and Ministry of Finance's VGF scheme.

• From zero to 1466 km in two years is a remarkable achievement. Thecapacity building of the states in this field augurs well for the roadsector.

Significant Policychanges - drives

awards



March 11, 2013

13

Projects awarded on negative grantRoad Section Length Estimated Cost Negative Grant Constructed by

(Km.) (INR mn) (INR mn)

Delhi-Gurgaon 28 7100 610 Jaiprakash Industries -DSConstruction Ltd

Rajkot Bypass-Jetpur 36 3880 590 West Gujarat Expressway Ltd.

Panipat Elevated Highways 10 2700 960 Larsen & Toubro Ltd

Salem- Karur 42 2530 460 MVR-MRK-JTEC. JV

Krishnagiri - Thopurghat 62 3720 1400 Larsen & Toubro Ltd

Tindivanam-Ulundurpet 71 4800 1520 GMR Energy Ltd-GMRInfrastructure Ltd consortium

Thirssur-Angamali 40 3120 840 KMC- SREI JV

Jalandhar- Amritsar 49 2630 70 IVRCL Infrastructure projects ltd

Ambala-Chandigarh 36 2980 1060 GMR Energy Ltd-GMRInfrastructure Ltd consortium

Dhule-Pimpalgaon 118 5560 590 Ircon-Soma enterprises consortium

Vadodara Bharuch 83 6600 4710 Larsen & Toubro

Bharuch-Surat 65 4920 5040 IDAA Infrastructure Ltd

Total 640 50540 17850

Source: Guidelines for Investment in Road Sector

Further, under the revised MCA, projects under BOT/ DBFOT frameworkhave also been awarded on revenue share / premium basis, where thebidder offering the highest revenue share / premium is awarded theproject. These revenues are also ploughed back for the developmentand maintenance of National Highways.

Projects Awarded on Revenue Sharing basis

Road Section Length Estimated Cost Revenue Constructed by(Km.) (Rs in mn) Share (%)

Surat-Dahisar 239 26,000 38% IRB Infrastructure Ltd

Gurgaon-Jaipur 225 19,000 48% ETA-KMC consortium

Panipat-Jalandhar 291 22,000 20% Soma - Isolex Rollways

Chennai-Tada 42 3170 17% L&T IDPL

Vijayawada-Chilkaluripet 85 11,730 2% IJM India Infrastructure

Krishnagiri-Walajhapet 148 12,500 7% L&T IDPL

Total 94,400

Source: Guidelines for Investment in Road Sector

Shift in Scenario - Slowdown in award activity YTD in FY13

Based on the success of projects awarded in FY12, NHAI set an elevated

target of awarding 8800 km of projects for FY13 which was further

revised upwards by the PMO to 9500 km (up ~15% yoy).

Of this, around 5,000-6,000 km (50-55 projects) is to be awarded on

BOT toll or BOT annuity basis.

NHAI has awarded contracts for about 1000 km during 9MFY13, although

it claims to be ready to bid out another 2,700 km over the next three

months. The basis for such lesser award activity can be attributed to:

1) General slowdown in the economy

2) Poor Participation of developers in the BOT projects:

a) Many of them have their plates full and are focused oncommissioning and executing BOT projects that are already won.

b) Less traffic density - phase IV projects are bided out that involve upgradation of single lane roads to two lanes thus eliciting poorresponse from developers.

Expanding grants in NHDP-IV projects in the recent times

6%

6%

4% 4%

1% 4

%

2% 5

% 7%

-22

%-4%

-25%-20%-15%-10%

-5%0%5%

10%

Sep

-11

- IV

Sep

-11

- IV

No

v-1

1-I

V

De

c- 1

1-I

V

De

c- 1

1-I

V

Jan

-12

-IV

Mar

-12

-IV

Mar

-12

-IV

Mar

-12

-IV

Mar

-12

-IV

May

-12

-IV

Premium / Grant as a % of project cos t

Greedy Capital -> Aggressive Bidding -> Environmental Hurdles -> Slowdown



March 11, 2013

14

Participation on the declining trend coupled with the trends of expanding

grants in NHDP-IV projects are painting a grim outlook especially for

this phase under the entire NHDP program.

3) Difficulty in achieving financial closure as bank lending to Infrastructure

has reached the sector lending limits and developers have exhausted

their equity.

0

10

20

30

40

50

60

May

-10

No

v-1

0

May

-11

No

v-1

1

May

-12

No

v-1

2

Gro

wth

yo

y

(%

Non-food Credit Infrastructure Roads

• Some projects awarded in the last year are yet to achieve financialclosure as the lenders are resorting to rigorous due diligence afteraggressive bidding seen by developers to bag these projects. Forexample out of the 61 projects that were awarded in FY12, 10 projectshave failed to achieve financial closure within the stipulated deadline of 180 days.

• Model concession agreements provide for an additional leeway of120 days to complete financial closure before taking action againstthe developer. Two projects, worth about Rs 24.5 bn, awarded in2012 to DSC Ltd and Gannon-Dunkerley Co Ltd were terminated afterfailure to achieve financial closure. The other 6 projects are stillwithin the extension period of 120 days.

4) Some of the operational BOT projects have seen lower than estimated

traffic thereby affecting their performance. This has added to the

lenders concern and forced them to adopt a strict attitude funding

road projects.

5) Land Acquisition - a big hurdle: Several projects have been stalled or

delayed due to land acquisition issues. Resistance from local

communities, disputes with regards to pricing offered and lack of

wellplanned rehabilitation packages contribute to the delay.

NHAI is required to hand over 80% of the land to the developer at the

start of the project, but has often failed in doing so.

The Finance Minister had reportedly cited that non-availability of 80%

of land was one of the main reasons behind projects not getting requisite

loans from banks and financial institutions. Banks and long term lenders

like IIFCL have recently put in the condition of 100% availability of land

with NHAI as a prerequisite for funding any highway project.

6) Delay in obtaining Environment and Forest Clearance: According to the

road ministry and NHAI, out of 39 major projects - each worth over

Rs 1,000 cr - 20 are stuck due to delays in forest (FC) and environment

clearances (EC). Before April 2011, EC and FC were two separate

requirements and work on stretches falling outside forest area could

start, while construction on the remaining length could only begin after

NHAI received the FC. Since then, the rules have been changed, and the

MoEF gives EC only after FC is obtained. NHAI thus moved Supreme

Court stating this as the root cause of delays of all highway projects.

Recently GMR Infra and GVK Power exited BOT road projects citing

delay in clearances.

However, as per the latest development, MoEF has agreed out of court to

de-link FC and EC and NHAI expects the issues to be resolved in a month.



March 11, 2013

15

In spite of robust project awarding during FY10-FY12, the pace of

execution on road construction front over the past three years has

been a bit lower as execution depends on factors like land acquisition,

environment clearance and financial closure. Thus, it lags project

awarding by three-four years.

4783

1739

3360

5059

7300

2205

1234643

25001784

2693

635753

1682

0

1000

2000

3000

4000

5000

6000

7000

8000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Awarded Work (km) Completed Work (km)

As seen from the above chart, completed work / execution touched a

new high in FY10 following the impressive project award in FY06. On

the down side, execution bottomed in FY07, three years post the low

of project award in FY04.

So tracking the pickup in project award activity in during FY10-FY12,

we expect the road execution to pick up in the coming two years,

FY13E and FY14E.

Tendering through Engineering Procurement and Concession (EPC) is set to rise

• The ministry has decided to adopt the EPC mode of construction forroads that are not viable on PPP basis.

• The Ministry of Road and Transport Highway (MoRTH) has proposed toaward contracts for about 20,000 km of road length under the EPCmode proposed to be developed as two lane highways in the 12th FYP.

• Cabinet approved the Model EPC model document in Aug'2012. Underthe EPC agreement, the NHAI only specifies the required design andperformance standards and allows the contractor to bring in innovationto optimize efficiency as against the item rate contract that relies onsingle design provided by the government.

• This move is expected to minimize the time and cost over-runscharacteristics of the extant item rate contracts. This will also enable afaster roll-out of projects.

• The Contract Price is a fixed lump sum amount for construction of theproject highway.

• The contract document, now, specifies a defect liability period of 2years(the period till which a contractor is bound to maintain the roadat his cost if the surface develops problems) on completion of roadprojects, while an additional defect liability period of 3 years for majorbridges and structures

• As these projects are government funded without any private funding,contractors/developers show keen interest in a scenario where garneringfunds for large projects is a challenge.

• NHAI has set a target to award 3000 km of road projects on EPC basis inremaining three months of FY13. We believe this could increase to4000 km or more owing to addition of road projects that are not viableunder BOT.

But all's not lost -> EPC to drive growth hereon



March 11, 2013

16

NHDP Phase IV project awarding to dominate:

Of the ~22575 km yet to be awarded under NHDP as on Oct'2012 end,

more than 2/3rd of the projects fall under Phase IV.

NHDP Phase wise: Projects yet to be tendered

Phase wise break up of road project award

While phase III projects dominated project awards in FY10 and FY11,

phase IV projects garnered the largest share in FY12. We expect the

trend to continue in FY13. The outstanding projects could be taken up

on EPC basis as these projects primarily comprise of up gradation of

single lane roads to two lanes.

Impact of dominance of phase IV projects:

The fact that majority of future projects will come under phase IV

(and thus will be in hinterlands) is likely to force developers who

earlier had geographical concentration of projects to branch out.

As can be seen, the comparatively more economically developed states

in India (Maharashtra, Andhra Pradesh, Tamil Nadu and Karnataka)

have marginally more than a third of the share of future phase IV

projects; the balance predominantly belong to Eastern and Central

India, regions which are generally considered as less economically

developed and hence having less traffic density.

Phase IV

72%

Phase V

11%

Phase I , II, VI, VII

9%

Phase III

8%Andhra

Rajasthan

Haryana

Karnataka

Maharashtra

MadhuaPradesh

Tamil Nadu

West Bengal

Uttar Pradesh

Uttarakhand

Jharkhand

Orissa

Chattisgarh

Bihar



March 11, 2013

17

The Government will continue thrust on accelerating the pace of investmentin infrastructure during the 12th Five Year Plan (FYP), as this is criticalfor sustaining and accelerating growth.

