Indian Turnpikes (BOT Toll Roads)

S E C T O R R E P O R T

INDIAN TURNPIKES

29 April, 2011

“We were not a wealthy Nation when we began improving our highways... but the roads themselves helped uscreate a new wealth, in business and industry and land values... So it was not our wealth that made ourhighways possible. Rather, it was our highways that made our wealth possible.”Thomas H. MacDonald - Chief, U.S. Bureau of Public Roads

Vinod Nair+91-22-6618 [email protected]

Subramaniam Yadav+91-22-6618 [email protected]

RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH

Contents

Executive Summary .................................................................................................. 2

Indian Road Sector ................................................................................................... 8

Opportunity galore – USD60bn opportunity ............................................................... 11

National Highway Development Project (NHDP) ........................................................ 13

State highways provide USD10bn opportunity ........................................................... 15

Financing in place ..................................................................................................... 17

Density of vehicle in India amongst lowest ................................................................ 19

The Catalyst - (BKC) ................................................................................................. 22

High opportunity…high competition…over the next three years ................................ 23

A case study on Interstate Highway .......................................................................... 25

Annexures ........................................................................................... 30

Companies

Ashoka Buildcon Ltd (ABL). ............................................................................... 32

IRB Infrastructure Developers Ltd. ....................................................................... 47

IL&FS Transportation Networks Ltd. ................................................................... 58

Sadbhav Engineering Ltd.. .................................................................................. 72


[email protected] [email protected]


Highways known in different countries as

Source: PINC Research

Name Country

Highways IndiaMotorways UK, Ireland,PakistanInterstate Highway Unites StatesAutobahns Germany, Austria, SwitzerlandAutopista SpainAutoroute FranceAutostrada Italy, Poland, Romania, EgyptExpressway Mainland China, MalaysiaFreeway Canada, TaiwanKosokudoro JapanRodovia Brazil

Do you know?Only ~12% of National Highways are tolled in India#

The first toll road constructed in India based on the PPP model was commissioned in1991 by IL&FS*

The first toll bridge constructed in India based on PPP was commissioned in 2001 byIL&FS* (Noida Toll Bridge)

First important divided highway in the US is the Pennsylvania turnpike that opened in1940

In the US, the Interstate System (highway) accounts for about 1.1% of the country’stotal public road mileage; it carries 24% of all highway travel.

US Interstate highway has app. 14,750 interchanges, 55,512 bridges and 82 tunnels

In France, roads and bridges were concessioned as early as the 16th century.

Construction of Shanghai to Jiading (17km) expressway is recognized as the beginningof China’s expressway programme.

Malaysia was the first country in the Asian region to introduce toll roads, in 1966.

Malaysia’s first mega project for the expressway development plan was the 848 kmlong North South Toll Expressway which was started in 1980

* Sizeable toll road, #FY10

Highway development programme of various countriesIndia NHDP (National Highway Development Programme)

China NTHS (National Trunk Highway System)"5-7" Trunk Highway Network Plan"7-9-18" Expressway Trunk Development Plan

South Korea NTNP (National Transport Network Plan)United States of America National systems of Interstate Highways




Executive SummaryNational Highway provides USD 50bn opportunity

NHAI is yet to award ~31,283km of projects, which forms 57.4% of the total NHDP plan,coupled with State Highways that are likely to award another 12,302km of orders, whichtogether provide an opportunity of USD60bn (Rs2.7tn).

New Minister, New Target

Mr. CP Joshi, the new minister for Transport and Highway, targets to award c.7300km in FY12.In keeping with this, in Q1 FY12, GOI invited bids c.for 2000km and annual prequalification for11,151km. NHAI awarded c.5100km for FY11, far below its revised target of ~9000km for theyear.