Efforts to attract private investment into infrastructure through thePPP route have met with considerable success, not only at the level of

the Central Government, but also at the level of the individual States.A large number of PPP projects have taken off, and many of them arecurrently operational in both the Centre and the States.

(Rs in bn at 2011-12 prices) Twelfth Plan Projections

Sectors Total 2012-13 2013-14 2014-15 2015-16 2016-17 Total11th Plan 12th Plan

Electricity (incl. NCE) 9053 2793 3103 3451 3843 4283 175Roads and Bridges 5162 1422 1603 1810 2047 2320 9201

1.3 1.5 1.6 1.6 1.7 1.8 1.6Telecommunications 4792 1052 1327 1676 2116 2672 8842Railways (incl. MRTS) 2788 730 868 1050 1294 1634 5576Irrigation (incl. WD) 2794 719 783 854 931 1014 4301Water Supply & Sanitation 1373 341 374 410 452 500 2077Ports 496 186 225 294 389 522 1606Airports 418 72 95 127 174 242 710Storage 203 57 72 90 114 144 477Oil & Gas pipelines 668 120 150 200 287 445 1202Total 27747 7492 8601 9962 11645 13777 34166in US $ - Rs.55/$ 504 136 156 181 212 250 621Centre 9652 2467 2778 3130 3529 3981 15885% of total 34.8 33.0 32.3 31.4 30.3 28.9 30.9State 7683 1929 2103 2294 2501 2728 11554% of total 27.7 25.8 24.5 23.0 21.5 19.8 22.5Private 10412 3084 3720 4539 5616 7068 24025% of total 37.5 41.2 43.2 45.6 48.2 51.3 46.7Total Investments 27747 7480 8601 9962 11645 13777 51464

Public 17335 4396 4881 5423 6030 6709 27439% of total 62.5 58.8 56.8 54.4 51.8 48.7 53.3Private 10412 3084 3720 4539 5616 7068 24025% of total 37.5 41.2 43.2 45.6 48.2 51.3 46.7

GDPmp 384249 94757 102338 111548 121587 132530 562760Investment as % of GDPmp 7.2 7.9 8.4 8.9 9.6 10.4 9.1

Source: Planning Commission Projections, Interim report of High Level Committee on Financing Infrastructure

From the above table, it can be seen that the total investment in

infrastructure during the 12th FYP is projected at Rs.51.5 trn, up

85%, compared to Rs. 27.4 bn during the 11th FYP (at 2011-12 prices).

Financing this level of investment will require larger outlays from

the public sector, but this has to be coupled with rise in private

investment.

The share of public investment is projected to decrease to 53.3 %

from a level of about 62.5% in the 11th FYP, while that of private and

PPP investments is projected to increase to 46.7 % of the total investment

as compared to 37.5 % during the 11th FYP.

The investment in infrastructure, as % of GDP is expected to witness

a steady increase, reaching to 10.4 % of GDP in the terminal year

(2016-17) of the Plan. The average investment for the 12th FYP as a

whole is likely to be about 9.1 % of GDP as compared to 7.2 % during

the 11th FYP.

Projected Investment in Roads and Bridges during 12th Five Year Plan:

Total Total

Rs in bn (at 2011-12 prices) 10th Plan 2012-13 2013-14 2014-15 2015-16 2016-17 12th Plan

Centre 2216 577 640 710 788 874 3588

as a% of total 42.9 40.6 39.9 39.2 38.5 37.7 39.0

States 1915 446 486 530 577 629 2669

as a% of total 37.1 31.4 30.3 29.3 28.2 27.1 29.0

Private 1030 399 477 570 682 816 2944

as a% of total 20.0 28.0 29.7 31.5 33.3 35.2 32.0

Total Investment 5162 1422 1603 1810 2047 2320 9201

GDPmp 384249 94757 102338 111548 121587 132530 562760

total investment as a % of GDP 1.3 1.5 1.6 1.6 1.7 1.8 1.6

Source: Interim report of High Level Committee on Financing Infrastructure

Policy focus on roads - A part of wider strategy for infrastructure development



March 11, 2013

18

OMT Concessions

The Cabinet Committee on Infrastructure, in Aug 2010, has approved

the maintenance of national highways based on the Operate, Maintain

and Transfer (OMT) mode. Till recently, the tasks of toll collection and

highway maintenance were entrusted with tolling agents/operators and

subcontractors, respectively. These tasks have been integrated under

the OMT concession. Under the concession, private operators would

be eligible to collect tolls on these stretches for maintaining highways

and providing essential services (such as emergency/ safety services).

• Typical duration of such OMT concessions is between 4 to 9 years.

• The concessionaire is authorized through Government Gazette

notification to levy, collect and retain user fee from road users.

• The concession period is so decided that the Concessionaire is required

to maintain the stretch for a period almost equal to the life of the

renewal work, before the necessity to upgrade such stretch so arises

from 2 Lane to 4 Lane or 4 Lane to 6 Lane etc.

• Most projects are expected to be revenue positive and the concessionaire

is required to pay annual premium of agreed amount during the process

of bidding with the amount of annual premium being the bidding

parameter.

Work Plan for OMT projects:

For 2012-13

• 6 projects with total length of 963 Kms have already been awarded.

• 2998 Kms of stretches have been identified to be undertaken during the year.

For 2013-14

• 517 Kms have been identified to be undertaken during next year.

Key Estimates for Road Companies under coverage

EPS EV/EBIDTA P/BV ROCE ROE

FY13E FY14E FY15 FY13E FY14E FY13E FY14E FY14E FY14E

Ashoka Buildcon 20.9 29.2 39.2 7.4 6.2 0.2 0.2 7.7 10.9

Sadbhav Engineering 4.9 6.0 7.2 14.9 8.9 2.0 1.9 14.3 10.0

Risks to our callProjects execution risks: Over last two years, developers and contractorshave faced - trouble in getting right of way for project sites, delay ingetting various clearances due to bureaucracy and difficulty in achievingfinancial closure of their projects. These have acted as impediment insmooth execution of projects and in some cases have stalled the projects.

Change in government policy might affect order inflows: Majority oforders for road and highway development are awarded by NHAI andStates bodies. Any cut in the budget outlay for the road developmentmay lead to reduction in contracts tendered and in turn will dry downthe order pipeline for developers.

Road Infra Valuations - Coverage Universe

Ashoka Buildcon Sadbhav Engineering

Ratings Buy Accumulate

Market Cap (Rs mn) 10896 16801

Price (Rs) on 07/03/2013 200 112

Target Price (Rs) 291 134

Target PE (x), FY14E based 10.0 22.2

Upside (%) 46 20

P/E(x)

FY12 8.7 12.0

FY13E 9.9 22.9

FY14E 7.1 18.6

FY15E 5.3 15.6

CAGR FY13-FY15E (%)

Revenue 25.6 36.0

EBIDTA 24.2 36.0

PAT 37.0 21.0

Ashoka Buildcon BUY

19

Key Data

Average Vol ( 6m) in '000 10.33

FV 10

Beta 0.49

Mcap (Rs Mn) 10530

52 week H/L 283/181

Bloomberg ASBL IN

Group B / BSE Small Cap

Sensex/Nifty 19683/5945

Stock Performance (%)

Abs(%) Sensex ABL

3M -0.1 -1.5

1Y 13.2 5.5

Recommendation

CMP Rs. 200

Target Rs. 291

Upside(%) 46

Share Holding (%)

Promoter 67.4

Institutions 18.4

Public 14.1

Potential to Build OnNashik based Ashoka Buildcon Ltd is amongst top 3 road and highway developers having 16 years of experience

in executing EPC and BOT projects. The Company was awarded first BOT road project in Maharashtra in 1997.

Since then the Company has created a portfolio of 18 assets from projects awarded by National and State

highways authorities along Western and Central India. Till date, ABL has executed ~3100 lane kms of own and

third party road projects. ABL's EPC segment and operating road assets have been generating steady cash flows

while the assets under development offer good growth potential. ABL trades at 9.6xFY13E and 6.9xFY14E consolidated

earnings of Rs.29.2 and Rs.39.2 respectively and EV/EBIDTA of 7.3xFY13E and 6.1xFY14E. We estimate CAGR of

25.6% and 37.0% in consolidated revenues and PAT respectively during FY13E-FY5E.

• Unexecuted EPC order backlog at Rs.40.7 bn, provides revenue visibility

• The recent association with SBI- Macquarie secures funding for undeveloped and future projects.

• Toll collections from BOT assets under ACL to witness CAGR of 200% over FY13E-FY15E.

• We initiate coverage with BUY recommendation with SOTP based price target of 291.

Risks to our call:

• Lesser than estimated traffic movement on BOT toll roads to mar revenue growth

• Pune-Shirur and Sherinallah Bridge face the risk of early termination similar to that of Ahmednagar-Karmala

Particulars (Rs mn) Revenue PAT EPSEBIDTA

P/E P/BV EV/EBIDTA ROE(%) R O C E ( % )Margin (%)

FY11 13031 1008 19.2 19.4 10.4 0.2 11.0 11.3 8.7

FY12 15000 1248 23.7 21.7 8.4 0.2 8.6 12.1 9.0

FY13E 17597 1099 20.9 21.6 9.6 0.2 7.3 9.3 9.2

FY14E 22041 1536 29.2 20.8 6.9 0.2 6.1 10.9 7.7

FY15E 27752 2063 39.2 21.1 5.1 0.1 4.7 11.7 7.5

Ashoka Buildcon Ltd



March 11, 2013

20

Our Investment Case:EPC business, Operational assets to generate steady cash flows:Outstanding order backlog of ABL as on 31st Dec'2012 at Rs.40.7 bn,3.6xFY12 EPC revenue EPC revenue, renders revenue visibility for next2-3 years. ABL has better control on execution due to backward integrationand is well positioned to bag additional third party projects in thisspace. We believe the revenue stream for this segment will be steadywith CAGR of 18% during FY13E-FY15E. The 13 operational road BOTassets are performing well with some of them passing through theindustrialized zones. We estimate these assets to generate 31.6% CAGRin FCFE during FY13E-FY15E.