NH + SH opportunity

Source: NHAI, Planning commission, CRISIL, PINC Research * Phase I includes port projects and other NH # as Oct’10

NHDP Length Project cost State Highways Length Project costPhases (km) (Rs bn) (km) (Rs bn)

Phase I* 20 1 RAJASTHAN 1,309 17Phase II 424 22 MADHYA PRADESH 914 18Phase III 4,980 335 KARNATAKA 2,650 56Phase IV 20,000 1,100 GUJARAT 329 21Phase V 4,200 487 MAHARASHTRA 1,839 74Phase VI 1,000 167 ANDHRA PRADESH 2,086 61Phase VII 659 157 TAMIL NADU 251 5

UTTAR PRADESH 2,924 177Total 31,283 2,269 Total 12,302 430USD 50.4 9.5

USD bn 60Rs bn 2,698

Source: NHAI, MoRTH, PINC Research

Highway addition during Plan period

22,2

55

22,2

55

23,7

69

23,9

48

24,0

00

28,8

19

28,9

77

29,0

23

31,7

10

33,6

12

33,6

89

34,2

98

58,1

12 65,2

03

70,5

48

0

8,000

16,000

24,000

32,000

Pre

(194

7-19

51)

II Pl

an(1

956-

1961

)

Inte

r per

iod(1

966-

1969

)

V Pl

an(1

974-

1978

)

VI P

lan(1

980-

1985

)

Inte

r per

iod(1

990-

1992

)

IX P

lan(1

997-

2002

)

Elev

enth

Plan

(200

7-20

12)

Leng

th (k

m)

0

20,000

40,000

60,000

80,000Length added (LHS) Total Length (RHS)



NHAI awarding picks up

NHAI awarding since February Projects Name State Name NH No Length TPC (Rs mn.) NHDP Phase Concessionaire Funded By khagaria - Purnea Bihar 31 140 6,640 NHDP Phase III Punj Lloyd Infrastructure Ltd. Annuity Barasat - Krishnanagar West Bengal 34 84 8,670 NHDP Phase III Madhucon Projects Ltd. Annuity Krishnanagar - Berhampore West Bengal 34 78 7,022 NHDP Phase III SEW Infra. Ltd. Annuity Gopalganj-Chappra Bihar 85 92 3,250 NHDP Phase III Abhijeet Infrastructure Ltd. Annuity Dhankuni-Khargpur West Bengal 6 111 13,962 NHDP Phase V Ashoka Buildcon Ltd. BOT- TollAhmedabad - Vadodara Exp. Gujarat 8 102 36,000 NHDP Phase V IRB Infrastructure Ltd. BOT- Toll

Source: NHAI, PINC Research

NHDP

NS&EWGQ Ph. I & II Phase III Phase IV Phase V Phase VI Phase VII Total

Total Length (km) 5,846 7,300 12,190 14,799 6,500 1,000 700 48,335 380 1,383 50,098

2/4/6/8 laned (Completed)

By NHAI 5,821 5,560 2,135 - 490 - - 14,006 306 932 15,244

By MORTH (PWD) - - - - - - - - - - -

- Total till date (km) 5,821 5,560 2,135 - 490 - - 14,006 306 932 15,244

Under implementation (km) 25 1,161 5,669 765 1,922 - 41 9,583 74 431 10,088

Letter of award issued/ agreementsigned and work to be started (km) - 288 4,145 765 1,377 - 22 6,597 30 418 7,045

Length to be awarded (km) - 421 4,305 14,034 4,088 1,000 659 24,507 - 20 24,527

Financials (Rs cr.)

- Awarded cost of contracts underimplementation / BOT grant annuitypayment 1,634 17,415 10,994 792 1,344 - 560 32,739 717 2,433 35,889

Expenditure

- Current Financial Year 969 8,431 9,010 28 4,129 2 0 22,569 620 23,189

- Cumulative till date 30,498 45,262 23,194 28 7,933 2 0 106,917 9,074 115,990

Source: NHAI, PINC Research * as on Feb’11

PortConn.

OtherNHs

Total byNHAI

Current NHDP status

Particulars



Increasing interest rate the highest risk for the sector

Traffic growth not a concern- Density of vehicle amongst lowest in world, we areat early stage of motorization

SBI PLR

Source: Bloomberg, PINC Research

Stage of development (Developed vs Developing)

Source: US Department of Energy Note: Above line indicates vehicles per 1000 ppl in US

Year

India in 2008, is where USwas in 1912...



High opportunity…high competition…over the next three years

Increasing competition visible in bidding

NHAI awarding expected in next two years


979

3,216

8,000

6,500

5,208

560,000520,000

349,393305,415

129,210

-

2,500

5,000

7,500

10,000

FY09 FY10 FY11 FY12E FY13E

Leng

th (k

m)

-

150,000

300,000

450,000

600,000

(Rs

mn)

Km (LHS) Ex penditures (RHS)

Panvel - Indapur project


(4,500)

(3,000)

(1,500)

-

1,500

0 2 4 6 8 10 12 14

(Rs

mn)



Stick with the leader

Increasing size of companies

-

200

400

600

800

1,000

1,200

- 500 1,000 1,500 2,000

Ashoka - FY10Ashoka - FY11Ashoka - FY12IRB - FY10IRB - FY11IRB - FY12ITNL - FY10ITNL - FY11ITNL - FY12Sadbhav - FY10Sadbhav - FY11Sadbhav - FY12

Total length (km)

Adj.

lengt

h (k

m)

* size of bubble is project size

Operational + New project win (adj. length)


497 61

0 782

61

993 1,086

238

695

1,10

7

1,12

9

238

922

1,62

7

1,45

4

498

1,20

2

2,18

7

1,77

4

778

497

-

600

1,200

1,800

2,400

Ashoka IRB ITNL Sadbhav

Leng

th (k

m)


Ashoka and IRB to witnessthe highest lane km growthover FY10-FY12E...

Sadbhav

ITNL

IRB

Ashoka



Our top picks are Ashoka and IRB

ASHOKA BUILDCON LTD, BUY, TP - Rs390 (50% Upside)

ABL has a portfolio of 23 BOT projects of which 16 are operational. ABL has a strongunderstanding and history of performance in BOT. ABL handed over 4 BOT assets backto the Govt. The focus has been slow and steady with small-to-medium-sized projectsat the regional level. But the emphasis is on cash generation, risk mitigation and securinga sustainable business model. Now the tone has changed towards aggressive growth.Hence this could catapult higher valuations for ABL over the next 2yrs bringing it morecloser to the top leagues of IRB and ITNL. Currently, the stock is available at 1.3x P/BVFY12E.

IRB INFRASTRUCTURE DEVELOPERS LTD, BUY, TP - Rs253 (37% Upside)

IRB's unique ability to win bids at competitive levels v/s L2 and L3 is a trademark. Weunderstand that IRB identifies assets, and bids as per competitive and strategic value.This gives us immense confidence about IRB's business sustainability. Recent correctionin the stock price makes IRB a valuable investment proposal at 2x P/BV FY13E.

IL&FS TRANSPORTATION NETWORKS LTD, HOLD, TP - Rs254 (17% Upside)

ITNL's emergence as a leading player in BOT space is here to stay with likely 1000kmof win over next 2yrs (+700km in FY10-FY11). In the medium term we would like to seeand assess more the performance of its BOT assets, given that initial phase could below in profitability (Consolidated project IRR), also EPC capability is low (outsourcedmodel) leading to lower valuation multiple for the business. We recommend HOLD rating.

SADBHAV ENGINEERING LTD, HOLD, TP - Rs165 (18% Upside)

Sadbhav Engg (SEL) has a well-established EPC division with healthy historicalperformance. In the last two years, SEL has added 9 BOT assets, we believe in the nearterm, valuations could be driven by the performance in these assets, which are likely toramp up only post FY13E. With no BOT wins in FY11, the strategy that SEL wouldadapt in FY12&FY13 would be watched eagerly. Execution in FY12E could be flat dueto a flatish opening order book. We recommend a HOLD rating given the priceoutperformance post Q4FY11 results and near term growth bottleneck.