Dominant position on National Highway (NH) 6: Nine projects, of ABL'stotal portfolio of eighteen BOT assets are present on NH6 making itthe largest player with market share of 24%. NH6 is the one of thebusiest highway connecting 6 states on the east-west corridor andwitnesses' healthy movement of industrial traffic. This ensures strongvisibility for the revenue stream of assets operation under this belt.

Partnership with SBI-M ensures security and scalability: Private equityfunds managed by SBI-M have committed to invest Rs.7.0 bn in AshokaConcessions Ltd. (ACL- formed by transferring 7 projects from ABL) forat least 34% stake in ACL with the provision of investing additionalRs.1.0 bn in above projects. This secures availability of funds forequity portion of projects under development in ACL. In order bid forand win new BOT projects, SBI-M has agreed to invest further Rs.6.5bn for their share of equity.

Toll collections on ACL assets to drive growth: Four of the seven projectsunder ACL are in various stages of development and will becomeoperational over next 20 months. These projects are awarded by NHAIand have strong traffic density. Once operational, we believe tollcollections for these projects will pick and are likely to see 200%CAGR in revenues (net of NHAI share) over FY13E-FY15E. On a consolidated

basis, we expect toll revenues CAGR of 53% for ABL over FY13E - FY15E.

Outlook:ABL is an integrated road and highway developer having rich experiencein undertaking EPC and BOT based projects. From being a regionalplayer confined to Maharashtra, ABL has evolved and now boastsof a portfolio of 1526 lane kms spread across Madhya Pradesh,Orrisa and Karnataka. With presence in 4 out of 6 states on NH6,ABL commands a market share of around 24% on NH6. Current EPCorder backlog is well funded and provides visibility of revenues.With monetary backing from SBI-M, ACL is secured funds to execute

current projects and bid for newer BOT projects, in turn providingorders for ABL's EPC segment.

Valuation:We value ABL using SOTP methodology. The EPC business is valued at5xFY14E Core EPC earnings translating into Rs.76/share. The BOT assetsare valued on DCF basis at equity discount rates of 14-16% leadingto BOT segment value at Rs.272/share. After accounting for standalonedebt at Rs.57/share, we arrive at SOTP price target of Rs.291/share.We initiate coverage with "BUY" recommendation on ABL.

Risks:Regulatory Threats: The PWD, Maharashtra notified early terminationof Ahmednagar - Karmala road project of ABL Ltd in Nov '2012, citingreduction in interest rates by RBI as the reason. The concession agreementfor the said project was to end in Nov'2015. Two other projects: Pune- Shirur and Sherinallah Bridge are based on similar terms and canbe at risk of early termination.

Discontinuity in toll collection: In several instances in the past, ABLhas been unable to collect toll on Pune-Shirur and Ahmednagar -Karmala due to resistance from user to pay toll. Going forward, continuityof such protests/agitation will lead to loss of cash flow for the Company.

Ashoka Buildcon Ltd



March 11, 2013

21

And why we think so…..Superior EPC execution track record: The EPC segment engineers and

designs, procures the raw material and equipment and constructs

roads, bridges and undertakes repairs for in-house BOT projects and

third party projects. Over the last 16 years, ABL has constructed 60

roads and bridges and 12 projects in power transmission and distribution

under EPC business segment. Backward integration into owning fleet

of equipments, manufacturing of ready mix concrete and bitumen

processing facility, ABL has better control over execution. Revenue

for this segment has registered CAGR of 43.5% over FY10-FY12 with

operating margins in the range of 11-13%. The outstanding order book

as on 31st Dec'2012 is at Rs.40.7 bn, comprising 9% of third party

T&D projects and remaining are captive road projects.

Outstanding orderbook as on Dec'2012

Cuttack

10000

25% PNG

780

2%

Belgaum

2600

6%

Sambalpur

6330

16%

Dhankuni

16260

39%Power T&D

3540

9%

Others

1210

3%

Source: EISEC research

Focus on core EPC business lends visibility: At book to bill ratio of

3.6xFY12 revenues, the current order book provides strong visibility

of revenues. Execution is on track for construction of captive road

projects namely Belgaum-Dharwad (60% completed by Dec'2012),

Dhankuni-Kharagpur (20% completed by Dec'2012) and Sambalpur-

Baragarh (37% completed by Dec'2012). Around 65% (Rs26.5 bn) of

the order backlog is on schedule for completion in next 20 months.

These projects are well funded with equity, internal accruals and

money raised through SBI-Macquarie. Accordingly, we estimate revenue

CAGR of 18% over FY13E-FY15E for the EPC business.

EPC Business Performance:

(Rs in mn) FY13E FY14E FY15E

Revenue 13679 17564 20006

EBIDTA 1573 2073 2401

PAT 547 796 647

EBIDTA Margin (%) 11.5 11.2 12.0

Source: EISEC Research

Pioneers in BOT space: ABL was awarded the first BOT project, Dhule

bypass in Maharashtra in 1997. Since then ABL has executed maximum

number of BOT projects in the State and all over India. The company

has successfully completed and handed over three BOT projects back

to the government. The company is now known as one of the largest

player in BOT road development with 18 projects under its domain.

The portfolio consists of balanced mix of operating and under-

development projects offering steady revenue stream and growth potential.

16 projects in the portfolio are currently generating revenue (comprising

2 are under-construction projects). CAGR in consolidated toll revenues

during FY10-FY12 stands at 26%.

Ashoka Buildcon Ltd



March 11, 2013

22

Backward integration to support EPC activities: ABL began manufacturing

ready mix concrete (RMC) in fiscal year 2000 for in house use by the

EPC division and extended it to third party sales from 2002. The Company

has 14 RMC plants with a total production capacity of 650 cubic

metres per hour, 86 concrete transit trucks and 19 concrete pumps.

This division also sells and processes bitumen to a higher grade for

use in road projects and supports the EPC division. A plant is set up

in Pune for the processing of bitumen with a capacity of 60 metric

tonnes per day.

Lucrative asset portfolio: ABL's portfolio of 18 projects consists of

4595 lane kms (excluding the 2 projects where it is L1). The road

projects connect and run across various industrial zones in the country

and offer high traffic potential.

A) Operational assets to generate steady cash flows: Out of the 18 projects

in its portfolio, 13 projects are fully operational. The projects are part

of the state and national highways and have seen good growth in

revenues in the past. Some of the projects are towards the end of

concession period. Not long ago, ABL commissioned operations of Durg-

Chattishgarh (ABL's stake - 51%) and Bhandara (ABL's stake - 51%)

projects on the NH6. These projects were bagged in consortium with

IDFC and PRIL respectively. NH6 passes through the industrialized areas

consisting of power plants, steel plants, mining and minerals and

engineering companies and also connects tourism centers. This offers

good potential for movement of commercial and passenger vehicles

traffic. We estimate 31.6% CAGR in FCFE from these projects during

FY13E-FY15E.

FCFE

639

781

1106

-78-200

0

200

400

600

800

1000

1200

FY12 FY13E FY14E FY15E

(Rs

mn

)

Details of Commissioned Projects

Projects ABL Client Concession Lane FY12 Revenue Escalation in toll rateStake period ends kms (Rs mn)

Indore-Edalabad 99.7% MPRDC Apr-17 203 648 7% every year

Ahmednagar-Aurangabad 100.0% PWD, Maharashtra Sep-16 168 164 19.5% every 3 years

Ahmednagar-Karnala* 100.0% PWD, Maharashtra Nov-15 160 253 19.5% every 3 years

Dewas Bypass 100.0% MPRDC Aug-15 40 193 25% every 3 years

Katni Bypass 99.9% PWD- MP Sep-18 35 188 15% every 2 years

Pune Shirur 100.0% PWD, Maharashtra Oct-15 216 208 19.5% every 3 years

Wainganga River Bridge 50.0% MoRTH Feb-18 26 213 Every year at WPI

Nashirabad Road 100.0% MoRTH Nov-18 8 66 No increase

Sherinnallah Bridge 100.0% PWD, Maharashtra Jun-15 7 41 19.5% every 3 years

Bhandara- NH6 51.0% NHAI Feb-28 377 445 3%+40% of WPI

Durg- NH6 51.0% NHAI Jul-28 368 76 3%+40% of WPI

Jaora-Naigaon 37.7% MPRDC Feb-33 340 647 7% every year

Source: Company, EISEC research

Ashoka Buildcon Ltd



March 11, 2013

23

B) Excellent portfolio of under-developed projects: Currently, five projects

aggregating to 2602 lane kms are at various stages of implementation.

Four of these projects are under various stages of completion at 20%-

88%. Two of them are part of the NH3 and NH4 respectively which

connect the northern - western and southern regions of India and are

part of the GQ. Remaining two projects fall under NH6 which is one of

the busiest highways in India connecting state along the East-West

corridor and offering sound traffic potential owing to adjoining

Projects under implementation

Projects ClientABL

LengthStart of Concession

EscalationGrant/Revenue Share PartnerStake

(kms)toll Period

in toll rate(%) collection (yrs)

Sambalpur-Baragarh NHAI 100 88 May-14 30 3%+40% of WPI1st Year- Rs.13.3mn, NA5% increment yoy

Belgaum-Dharwad NHAI 100 79 Oct-13 30 3%+40% of WPI1st Year- Rs.310.0 mn, NA5% increment yoy

Pimpalgaon-Nasik* NHAI 26 113 Apr-14 20 3%+40% of WPI6.19% of revenue, L&T - 74%

1% increment pa

Dhankuni-Kharagpur NHAI 100 112 Oct-14 25 3%+40% of WPI1st Year- Rs.1260.6 mn, NA

5% increment yoy

Cuttack - Angul** NHAI 100 112 Apr-16 23 3%+40% of WPI2nd Year- Rs.611.0 mn, NA

5% increment yoy

Chennai - ORR TNRDC 50 32 FC pending 20 Annuity basedPayment of Rs1.4bn during GVR Infra projectsconstruction + semi-annual (50%)

payments of Rs395m during O&M

Mudhol-KSHIP 51 108 FC pending 10 Annuity based

GVR Infra projects

Maharashtra border (49%)


industrialized area. ABL with its 9 BOT projects is present in 4 out of

6 states on NH6, making it the largest player on this route with market

share of 24% through PPP route. The fifth project, Cuttack-Angul on

NH-42 is awaiting environment clearance form MoEF (likely by March

2013). We expect construction on this project to start by Q1FY14.