Indian Road SectorMeet the Indian Road System…National Highways constitutes only 2%

The arterial network of roads, the National Highway (NH), which carries about 40% of roadtraffic, forms only 2% of the total network of roads. Only 1% of 70,934 km roads are six-laned and ~20.6% roads are four-laned and the remaining ~78% roads are two-laned orone-laned. Of the total National Highway network, State PWDs develop and maintain~35,979km, the NHAI maintains 28,126km, Border Road Organization maintains ~3565kmand balance 3,264km is yet to be entrusted to any agencies.

The Importance of Roads

Roads play a pivotal role in economic development of a country and make trade andcommerce possible. They also provide last mile connectivity and act as a feeder service toother modes of transportation. Roads play a much greater role in India as other modes oftransportation have not yet developed extensively vis-à-vis roads. As a result, Indian roadnetwork, which is the second-largest in the world, is 3.3mn km of length, carries ~ 85% ofpassenger and ~ 60% of freight traffic.

Government of India (GoI) announced schemes to improve the quality of existing roads andincrease road length in the hinterland of India to achieve inclusive growth. GoI initiatedprograms such as National Highway Development Project (NHDP) and Pradhan MantriGram Sadak Yojna (PMGSY). The NHAI is mandated to develop National Highways underthe NHDP program in seven phases, of which Phase I is almost complete. The schemeswould provide better connectivity, faster movement of cargo, reduction in vehicle operatingcosts and reduction in fuel consumption.

India’s success of the Five year plan programme

Through its Five-Year plans, India increased the length of National Highways from 21,378km during the late 1940s when it achieved independence to 70,934km now. The IXth Planhas seen the highest addition of 23,814km highways.

State Highways on the other hand consist of 4% of network. State authorities have shownrenewed interest in recent times to upgrade the network and have announced favourablepolicies to attract developers and investors. The most active among the State governmentsare Rajasthan, Madhya Pradesh, Maharashtra and Uttar Pradesh.

Indian Road NetworkType of Roads Length (km) Length (%)

Expressway 200 0.01

National Highways 70,934 2.1

State Highways 131,899 3.9

Major district roads 467,763 14.1

Rural and other roads 2,650,000 79.8

Total 3,320,796 100.0

Lane Status* Length in km Length (%)

6 lane and above 731 1.0

4 lane (2 lane dual carriageway) 14,584 20.6

2 lane (7 meters) 37,488 52.8

Single/Intermediate lane 18,131 25.6

Total length of National Highway 70,934 100.0

Source: NHAI, PINC Research * as on FY10

Status of National Highways



Planwise addition of NH

Source: MoRTH, Crisil, PINC Research * XI plan till FY10

Tolled roads in India (NH)


Toll collection in India (NH)

Toll collection & tolled Km (NH)


1,81

5

3,06

6 3,46

7

4,41

7

112

142

154 242

242

328

209 369

464

470 87

7

2,67

7

5,49

8

5,24

0

-

1,500

3,000

4,500

6,000

FY05 FY06 FY07 FY08 FY09 FY10

Leng

th (k

m)

Public funded SPV BOT

82.94 74.98 74.32 73.69 64.8543.86

3.955.33 5.90 6.45

5.36

3.68

13.11 19.69 19.78 19.8629.79

52.46

0%

25%

50%

75%

100%


Public funded SPV BOT

3,066 3,467 4,417 5,240 5,498209

369 464470

877

1,815

2,677

-

2,500

5,000

7,500

10,000


Leng

th (k

m)

-

15,000

30,000

45,000

60,000

(Rs

mn)

Public funded SPV BOT Total Toll collection (RHS)

815 -1,514 179 52

4,819

158 462,687 1,902

77 609

8,6425,345

23,814

-

7,000

14,000

21,000

28,000Pr

e Fi

rst P

lan (1

947-

1951

)

Firs

t Plan

(195

1-19

56)

Seco

nd P

lan (1

956-

1961

)

Third

Plan

(196

1-19

66)

Inte

r per

iod (1

966-

1969

)

Four

th P

lan (1

969-

1974

)

Fifth

Plan

(197

4-19

78)