Recently ABL emerged as the lower bidder for two annity projects - the

Mudhol-Maharashtra border project and Chennai Outer Ring Road

(ORR) Phase II project.

Ashoka Buildcon Ltd



March 11, 2013

24

Backing from the SBI-Macquarie PE funds:

SBI-Macquarie (SBI-M), private equity funds jointly managed by SBI

and Macquarie Group, have committed to invest Rs.7.0 bn in Ashoka

Concessions Ltd (ACL). ABL would transfer 7 of its road BOT projects

with a total cost of Rs.76.8 bn in ACL. These seven projects consist of

3 operational, 3 partially operational and under development and

one fully under development projects. The deal gives clear visibility

on the funding mechanism by ABL for these projects. SBI -M have

further agreed to invest Rs.1bn to meet contingencies in these projects,

in pro-rata with ABL.

Additionally, SBI-M has made commitment towards investing Rs.6.5

bn as their share of equity in new projects bid and won by ACL.

Cuttack - Angul road project, being in the initial stages of development

will remain under ABL's portfolio.

Salient features of the deal:

• ACL will now be the exclusive bidder for BOT road projects for both ABL

and SBI-M

• ABL can continue to bid for small (<Rs.2 bn in size) and state projects

• ACL can utilize the technical points of Macquarie for qualifying in NHAI's

projects

• ABL to be the exclusive EPC and O&M contractor for all ACL projects

• ABL can continue to bid for EPC contracts for other developers and NHAI

as well as operated its own RMC division.

Latest Company Structure:

Source: Company, EISEC Research

Partnership with SBI-M gives scalability: SBI-M has committed to investRs.7.0 bn for a 34%-39% stake in ACL. Their exact stake is contingentupon the performance of Sambalpur-Baragarh road project in FY15.With this, the equity requirement for the above 7 projects is takencare of. Assuming SBI-M's stake at 34%, ABL has to invest Rs.8.5 bnfor their share. They have already invested Rs.7 bn till date and willinvest further only after SBI-M meets their share.

SBI-M's additional commitment of Rs.6.5 bn will enable ACL to scaleup the business to higher level by bidding and executing projects inrange of Rs.55.6 - Rs.63.7 bn in future.

Well Capitalized Balance Sheet via recent PE funding

BOT Projects ABL Stake

Sheri Nallah Bridge 100.0%

Ahmednagar Aurangabad Road 100.0%

Nashirabad Railway-over Bridge 100.0%

Pune-Shirur Road 100.0%

Dewas Bypass 100.0%

Ahmednagar Karmala Road 100.0%

6 Foot Over Bridges in Mumbai 100.0%

Katni Bypass 99.9%

Dhule Bypass 99.9%

Indore Edalabad Road 99.7%

Wainganga Bridge 50.0%

Anawali Kasegaon 5.0%

Cuttack Angul Road 100.0%

Ashoka Buildcon Limited (ABL-ListCo.)

BOT Projects ACL Stake

Belgaum Dhanwad Road 100.0%

Sambalpur Baragarh Road 100.0%

Dhankuni Kharagpur Road 100.0%

Bhandara Road 51.0%

Durg Chattisgarh Road 51.0%

Joora-Nayagaon Road 37.7%

Pimpalgaon-Nasik-Gonde Road 26.0%

SBI Macquarie to investRs. 700 Crs + Rs. 100 Crs in ACL

Owned BOT Projects Portfolio

Additional Rs.650 Crs commitmenttowards new BOT projects

Ashoka Concessions Limited(ACL)

EPC & RMC Business

Ashoka Buildcon Ltd



March 11, 2013

25

Extent of scalability:

Deal Parameters (Rs in mn)

Investment commitment by SBI-M 6500 6500

SBI-M's stake 34% 39%

ACL's implied equity commitment 19118 16667

Equity share 30% 30%

Total Bidding Capability 63725 55556

Source: EISEC research

Better cash flow for EPC projects: ABL's EPC order backlog consists of

road projects which are under ACL. SBI-M deal makes funds easily

available for ACL projects. This will enable smooth flow of funds for

EPC projects and execution will be on track.

ACL obtains first tranche of investment worth Rs.1.5 bn: SBI-M has

disbursed first tranche of Rs.2.4 bn towards commitment in ACL. The

funds will be utilized as equity in its various projects under consideration.

The balance amount will be disbursed over a period of five quarters

upto June'2014 as and when the amount is required towards construction

of the projects.

Well-laid growth path

Toll collections to increase 3 fold over FY13-FY15:Except Cuttack-Angul road project, all toll projects owned by ABL are

operational and generate revenues. We estimate moderate CAGR of

7.2% in revenues from developed projects over FY13E-FY15E due to

early termination of the Ahmednagar - Karmala project by Maharashtra

PWD (Revenue Rs.253 mn in FY12)

Three BOT projects under-implementation in ACL are likely to be

operational by Oct'2014. Existing toll collections for the developed

portion of Belgaum-Dharwad and Dhankuni - Kharagpur are on track

and lend revenue visibility. Led by ramp up in toll collections, we

estimate ACL's projects to see CAGR of 200% in revenues (net of NHAI

share) over FY13E-FY15E. On a consolidated basis, we expect CAGR of

53% for toll revenues of ABL over FY13E - FY15E.

BOT Toll Revenues

1750 17882013

11511653

4676

0

1000

2000

3000

4000

5000

FY13E FY14E FY15E

Rs

mn

ABL projects ACL projects


Overall, ABL's consolidated revenue will see CAGR of 25.6% over FY13E-

FY15E led by robust execution in EPC and BOT segment.

Ashoka Buildcon Ltd



March 11, 2013

26

Earnings growth to catch up with a lag:On an operating level, we expect the consolidated EBITDA to grow at

compounded rate of 24.2% during FY13E-FY15E to Rs.5.9 bn driven by 24.7%

growth in BOT toll segment and 23.5% growth in EPC segment. With

commissioning of 4 BOT assets under ACL, the interest expense and depreciation

cost will rise significantly during next 20 months. This along with higher

tax rate (40%-45%) will exert pressure on the net profits.

After taking into account the minority interest and share in associates, we

estimate the consolidated net profit to go up by 37% yoy to Rs.2.1 bn.

Lower leverage and growing cash profits - distinct comparedto peers:Driven by steady execution in EPC business and commissioning of

new BOT projects, we expect ABL to register cash profits CAGR of 36.7%

over FY13E- FY15E. Consequently, the leverage levels too are expected

to remain moderate (Consolidated D/E at 2.5x for FY15). This distinguishes

ABL from other players in the industry who are burdened with debt

and poor cash flows.

1.63.4

1.6 1.02.4

4.04.7

17.1

4.0

1.33.7

7.8

0.0

5.0

10.0

15.0

20.0

Ashoka

Buildcon

GMR L&T ITNL IRB JPA

D/E (x) Net Debt/EBIDTA (x)


Recent projects wins to add to EPC order book:ABL recently emerged as L1 in two annuity projects - the Mudhol-

Maharashtra border project (ABL's stake 51%) and Chennai Outer Ring

Road (Chennai ORR - ABL's stake 50%). These projects have been bagged

in consortium with GVR Infra Projects that holds the remaining stake.

source: EISEC Research

As of today, these projects will be under ABL and the broad equity

requirement for the Company will be around Rs.4.0 bn. At a later

date, if these projects go under ACL then equity commitment will spilt

in ratio of 66:34.

The EPC component for both these projects together will be in range

of Rs.10.0 bn, enhancing the order backlog once added.

ProjectDetails

Mudhol-Maharashtra

borderproject

ChennaiOuter RingRoad (ORR)

Client

KarnatakaState

HighwaysImprovementProject - II

Tamil NaduRoad

DevelopmentCompany(TNRDC)

Total ProjectCost

Rs.3.2 bn

Rs.9.9 bn

ABL’sstake

51%

50%

FundingSupport

AsianDevelopment

Bank

Length(km)

108

30.5

ConcessionPeriod

10 years(includes

24 monthsconstruction

period)

20 years(includes

30 monthsconstruction

period)

Grant /Annuity

Payment ofRs1.4bnduring

construction+ semi-annual

paymentsof Rs.395m

duringO&M

Scope ofproject

upgradingexisting

stretch of108km onSH-18 totwo-lane

standards,and O&M

of the road

Greenfielddevelopment

Ashoka Buildcon Ltd



March 11, 2013

27

Attractive Outlook and ValuationAfter consolidating its position in core EPC business, ABL is moving

ahead to execute large ticket size state and national highway road

BOT projects. ABL's EPC segment and operating road assets generate

steady cash flows while the assets under development offer growth

potential. We estimate CAGR of 25.6% in consolidated revenues and

37.0% in consolidated net profits during FY13E-FY15E.

We value ABL using SOTP methodology. The EPC business is valued at

5xFY14E Core EPC earnings translating into Rs.76/share. The BOT assets

are valued on DCF basis at equity discount rates of 14-16% leading to

BOT segment value at Rs.272/share. After accounting for standalone

debt at Rs.57/share, we arrive at SOTP price target of Rs.291/share.

We initiate coverage with "BUY" recommendation on ABL.

SOTP Valuation Table:

Projects Length Net Present ABL's ABL's value Cost of Value per(km) Value (Rs mn) stake (Rs mn) Equity (%) share of

ABL (Rs.)