Inte

r per

iod (1

978-

1980

)

Sixt

h Pl

an (1

980-

1985

)

Seve

nth

Plan

(198

5-19

90)

Inte

r per

iod (1

990-

1992

)

Eigh

th P

lan (1

992-

1997

)

Nint

h Pl

an (1

997-

2002

)

Tent

h Pl

an (2

002-

200

7)

Elev

enth

Plan

(200

7-20

12)

Leng

th (k

m)



Quality of roads

Source: WEF, PINC Research Note: Scale of 1-5, 5 represents good

4.3 4.23.8

3.33.0

2.3

0

1

2

3

4

5

China (53) Sri Lanka (55) Pakistan (72) India (90) Bangladesh (100) Nepal (130)

India needs better roads - WEF

Although India targets double-digit growth the prevailing deficit in infrastructure would makeit difficult to achieve this. Infrastructure development is one of the biggest challenges forGoI to sustain the current growth rate. Years of apathy and under-investment are responsiblefor the current dire state of the road sector.

In its recent Global Competitiveness Report, the World Economic Forum (WEF) rankedIndia 51. One of the indicators that composes the index is quality of roads, in which itranked India 90, well behind China and even Sri Lanka and Pakistan.

GoI recognizes India’s infrastructure deficit. The 2011 Economic Survey has called forrapid growth in infrastructure through a judicious mix of policy interventions that balancesthe objectives of growth and stability.



Opportunity galore – USD60bn opportunityNational Highway provides USD50bn opportunityAs per the NHDP program, NHAI is yet to award ~31,283km of projects, which forms57.4% of the total NHDP plan, coupled with State Highways that are likely to award another12,302km of orders, which together provide an opportunity of USD60bn (Rs2.7tn). Theseorders are likely to be tendered in the next 2-4 yrs to achieve the planned targets. PhaseI and II are almost complete and going forward, the emphasis is on Phase III and V. InFY11, about 86% of the projects have been awarded on Phase III and V.

New Minister, New TargetMr. CP Joshi, the new minister for Transport and Highway, targets to award ~7300km in FY12.In keeping with this, in Q1FY12, GOI invited bids for ~2000km and annual prequalification for11,151km. NHAI awarded ~5100km for FY11, far below its revised target of ~9000km for theyear. However, the new minister is upbeat and is formulating favorable policies. Further, therecent decision for annual Request for Qualification (RFQ), would expedite the process.Of the annual RFQs for 100 projects, 15 projects fall in Phase III of NHDP, 57 under PhaseIV and 27 under Phase V and one project under SARDP-NE (Special Accelerated RoadDevelopment Programme - North eastern region). If NHAI is able to achieve its new targetwe believe it would be able to catch up with the earlier target of constructing 20km/day ofroads, which seemed farfetched until recently.

NH + SH opportunity

Source: NHAI, Planning commission, CRISIL, PINC Research * Phase I includes port projects and other NH # as Oct’10

NHDP Length Project cost State Highways Length Project costPhases (km) (Rs bn) (km) (Rs bn)

Phase I* 20 1 RAJASTHAN 1,309 17Phase II 424 22 MADHYA PRADESH 914 18Phase III 4,980 335 KARNATAKA 2,650 56Phase IV 20,000 1,100 GUJARAT 329 21Phase V 4,200 487 MAHARASHTRA 1,839 74Phase VI 1,000 167 ANDHRA PRADESH 2,086 61Phase VII 659 157 TAMIL NADU 251 5

UTTAR PRADESH 2,924 177Total 31,283 2,269 Total 12,302 430USD 50.4 9.5

USD bn 60Rs bn 2,698

Execution and awarding trend


Highway addition during Plan period

22,2

5522

,255

23,7

6923

,948

24,0

0028

,819

28,9

7729

,023

31,7

1033

,612

33,6

8934

,298

58,1

1265

,203

70,5

48

0

8,000

16,000

24,000

32,000

Pre

(194

7-19

51)

II Pl

an (1

956-

1961

)

Inte

r per

iod (1

966-

1969

)

V Pl

an (1

974-

1978

)

VI P

lan (1

980-

1985

)

Inte

r per

iod (1

990-

1992

)

IX P

lan (1

997-

2002

)

Elev

enth

Plan

(200

7-20

12)

Leng

th (k

m)

0

20,000

40,000

60,000

80,000Length added (LHS) Total Length (RHS)

4.5

7.46.0

4.6

1.72.1

6.4

3.6

1.11.30.7

-

1,500

3,000

4,500

6,000

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

Leng

th (k

m)

0

2

4

6

8

km/d

ay

Completed Length in Km Aw arded Length in km km/day



NHAI awarding picks up

Awarding of new road projects had suffered for a brief period of seven months(June-December2010) due to several factors: 1) delay in appointment of a new chairman of NHAI; 2) CBIraids on NHAI officials; and 3) Issues of corruption that rattled the country for a few months.However, awarding by NHAI picked up and since February it sanctioned projects worthRs33.3bn. Following the cabinet reshuffle and taking of charge by the new minister whoput in place schemes to fight corruption, NHAI seems better placed to speed up awardingof projects and meet its targets unhindered. The recent award momentum and newerachievable targets give us more confidence.

NHAI awarding since February Projects Name State Name NH No Length TPC (Rs mn.) NHDP Phase Concessionaire Funded By Khagaria - Purnea Bihar 31 140 6,640 NHDP Phase III Punj Lloyd Infrastructure Ltd. Annuity Barasat - Krishnanagar West Bengal 34 84 8,670 NHDP Phase III Madhucon Projects Ltd. Annuity Krishnanagar - Berhampore West Bengal 34 78 7,022 NHDP Phase III SEW Infra. Ltd. Annuity Gopalganj-Chappra Bihar 85 92 3,250 NHDP Phase III Abhijeet Infrastructure Ltd. Annuity Dhankuni-Khargpur West Bengal 6 111 13,962 NHDP Phase V Ashoka Buildcon Ltd. BOT- TollAhmedabad - Vadodara Exp. Gujarat 8 102 36,000 NHDP Phase V IRB Infrastructure Ltd. BOT- Toll




Phases of NHDP programPhase K m DescriptionI 7,498 Widening and upgrading to 4 lanes of highways, it includes majorly GQ, some part of

NSEW, Port connectivity and other projectsII 6,647 Widening and improvement of NSEW and port projects not included in Phase IIII 12,109 Upgrading of high density NH, carrying high volume of traffic, connecting state capitals,

and places of economic, commercial and tourist importanceIV 20,000 Upgrading NH to two-laning with paved shoulders to ensure minimum benchmark for

HighwaysV 6,500 Six-laning of existing four lane highways, comprising of GQ and other high density

stretchesVI 1,000 Development of 1000km of expressways, particularly located within few hundred km of

each other.VII 700 Development of ring roads, bypasses, grade separators and service roads.


National Highway Development Project (NHDP)The National Highway Development Project (NHDP) initially included Golden Quadrilateral(GQ) and North-South and East-West corridor (NSEW) was later expanded to 54,454kmin seven phases. Of the total, the program has been currently implemented in four phasesI, II, III, and V along with port projects covering total length of 34,218km. Of this, 43% isalready four-laned and six-laned, 26% is under implementation stage, and 30% is yet tobe awarded. Until date, NHAI has expended Rs1159.9bn on all the phases.

NHDP

NS&EWGQ Ph. I & II Phase III Phase IV Phase V Phase VI Phase VII Total

Total Length (km) 5,846 7,300 12,190 14,799 6,500 1,000 700 48,335 380 1,383 50,098

2/4/6/8 laned (Completed)

By NHAI 5,821 5,560 2,135 - 490 - - 14,006 306 932 15,244

By MORTH (PWD) - - - - - - - - - - -

- Total till date (km) 5,821 5,560 2,135 - 490 - - 14,006 306 932 15,244Under implementation (km) 25 1,161 5,669 765 1,922 - 41 9,583 74 431 10,088

Letter of award issued/ agreementsigned and work to be started (km) - 288 4,145 765 1,377 - 22 6,597 30 418 7,045

Length to be awarded (km) - 421 4,305 14,034 4,088 1,000 659 24,507 - 20 24,527

Financials (Rs cr.)