Projects under ACL

Bhandara 83 982 66% 648 14% 12.3

Durg 77 2512 66% 1658 14% 31.5

Jaora-Naigaon 80 3413 66% 2264 14% 43.0

Sambalpur Baragarh 88 2373 66% 1566 16% 29.7

Belgaum Dharwad 79 1309 66% 864 14% 16.4

PNG 113 1310 66% 864 14% 16.4

Dhankuni Kharagpur 112 4830 66% 3188 14% 60.6

Total 16747 11053 210.0

Projects under ABL

Indore-Eblabad 203 1464 99.7% 1460 14% 29.9

Ahmednagar-Aurangabad 42 309 100% 309 14% 6.2

Dewas Bypass 20 322 100% 322 14% 6.5

Katni Bypass 18 831 99.9% 830 14% 15.8

Pune Shirur 54 427 100% 427 14% 9.0

Wainganga River Bridge 13 487 50% 243 14% 4.6

Nashirabad Road 5 158 100% 158 14% 3.0

Dhule Bypass 6 52 100% 52 14% 1.0

Sherinnallah Bridge 4 75 100% 75 14% 1.4

FOBs- Eastern Expressways 11 52 100% 52 14% 1.0

Cuttack Angul 112 (855) 100% (855) 15% -16.2

Total 3524 3276 62.2

P/E FY14Emultiple Net Profit

EPC business 5 793 3980 76.0

Less: Standalone Debt (2990) (57)

SOTP based Target Price 291

Ashoka Buildcon Ltd



March 11, 2013

28

Key risks:Slowdown in traffic volume: Some of the existing road BOT projects

are witnessing lower traffic movement than estimated at the time of

bidding owing to slowdown in industrial growth at the ground level.

Toll collection for operational portion of Belgaum-Dharwad project

has been impacted due to mining ban by the Court. A few projects are

suffering due to poor due diligence and relying too much on

overoptimistic traffic consultants.

Regulatory Risks: The PWD of Maharashtra prematurely terminated

ABL's Ahmednagar-Karmala road concession agreement on 17th Nov

'2012 which was to expire on November 4th, 2015. The terms of

concession of this project were computed taking into consideration

RBI base rate prevailing at that time. However, the PWD cut the tenure

citing reduction in interest rates by RBI as the reason. ABL has filed a

writ petition against this termination. We do not factor any contribution

from this project in our target valuation.

Two other projects of ABL - Pune Shirur (concession till July-15) and

Sherinallah Bridge (concession till June-15) are based on similar terms

as Ahmednagar - Karmala and can be at risk of early termination.

These projects together contribute Rs.9.5/share to our SOTP based

price target of Rs.291/share for ABL.

Non-collection of toll due to law and order issue: Over the last few

years, there have been several instances where road operators have

faced resistance from users, protesting against toll collection. ABL

too has faced such resistance in two of its road projects - Nagar-

Karmala and Pune-Shirur. In the Nagar-Karmala project, toll collection

had to be temporarily suspended while in the Pune-Shirur project,

toll collection had to be discontinued at one of the two toll plazas.

Such agitations/ resistance lead to loss of cash flows for the company.

Captive dependant EPC order book: The current outstanding order

backlog of ABL is dominated by the captive road EPC orders. Any

delay in execution of these projects or early execution of the backlog

will dry up cash flows for the EPC segment.

Ashoka Buildcon Ltd



March 11, 2013

29

Financials (Consolidated)Income Statement (Rs mn)

March Year end FY11 FY12 FY13E FY14E FY15E

Total revenues 13,031 15,000 17,597 22,041 27,752

% growth 15.1 17.3 25.3 25.9

Operating expenses 10,497 11,750 13,793 17,454 21,884

EBITDA 2,533 3,250 3,804 4,587 5,867

% growth 28.3 17.0 20.6 27.9

Depreciation 690 850 960 1,048 1,786

EBIT 1,843 2,401 2,843 3,539 4,081

Interest 716 1,144 1,438 1,693 3,753

Other Income 329 354 211 264 278

Exceptional items 1,072 0 0 0 0

PBT 2,528 1,610 1,616 2,110 606

Tax 424 451 727 844 242

Reported PAT 2,104 1,159 889 1,266 363

Minorities Int/Share of Assoc (24) 89 210 270 1,700

Consolidated PAT 2,080 1,248 1,099 1,536 2,063

Adj. PAT 1,008 1,248 1,099 1,536 2,063

% growth 23.8 (12.0) 39.8 34.3

Diluted EPS (Rs) 19.2 23.7 20.9 29.2 39.2

Balance Sheet (Rs mn)March Year end FY11 FY12 FY13E FY14E FY15E

Share Capital 631 701 552 552 552

Reserves & Surplus 8,299 9,640 11,257 13,476 17,053

Shareholders funds 8,930 10,341 11,809 14,028 17,605

Minority Interest 1,112 630 0 0 0

Total Debt 12,196 16,266 19,054 31,650 36,823

Deferred tax liabilities 16 10 10 10 4,608

Other non-current liabilities 619 21,337 83,777 83,606 82,539

Current Liabilities & Prov 3,701 5,154 5,978 4,166 4,484

Total Liabilities 26,574 53,738 120,628 133,460 146,059

Net Fixed Assets 16,245 43,038 97,112 104,299 128,905

Investments 1,384 1,686 1,855 2,133 2,347

Other non-current assets 2,124 2,503 3,377 7,494 6,600

Inventories 2,413 2,770 2,652 3,321 2,661

Sundry Debtors 2,077 1,467 1,687 2,114 2,661

Cash and Bank 711 500 679 447 858

Other current assets 1,620 1,774 13,266 13,652 2,027

Total Assets 26,574 53,738 120,628 133,460 146,059

Cash Flow (Rs mn)March Year end FY11 FY12 FY13E FY14E FY15E

PBT 2528 1610 1689 2278 2883

Depreciation 690 850 794 1046 1562

Less: Other income (116) (110) (211) (264) (278)

Net Interest Paid 716 1144 1540 1547 1762

Net working capital (2013) 21595 61021 (3062) 827

Minority Interest (26) 86 (683) (930) (2028)

Total Tax paid (439) (456) (760) (911) (1153)

Operating cash flow 1339 24719 64215 (2109) 3893

Capital expenditure (4880) (27632) (66394) (8233) (20167)

Investments 281 (893) (169) (3421) 1420

Other investing activities 283 308 211 264 278

Investing cash flows (4316) (28217) (66352) (11390) (18469)

Change in borrowings 1501 4238 2788 12595 13174

Equity raised/(repaid) 2067 (43) 1469 2219 3577

Other financing activities (716) (1144) (1540) (1547) (1762)

Financing cash flow 2852 3051 2717 13267 14989

Net change in cash (125) (447) 580 (232) 413

Closing cash balance 546 101 679 447 858

Ratio Analysis (%)March Year end FY11 FY12 FY13E FY14E FY15E

EBIDTA margin 19.4 21.7 21.6 20.8 21.1

Net profit margin 7.7 8.3 6.2 7.0 7.4

Return on equity 11.3 12.1 9.3 10.9 11.7

ROCE 8.7 9.0 9.2 7.7 7.5

Inventory (days) 40 36 55 75 50

Payable (days) 26 91 90 60 60

Receivables (days) 34 19 35 35 35

Debt to equity (%) 1.4 1.6 1.6 2.3 2.1

Valuation parameters FY11 FY12 FY13E FY14E FY15E

Dil. No. of Shares (mn) 53 53 53 53 53

Diluted EPS (Rs) 19.2 23.7 20.9 29.2 39.2

P/E (x) 10.4 8.4 9.6 6.8 5.1

P/BV (x) 0.2 0.2 0.2 0.1 0.1

EV/ EBIDTA (x) 11.7 9.1 7.8 6.4 5.0

EV/Sales(x) 2.3 2.0 1.7 1.3 1.1

Ashoka Buildcon LtdAshoka Buildcon Ltd

Sadbhav Engineering Ltd. Accumulate

30

Key Data

Average Vol ( 6m) in '000 180.4

FV 1

Beta 0.68

Mcap (Rs Mn) 16801

52 week H/L 165/104

Bloomberg SADE IN

Group B / BSE 500

Sensex/Nifty 19683/5945

Stock Performance (%)

Abs(%) Sensex SADE

3M -0.05 -14.0

1Y 13.2 -17.6

Recommendation

CMP Rs.112

Target Rs.134

Upside(%) 20

Share Holding (%)

Promoter 47.3

Institutions 42.7

Public 10.0

Highway to long term gainsSadbhav Engineering Limited (SEL), established in 1988 by Mr. Vishnubhai Patel, is among top 5 infrastructurecompanies of India with over two decades of experience in road construction segment. The company is primarilyinto EPC & BOT segments and depending on the size and scale, SEL bids for projects either on its own or througha joint venture. Sadbhav has exemplary track record for timely completion of projects. The EPC division also haspresence in mining and irrigation segment and has successfully executed long term projects in these segments.Current EPC order book stands at Rs.87.5 bn - 3.3xFY12 revenues.

SEL trades at 22.9xFY13E and 18.6xFY14E earnings of Rs.6.0 and Rs.7.2 respectively and EV/EBITDA of 14.9xFY13E and8.9xFY14E.We estimate CAGR of 36% in revenues and 21% CAGR in consolidated net profits during FY13E-FY15E.

• Diversified order book with 68% comprising of orders from road sector and 16% each from mining and irrigationsegment.

• Execution of order backlog will drive standalone revenues, to grow at CAGR of 36% during FY13E-FY15E.

• Low debt/equity ratio at standalone level sets SEL apart from its peer companies which are cash-strapped and highly levered.

• We initiate coverage with "ACCUMULATE "recommendation with price target of Rs.134/share.

Risks to our call:• Any delay in obtaining clearances for recently bagged BOT projects will hamper the execution and stretch FY14E

revenues.

• Due to financial constrains, if the JV partner/sub-contractor is unable to continue with projects execution, the projectmay get delayed or stalled.

Particulars (Rs mn) Revenue PAT EPSEBIDTA

P/E P/BV EV/EBIDTA ROE(%) R O C E ( % )Margin (%)

FY11 22094 1196 8.0 10.8 14.0 2.7 9.7 19.1 21.4

FY12 26755 1406 9.3 10.8 12.0 2.2 7.9 18.4 22.6

FY13E 15763 737 4.9 9.8 22.9 2.0 14.9 8.9 7.9

FY14E 26428 909 6.0 9.8 18.6 1.9 8.9 10.0 14.3

FY15E 29352 1081 7.2 9.8 15.6 1.7 8.0 10.7 14.1

Sadbhav Engineering Ltd.



March 11, 2013

31

Our Investment CaseDominant player in road construction and development: SEL undertakesroad construction on EPC basis for own BOT projects as well as projectsfrom NHAI and state development bodies. State-of -the-art constructionequipment manned by skilled workers and engineers along with twodecades of experience has enabled SEL to successfully construct andcomplete projects before time. Revenues for this segment have compoundedat 43% during FY09-FY12.In 2007, Sadbhav Infrastructure Pvt Ltd (SIPL)was incorporated as an asset holding company for road BOT projects

and currently has 12 BOT projects via SPVs under its ambit. RecentBudget announcement for awarding 3000 kms of road contracts throughEPC route in first six months of 2013-14, creates an opportunity forSEL to bid and win cash contracts.

Robust and diversified order book with presence in mining and irrigation:SEL's outstanding EPC order backlog stands at Rs.87.5 bn with 68%comprising of road projects, and 16% each of mining and irrigationprojects and providing revenue visibility for 3-3.5 years. SEL has successfullyexecuted 5 year project for GIPCL involving excavation of overburdenand lignite at Vatsan mines. The irrigation segment has capabilities toconstruct dams, canals and siphons and holds a track record of executinga major portion of world's largest Narmada Main Canal. Projects worthRs.11.1 bn consisting of 3 tenders in mining and Rs.71.6 bn for 2 tendersin irrigation are in pipeline for which SEL has already submitted bids.

JVs and partnerships with other construction companies ensure timely

project completion: SEL has partnered with peer companies like GammonInfra, GKC etc to gain pre-qualification strengths for large-ticket projects.On a standalone basis also SEL, has sub-contracted the EPC works toplayers like KNR construction, HCC etc to complete projects on time. Forearly completion of the projects, SEL had earned bonus of Rs. 180 mnfor Dhule - Palesnar and Rs. 915 mn for Bijapur-Hungund in the past.

Low Leverage on standalone books: Bidding for BOT projects via JVhelps SEL to keep its debt equity ratio at < 1. In order to financevarious under development BOT projects in SIPL, SEL raises funds bysecuritizing the operational BOT projects. Thus no additional debt isdrawn in SEL books for investing in or advancing loan to any BOTSpecial Purpose Vehicle (SPV).

Standalone revenues to pick up from FY14E onwards: SEL's FY13E revenueswill decline sharply as certain road EPC projects scheduled forcompletion in FY13E were executed in FY12. Lack of clearances fornew BOT projects in FY13E has also resulted in commencement delays.This can be seen from 9MFY13E results where revenues were down37.4% yoy to Rs.11.1 bn. We expect revenues to pick up from FY14Eonwards with execution of new road BOT projects like Shreenathji-Udaipur, Solapur-Bijapur, Chhindwara road EPC project and recently

won mining EPC projects.

Outlook & Valuation:At a time when infrastructure developers are reeling under huge debt andnegative cash flows, SEL with its financial prudence, JV and sub-contractingbased model has succeeded in maintaining its debt/equity ratio at <1.

We value SEL using sum-of the-part methodology. The standaloneconstruction business is valued at 8xFY14E earnings of Rs.6.0, translatinginto Rs.51/share. The 9 BOT projects, operational and under construction,under SIPL are valued by calculating the Net Present Value of eachBOT asset to arrive at SEL's share of Rs.83/share. We have not considered

the recently bagged BOT assets in our calculation as they are in initialstages and are yet attain environment clearances. Thus we arrive atSOTP based price target of Rs.134/share of SEL.




March 11, 2013

32

And why we think so……Leading private sector player with focus on roads: SEL is among the

leading top 3 players in the road construction and development space

with well over two decades of experience. The EPC segment with strong

capabilities and large fleet of equipments has successfully constructed

more than 4200 lane kms of roads & highways for NHAI and State

Government bodies.

• SEL's focus on road EPC, one of the fastest growing segments in theconstruction space, has enabled it to grow segment revenues at 3 yearCAGR of 43% during FY09-FY12.

• Road segment contributed 84% to the standalone revenues in FY12.

• SEL undertakes construction of own BOT road projects as well as externalEPC contracts.

• Order book for this segment as on 31st Dec'2012 stands at Rs.59.6 bncomprising 63% of own BOT projects and remaining 37% of cashcontracts.

Source: EISEC Research Company

Foray into Mining and irrigation offers diversification: In addition toroads, SEL has diversified its business and undertakes EPC for miningand irrigation segment.

A) Mining Projects:• SEL executed first mine excavation project in 1992-93 and since then it

is involved in excavation of over burden to removal of lignite and coalfor number of mines.

• Mining team executes 200,000 cubic meter of overburden per day. Majorprojects included removal of overburden at Bina OCP at Uttar-Pradeshfor NCL and a 7-year repeat contract from GIPCL for excavation ofoverburden & mining of lignite at Vastan Mines, Gujarat.

• For FY12, mining activities accounted for 10% of order inflows and 8%of revenues.

• SEL in JV with Annapurna and Vishnusiva respectively in Oct'2012 issuccessful bidder for two projects for bids invited by Bharat CokingCoal Ltd aggregating to Rs.6820 mn.

• The mining order book stands at Rs.13.6 bn as on 31st Dec'2012translating to 6.3x times FY12 segment revenues.

• SEL has submitted 3 bids almost worth Rs.11.1 bn and anticipates CoalIndia to come up with larger size and longer duration contracts.

• We estimate 3 year CAGR of 29% in revenues during FY12-FY15E.

9958

12900 13520 13890

2140 2697 33804630

0

2000

4000

6000

8000

10000

12000

14000

16000


(Rs

in m

n)

Order book Revenues


9MFY13 Order book Break up - Roads

37%

63%

Own BOT Cash Contracts



March 11, 2013

33

B) Irrigation Projects:

• SEL has undertaken construction of earthen dams, canal siphons,remodeling and improvement of canals.

• Rich experience and strong execution capabilities have enabled theCompany to participate in various phases of construction of theNarmada Main Canal (NMC), the world's largest concrete lines canal.

• It has executed 4 out of 9 canal siphons on NMC across different rivers.

• Robust order book at Rs.14.3 bn as on 31st Dec'2012 translates into6.7x FY12 segment revenues thereby providing revenue visibility.

• We estimate 3 year CAGR of 32% in revenues during FY12-FY15E


Irrigation Projects

11594

1385915846

17463

21403142 3961

4925

0

4000

8000

12000

16000

20000


(Rs

in m

n)

Order book Revenues

Source: EISEC Research , Company

Robust Order Book: Current order stands at Rs.87.5 mn and is to be executed over 30-36 month. Orders are skewed towards transport segment,

comprising 68% of the total order book. Mining and Irrigation orders are at 16% each of the order book. Book-to-bill ratio stands at 3.3x FY12

revenues, hence, providing revenue visibility.

Outstanding Order Book

Source: EISEC Research, Company

FY12 - Rs.75.5 bn

72%

15%

13%

Transport Irrigation Mining

Q3FY13- Rs.87.5 bn

68%

16%

16%




March 11, 2013

34

Climbing up the ladder - from Road contractor to BOT Developer

Sub-contracting of EPC works ensures timely completion:

Unlike other EPC contractors-turned -developers, who have focused

more on boosting their construction revenues (through in-house execution

of their entire captive orders), SEL has focused on timely completion

of project to avoid cost over runs.

• SEL has sub-contracted EPC works either to subcontractors such as KNRConstructions (Bijapur-Hungud) or to other JV partners such as GKCProjects (Hyderabad-Yadgiri).

• Furthermore, the company is incentivizing the sub-contractors (byoffering bonus payments) for early completion of the project.

• The Company has even sub-contracted a part of its large EPC contractsto subcontractors (for example, a part of the Chhindwara EPC contractworth ~`18bn is partially outsourced to KNR Constructions) in order toensure timely project completion.

Table1: Details of SEL's JV partners for various road BOT and EPC contracts

Project Type Year of Sadbhav's Partner Project CostAward stake (Rs in mn) Status

Ahmedabad Ring Road (ARRIL) BOT FY07 80% Patel Infra 5150 Operational

Mumbai-Nashik Expressway (MNEL) BOT FY06 20% Gammon Infra 7945 Operational

Nagpur-Seoni Expressway (NSEL) BOT FY08 51% SREI Infra Finance 2780 Operational

Dhule-Palasner Tollway (DPT) BOT FY09 40% HCC 14200 Operational

Maharashtra Border Check Post BOT FY09 90% SREI Infra Finance 14700 Operational

Bijapur- Hungund Tollway BOT FY10 77% Monte Carlo Construction 13226 Operational

Hyderabad-Yadgiri Tollway BOT FY10 60% GKC projects 4802 Operational

EPC

Chhindwara EPC FY13 KNR Construction 1411

EPC turnkey contract of terminalfacilities for passenger water transport EPC FY13 51% HCC 3190



In 2006, SEL entered in ownership of road projects via BOT route. In

2007, SEL incorporated Sadbhav Infrastructure Project Limited (SIPL),

as a subsidiary, as an asset holding company for Road & Other

Infrastructure BOT Projects. Over the years, SIPL has built portfolio of

BOT assets and currently has 13 projects with a combination of developed

and under-developed assets.

Leveraging the Joint venture / partnership mode for bidding:

• Over 2007-09 , SIPL has partnered with other contractors/ developerslike Gammon Infra, HCC, GKC projects etc to be able to bid and gain pre-qualification strengths for large ticket size BOT projects.

• Bidding for BOT projects in partnership with others has also enabledthe company to maintain a low debt-equity ratio at standalone level.