- Awarded cost of contracts underimplementation / BOT grant annuitypayment 1,634 17,415 10,994 792 1,344 - 560 32,739 717 2,433 35,889

Expenditure

- Current Financial Year 969 8,431 9,010 28 4,129 2 0 22,569 620 23,189

- Cumulative till date 30,498 45,262 23,194 28 7,933 2 0 106,917 9,074 115,990

Source: NHAI, PINC Research * as on Feb’11

PortConn.

OtherNHs

Total byNHAI

Current NHDP status

Particulars



Cumulative exp till Feb’11


Cumulative exp for FY11 till Feb’11

Avg cost per km has been increasing over yearsPhases Cost/km (Rs mn) Description

GQ 51.5 Four-laning

NSEW 75.8 Four-laning

Phase III 95.4 Majority four-laning

Phase V 140.3 Four to six-laning


Achivement rate vs target

Source: MoRTH, PINC Research

Widening to 4 lane

Source: Planning commission, PINC Research

3,165

1,683

2,203

2,693

3,520

2,885

-

1,000

2,000

3,000

4,000

FY08 FY09 FY10

(km

)

Target Achiev ement

106%

86%96%

86%88% 61%

103% 98%63%59%

25%

97%

81%36%

72%

88%

49%

84%

211%

158%143%

0%

50%

100%

150%

200%

250%

(200

2-03

)

(200

3-04

)

(200

4-05

)

(200

5-06

)

(200

6-07

)

(200

7-08

)

(200

8-09

)

Widening to 2-Lanes (km) Widening to 4-Lanes (km)Strengthening w eak 2 lane (km)

Historically success ratio of large projects is lower thansmall ones.

Achievement rate of Ministry of Road Transport againstits target of widening to four lane

305

232

0.3

79

0 0

91

453

0

100

200

300

400

500

GQ

Ph. I

& II

Phas

e III

Phas

e IV

Phas

e V

Phas

e VI

Phas

e VI

I

Othe

rs

(Rs

bn)

6.20.00.0

41.3

0.3

90.184.3

9.7

0

20

40

60

80

100

GQ

Ph. I

& II

Phas

e III

Phas

e IV

Phas

e V

Phas

e VI

Phas

e VI

I

Othe

rs

(Rs

bn)



State highways provide USD10bn opportunityAs economic activity gains momentum, state governments are also looking at PPP modelto develop state highways. States such as Maharashtra, Madhya Pradesh, Rajasthan,Karnataka, Uttar Pradesh and Andhra Pradesh are aggressively pursuing the Build OwnTransfer (BOT) model for awarding road projects. These states already completed ~3200km of highways under the PPP mode and ~6300km are under implementation. In the next2-3 years, these states are likely to tender projects worth USD10bn covering ~12,302km.

Favourable policies attract developers

State highways are increasingly gaining prominence among developers as they offer favorableconcession, bidding and tolling policies. Further, the most crucial factor inspiring theirconfidence is the state governments’ commitment to highway development. For instance,Rajasthan assures 100% land within 90 days from issue of Letter of Award; also provides40% viability gap funding during the construction period like NHAI projects. States likeKarnataka require minimum net worth of 15% of project cost for bidding, some states require25% net worth. In terms of tolling, Rajasthan, Karnataka, and Andhra Pradesh provide highertoll rates and Madhya Pradesh and Karnataka provide better rate and frequency of revision.