02000400060008000

10000120001400016000

AR

RIL

AJT

L

MN

EL

NSE

L

DP

TPL

BH

TPL

HYT

PL

MB

CP

NL

RP

TPL

SBTP

L

SUTP

L

BR

TPL

(Rs

in m

n)

0

20

40

60

80

100

120

Project cost ( LHS) SIPL equity needs (LHS)Sadbhav's share in project (%) (RHS)

Source: EISEC research, Company



March 11, 2013

35

Geographical diversification of BOT asset portfolio further de- risks the Company's business model.Table 2: Sadbhav Infrastructure Pvt Ltd (SIPL) BOT asset details (Rs in mn)

ProjectsLength Lane SIPL Type Project Concession SIPL Equity

Project Details(Kms) (kms) Stake Cost Period equity yet to(years) share invest

Operational Assets

Ahmedabad Ring Road (ARRIL) 76 304 80% Toll 5150 20 592 NA Fully operational since June 2008

Aurangabad - Jalna (AJTIL) 69 276 100% Toll 2770 23.5 830 NA Operational since July 2009

Mumbai - Nasik (MNEL) 100 400 20% Toll 7945 20 187 NA

Nagpur - Seoni (NSEL) 56 112 51% Annuity 2780 20 545 Semi-Annual Annuity of Rs.354 mn

Dhule - Palesner (DPTPL) 97 388 40% Toll 14200 18 959 170 Toll collection began from 10th June '2012 for75% of project.

Received Rs.182.3 mn bonus for earlycompletion.

Awaiting fee validation for balance 25%,subsequently daily toll collection to increase.

Bijapur - Hungund (BHTPL) 97 389 77% Toll 13226 20 1559 NA Early completion of construction in Dec-2011against original completion of March -2013.

Bonus received - Rs.915 mn

Toll collection commenced from 2nd May'2012

Hyderabad - Yadgiri (HYTPL) 36 400 60% Toll 4802 23 600 60 Actual toll collection started from Dec-2012

Under construction assets

Maharashtra Border Check post (MBCPNL) NA NA 90% Toll 14700 24.6 2960 540 Total check post -22 nos; Awaiting feecollection certificate for 3 completed checkposts.

Remaining posts at various stages ofconstruction

Rohtak - Panipat (RPTPL) 80 320 100% Toll 12136 25 2428 790 Revenue sharing with government - Rs.450 mn,5% increase yearly.

Scheduled completion date - Oct,2014

Early completion by July'2014

Recently won BOT projects

Solapur-Bijapur section (SBTPL) 111 442 100% Toll 20 3620 3620 Environmental clearance pending

Gomti ka Chauraha (SUTPL) 79 317 100% Toll 27 3730 3730 Environmental clearance pending

Bhilwara -Rajsamand (BRTPL) 872 - Toll 7200 30 1330 1330 Financial closure pending

KSHIP 193 - Annuity 7372 10 NA NA Won Sadbhav- GKC JV ; eligible for fixed grant ofRs.2392 mn from World Bank.

Total 19340 10240




March 11, 2013

36

State -wise diversification of BOT assets

Length in km

9%4%

2%

16%

8%

4%6%

51%

Maharashtra

Gujarat

Andhra Pradesh

Karnataka

Maharashtra - MP border

Haryana

Maharashtra - Karnataka

Rajasthan


Capital raising via monetization of subsidiary protects balance sheet:

• SEL's strategy to maintain debt /equity ratio at lower than 1x, unlikeother EPC players who raised great deal of debt in FY09-FY12 to growtheir construction business, forced the Company to look for otheravenues to generate funds for SIPL's BOT assets.

• IN FY11, SEL divested 20% stake in its subsidiary SIPL in favor of PEinvestors Norwest Ventures Partners and Xander Group Inc. forconsideration of Rs.40 bn. (At that time the infrastructure portfolio wasvalued at Rs.18.5 bn).

• The company also resorted to dilution of its stake at the parent levelwith rights issues in FY11.

• This enabled SEL to raise resources to the extent of Rs.6000 mn to fundtheir share of equity for existing projects.

Equity commitment for new BOT assets to be funded by mix of

securitization & subsidiary's internal accruals:

• As can be seen from table 2, over next four years the total fundsrequirement stands at Rs.10240mn.

• Of this, SIPL needs Rs.8900 mn over FY14E-FY17E to fund its equitycommitment for under construction and recently won and BOT assets.

• In addition, SIPL will invest Rs.1200 mn in the current quarter - Q4FY13towards equity of recently won BOT projects by availing the sanctioneddebt at SIPL level.

• The management has devised the following funding mechanism whichwill result in availing no additional debt at the parent level for financingtheir share of equity.

Mechanism Likely Fund generation( Rs in mn) Use Period

Method Projects

Securitization of BOTNagpur-Seoni by

projectsApr'2013Ahmedabad Ring

FY14E and half of

Road by May'2013

3800 FY15E

Internal accrualsBijapur-Hungund Continue to utilise asAurangabad Jalna and when basis

Money lying in DebtBijapur- Hungund

Can be utilized overService Reserve Account

Rohtak - Panipatperiod of 1.5-2 years at

and contingencyMBCP

SIPL level.Hyderabad- Yadgiri

2250

Obligation of SIPL to get listed by Sept'2014

Demerger of SEL and

Expect to raise someas per shareholders' agreement with PE

SIPL - shareholders of

money by way of equityplayers

SEL will get

and OFS by PE investorsproportionate sharein SIPL





March 11, 2013

37

FY13E revenues to be subdued due to early completion of old road

projects, delay in clearances of new projects:

SEL's standalone revenues for 9MFY13 were down 37% yoy to Rs.11.1

bn. This can be attributed to

a) Early completion of construction work of BOT projects from order backlog -

i) Construction of Bijapur - Hungund tollway was completed inDec'2011 against expected completion of Mar'2013.

ii) Construction of Dhule - Palesnar tollway was completed 12 monthsin advance against scheduled completion date.

iii) Hyderabad - Yadgiri tollway was completed 6 months in advance.

b) Delay in obtaining clearances for recently won BOT projects -

The standalone revenues for 9MFY13 were also impacted as SEL couldnot start construction work on the new BOT projects as these projectsare yet to receive appointed date which is held back due to lack ofclearances, mainly environment related.

For instance, Gomti ka Chauraha - Udaipur project is likely to receiveits environmental clearance in the last week of Feb'2013 versus initialexpectation in Oct'2012 and Solapur- Bijapur is expected to receive thesame by end of FY2013E versus initial estimate of Nov'2012.

We expect the above projects to contribute marginally to the revenuesin Q4Fy13E. Greater part of the execution will however come in onlyFY14E and FY15E.

Construction revenues to improve sharply from FY14E: Apart from the

two road BOT projects mentioned above, number of projects in the

cash projects in the road and mining segment will come in for execution

from Mar-Apr'2013. After lower than expected implementation in the

Chinndwara road EPC project in Q2FY13, the project's execution has

picked up in Q3FY13 and will continue in FY14E and FY15E. The transport

order worth Rs.3500 mn from Maharashtra State Road Development

Corporation will start generating revenues from Mar'2013. SEL will

commence execution for recently won mining contracts from Bharat

Coking Coal Ltd in Mar'2013 and these two will generate continuous

revenue for next 2-3 years. We thus expect SEL's standalone revenues

to grow at CAGR of 36% during FY13-FY15E.

Revenues

15763

2642829352

0

5000

10000

15000

20000

25000

30000

35000

FY13E FY14E FY15E

(Rs

in m

n)

Revenue Break up

63%72% 67%

8%

20%15%

17%

8%17% 13% 16%

84%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%



CAGR - 36%




March 11, 2013

38

Entry into a new segment for the EPC contracts: To reduce dependence

on the roads segment, Sadbhav is pursuing orders in other segments

(such as urban infrastructure, marine transportation and railways/

metros). However, given that the company lacks prequalification

capabilities in these new segments, it is forming JV with other

construction companies in order to bid for new projects. Sadbhav

has recently won a marine transportation contract in a JV with HCC

(project cost worth Rs.3.2bn). Any material pick-up in order flow from

these segments can drive revenues and margins (new segments are

higher EBITDA margin segments compared to roads segment) over the

next 2-3 years.

SEL's profits to grow at 21% CAGR during FY13E- FY15E: With bulk of

projects coming for execution in FY14E, we estimate the working capital

requirement to increase marginally which will be funded through debt.

We estimate the debt/equity ratio to scale up although with 1. Interest

cost and depreciation cost will rise up owing to increased execution.

Thus we expect profits to grow at 21% CAGR to Rs.1081 bn during

FY13E-FY15E.

PAT

737

909

1081

0

200

400

600

800

1000

1200

FY13E FY14E FY15E

(Rs

in m

n)


EPS growth

17

-48

19

23

-50

-40

-30

-20

-10

0

10

20

30


(%)


Growth in Revenue and EBIDTA for SIPL's BOT projects to follow:

Apart from the existing operational BOT assets, road projects which

that commenced operations during FY13 namely Dhule Palesnar Tollway,

Hyderabad - Yadgiri tollway and Bijapur-Hungund tollway will see

full year of operations in FY14E. Thus we expect BOT revenues and

EBIDTA to witness CAGR of 62% and 59% during FY12-FY15E

BOT TOLL Revenues & EBIDTA

2324

4132

7695

9821

1940

3477

5356

7840

0

2000

4000

6000

8000

10000

12000


(Rs

in m

n)

Revenue EBITDA


CAGR - 21%




March 11, 2013

39

Return ratios to decline in FY13E, to stabilize FY14E onwards: The fall

in operating and net profit will exert pressure on the return ratios in

the near term. We expect improvement in these ratios once the execution

of order book picks up from FY14E onwards.

Return Ratios22.6

14.1

10.78.9

14.3

18.4

7.910.0

0

5

10

15

20

25


(%)

ROCE ROE


Key risks:Dismal performance of mining and irrigation segment: Unlike the road

segment where revenues have grown at a CAGR of 43% during FY09-FY12, revenues for mining and irrigation segment have grown at amoderate rate of 13% each over the same period. This indicates thatrevenue profile of SEL is skewed towards roads segment. Any slowdownrevenue growth for this segment will bring down the overall revenuesfor the Company, a scenario foreseen in FY13E.

Inability to pass through the bulk diesel prices may put pressure onmargins: The recent government notification regarding hike in pricesof bulk diesel may lead to increase in cost of transporting raw materialswhich SEL may not be able to pass on in case of fixed price EPCcontracts. The management has stated that most of their trucks haveregistration with RTO and will come under retail usage on diesel. Anydecision by the government to categorize them as wholesale users

will put pressure on operating margins.

Underutilization of mining gross block: Out of the total gross block of

Rs.3.7bn at the end of FY12, ~40% (Rs.1.5bn) is the mining equipment.However, the asset turnover ratio for this segment is poor. As can be

seen for the last two years; the revenues in the mining segment have

been at Rs.2.7 bn and Rs.2.2 bn respectively. This highlights under-

utilization of the standalone gross block.Peer Comparison

CompaniesLane kms

RankingMkt.Cap. P/E P/BV EV/EBIDTA ROE (%)

under BOT (Rs bn) FY13E FY14E FY15E FY13E FY14E FY15E FY13E FY14E FY15E FY13E FY14E FY15E

Sadbhav Engineering 3348 5 15.7 21.4 17.4 14.6 1.9 1.7 1.6 14.2 8.5 7.7 8.9 10.0 10.7

Ashoka Buildcon 4789 3 10.7 9.8 7.0 5.2 0.2 0.2 0.1 7.4 6.1 4.8 9.3 10.9 11.7

ITNL 6300 2 37.6 7.1 6.5 6.2 1.2 1.0 0.9 7.9 6.9 6.3 17.3 16.2 15.8

IRB Infra 7479 1 38.5 7.4 7.3 6.5 1.2 1.0 0.9 5.9 5.1 4.5 16.9 14.5 14.5

Madhucon Projects 3477 4 1.9 5.6 4.9 1.9 0.3 0.3 0.2 3.5 3.1 2.1 4.4 5.5 12.5

Source: EISEC research, estimates for ITNL, INR Infra and Madhucon Projects are taken from Bloomberg.




March 11, 2013

40

Valuation & Outlook:With over two decades of experience and having requisite skill and

capabilities SEL is well placed to capitalize on opportunities in the

roads, mining and irrigation segment. Owing to financial prudence,

SEL has one of the lowest debt equity ratios amongst its peers. The

new and under construction BOT projects under SIPL have funding

mechanism in place and will not draw additional debt from SEL to

fund its projects.

We believe that SEL, being a mid-sized player, can be valued using the

sum-of the-part methodology. The standalone construction business

is valued at 8xFY14E earnings of Rs.6.0, translating into Rs.51/share.

SEL holds 80% stake in SIPL, where we calculate the Net Present Value

(NPV) of each BOT project using the DCF methodology. The NPV specifically

captures the value generated and the risk associated with each asset.

We have not included the new projects: Shreenathji-Udaipur, Solapur-

Bijapur and Rajasmand - Bhilwara for calculating the BOT value as

they yet to achieve environmental clearance. SEL's share in 9 BOT

projects of SIPL is valued at Rs.83/share. This we arrive at SOTP based

price target of Rs.134/share of SEL.

At the target price, SEL trades at P/B of 2.2xFY13E and 2.0xFY14E and

EV/EBIDTA of 10.2xFY13E and 9.2xFY14E.

We initiate coverage with "ACCUMULATE" recommendation on SEL.

SOTP valuation table:

Projects Length Net Present SIPL's SIPL's Cost of NPV/share(km) Value share value equity ( Rs )

(Rs in mn) (%) (Rs mn)

Ahmedabad Ring Road 76 2599 80% 2079 14% 14

Aurangabad- Jalna 69 1756 100% 1756 14% 12

Mumbai- Nashik 100 5725 20% 1145 14% 8

Nagpur - Seoni 56 425 51% 217 14% 1

Dhule-Palesnar 97 3104 27% 838 14% 6

Hyderabad- Yadgiri 36 1488 60% 893 14% 6

Rohtak - Panipat 80 3717 100% 3717 14% 25

Bijapur - Hungund 97 3422 77% 2635 14% 18

Maharashtra Border Check Post NA 2480 90% 2232 14% 15

Total 103

SEL's stake in SIPL - 80% 83

EPC business valuation 8.5 6.0 51

SOTP 134




March 11, 2013

41

Financials (Standalone)Income Statement (Rs mn)

March Year end FY11 FY12 FY13E FY14E FY15E

Total revenues 22,094 26,755 15,763 26,428 29,352

% growth 75.8 21.1 (41.1) 67.7 11.1

Material consumed 1,603 3,297 1,892 3,171 3,522

Construction Expenses 17778 20156 11934 20014 22228

Employee Benefit expenses 336 400 394 661 734

EBITDA 2,377 2,903 1,543 2,582 2,868

% growth 73.4 22.1 (46.8) 67.3 11.1

Depreciation 269 274 369 403 443

EBIT 2,109 2,628 1,174 2,179 2,425

Interest 541 651 687 827 815

Other Income 190 108 0 0 0

Exceptional Income 610

PBT 1,757 2,086 1,097 1,353 1,610

Tax 562 680 360 444 528

Reported PAT 1,196 1,406 737 909 1,081

% growth 83.5 17.5 -47.6 23.3 19.0

Diluted EPS (Rs) 8.0 9.3 4.9 6.0 7.2

Balance Sheet (Rs mn)March Year end FY11 FY12 FY13E FY14E FY15E

Share Capital 150 150 150 150 150

Reserves & Surplus 6,108 7,473 8,132 8,945 9,912

Shareholders funds 6,257 7,623 8,282 9,095 10,063

Total Debt 3,608 4,028 6,542 6,174 7,140

Deferred tax liabilities 161 235 235 235 235

Other non-current liabilities 878 772 786 786 786

Current Liabilities & Prov 9,010 8,736 7,652 11,874 12,304

Total Liabilities 19,914 21,394 23,497 28,165 30,526

Net Fixed Assets 2,298 2,881 2,862 2,959 3,016

Investments 3271 3287 5574 6019 6464

Other non-current assets 655 1,167 935 1,074 1,112

Inventories 692 884 1,512 1,810 2,010

Sundry Debtors 6,638 7,474 6,478 8,689 9,650

Cash and Bank 846 563 355 206 65

Loans& Advances 5,323 4,923 5,614 7,241 8,042

Other current assets 192 215 167 167 167

Total Assets 19,914 21,394 23,497 28,165 30,526

Cash Flow (Rs mn)March Year end FY11 FY12 FY13E FY14E FY15E

PBT 1757 2086 1097 1353 1610Depreciation 196 137 369 403 443Tax paid (562) (680) (360) (444) (528)Net interest paid 541 651 687 827 815Chg in Def. Tax Liability 20 74 0 0 0Net working capital 1061 (890) (1360) 87 (1533)Other (190) (108) 0 0 0Operating cash flow 2823 1270 433 2226 807Capital expenditure (393) (720) (350) (500) (500)Chg in Investments (1830) (16) (2055) (584) (483)Other investing activities 190 108 0 0 0Investing cash flows (2033) (628) (2405) (1084) (983)Change in borrowings (1438) (491) 2527 (368) 965Issuance of equity 1251 65 0 0 0Dividend paid (105) (105) (78) (96) (114)Other financing activities (541) (651) (687) (827) (815)Financing cash flow (833) (1182) 1762 (1291) 36Net change in cash (43) (540) (210) (149) (140)Closing cash balance 846 563 355 206 65

Ratio Analysis (%)March Year end FY11 FY12 FY13E FY14E FY15E

EBIDTA margin 10.8 10.8 9.8 9.8 9.8

Net profit margin 5.4 5.3 4.7 3.4 3.7

Return on equity 19.1 18.4 8.9 10.0 10.7

ROCE 21.4 22.6 7.9 14.3 14.1

Inventory (days) 11 12 35 35 25

Payable (days) 27 26 27 26 26

Receivables (days) 110 102 150 120 120

Net debt to equity (%) 0.58 0.53 0.79 0.68 0.71

Valuation parameters FY11 FY12 FY13E FY14E FY15E

Dil. No. of Shares (mn) 150 150 150 150 150

Diluted EPS (Rs) 8.0 9.3 4.9 6.0 7.2

P/E (x) 14.0 12.0 22.9 18.6 15.6

P/BV (x) 2.7 2.2 2.0 1.9 1.7

EV/ EBIDTA (x) 9.7 7.9 14.9 8.9 8.0

EV/Sales(x) 1.0 0.9 1.5 0.9 0.8




March 11, 2013

42

Stock rating (1 year target scale)

< 0% - Sell

0-10% - Reduce

10-30% - Accumulate

>30% - Buy

DISCLAIMER

This document has been prepared by the investment research department of East India Securities Limited (EISEC), for the purpose of information only. This document

is not to be reproduced, copied, redistributed or published or made available to others, in whole or in part without prior permission from EISEC. This document should not

be construed as a solicitation, to any person, to buy or sell a security. Recipients of this document should be aware that past performance is not necessarily a guide

for future performance. Although the information contained in this document has been obtained from reliable sources, its accuracy or completeness has not been fully

verified by EISEC independently and cannot be guaranteed. Neither EISEC nor any of its affiliates, its directors or its employees accepts any responsibility, of any

nature, for the information, statements and opinion given or expressed herein or for any omission or for any liability arising from the use of this document. Opinions

expressed are our current opinions as of the date appearing on this material and are subject to change without notice. EISEC directors, employees and its clients may

have holdings in the stocks mentioned in the report.

Corporate Office :6A, 32 Corporate Avenue, Near Paper box factory, Off Mahakali caves road, Andheri E, Mumbai 400093 Tel: +91 22 61925339

Head Office : DA-14, Salt Lake City, Sector-I, Kolkata-700064 Tel: +91 33 40205901

Web: www.eisec.com

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