PPP State road projects

Source: Planning Commission, State PWD, CRISIL, PINC Research

Completed Ongoing UpcomingLength Project cost Length Project cost Length Project cost

(km) (Rs million) (km) (Rs million) (km) (Rs million)RAJASTHAN 416 1,200 352 6,600 1,309 17,200MADHYA PRADESH 1,629 14,200 974 24,900 914 17,700KARNATAKA 63 1,900 238 5,800 2,650 56,430GUJARAT 507 32,600 644 29,300 329 21,300MAHARASHTRA 403 25,000 2,267 50,500 1,839 74,200ANDHRA PRADESH 45 2,100 655 55,900 2,086 60,900TAMIL NADU 113 600 52 15,000 251 5,000UTTAR PRADESH - - 1,117 400 2,924 177,000Total 3,176 77,600 6,299 188,400 12,302 429,730

Private sector investment in state

Source: MORTH, PINC Research

Over/under achievement of capex on roads

Source: Planning commission, PINC Research

1211

32 2

1

-8

-1

-10

-5

0

5

10

15

Karn

atak

a

Mah

aras

htra

Mad

hya

Prad

esh

Utta

r Pra

desh

Rajas

than

Andh

ra P

rade

sh

Gujar

at

Tam

il Nad

u

(%)

State Est. Pvt. Sectorparticipation in last

5 yrs (Rs bn)

Uttar Pradesh 399

Maharashtra 75

Madhya Pradesh 39

Gujarat 35

Andhra Pradesh 18

Tamil Nadu 15

Karnataka 8

Rajasthan 7

Total 596



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ld be

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Tech

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decid

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epen

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rate

x 1

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base

rate

x 1

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of

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the

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Revis

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Toll

rate

s 20

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s/PC

U/km

)0.

4-

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0.7

--

0.6

Stat

ewis

e Po

licie

s

Sour

ce: S

tate

PW

D, C

RISI

L, P

INC

Rese

arch



Financing in placeHistorically central and state governments have undertaken funding for roads and the shareof private sector in road capex has been about 16.5% over the past five years.

Funding support to such private players has come primarily from the Indian Banking system.Private players have done relatively well, given Reserve Bank of India’s (RBI’s) tight liquiditymanagement and external funding restrictions. Since CY2000, banking credit grew at morethan 50% for the total infrastructure sector and at 40% for the road and port sectors.

Funding available at a cost…the crowding off effect

The Indian banking system funds the major portion of the private sector capex. In the XIthplan, private sector capex is slated to touch 30% of the planned outlay and eventually to50% of the XIIth plan. Given the restrictions and limitations of external funding, this has ledto an increase in cost of funds. Moreover, the road sector also suffers with crowding out offunds from heavy capacity expansion programs in sectors like power.

Funding for RoadsX Plan X Plan XI Plan FY08 FY09 FY10 FY11 FY12 XI Plan

(Projection) (Actual) (Original ) (Actual) (Actual) (RE/BE/Proj) (BE/Proj) (Proj) (Revised )Road&Bridges 1,449 1,271 3,142 427 481 546 632 700 2,787Centre 505 1,074 130 149 174 218 239 909States 674 1,000 228 257 282 310 342 1,419Private 92 1,068 70 76 90 104 119 459% share of private sector 7.3 34.0 16.4 15.7 16.6 16.4 17.0 16.5

Source: Planning Commission, PINC Research

Infrastructure funding

Source: RBI, PINC Research Source: RBI, PINC Research

Infra Share in Bank funding

49.8 57.2 52.8 48.4 53.3 50.9 46.3 46.1 49.5

26.822.0 22.6 19.9 16.4 13.6 18.5 18.6 15.6

23.4 20.8 24.6 18.4 17.5 17.4 16.8 17.4 19.2

0%

25%

50%

75%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010

Pow er Telecommunications Roads and ports

11.5%

9.5%8.5%

7.3%7.5%6.9%

4.2%3.5%

2.3%

0.0%

4.0%

8.0%

12.0%

16.0%

2002 2003 2004 2005 2006 2007 2008 2009 2010



Recent funding initiatives

The Union Budget of FY12 had to some extent addressed the longstanding demand ofinfrastructure companies for long-gestation loans. The Budget increased FII investmentlimit in infrastructure corporate bonds to USD25bn from USD5bn. We view this developmentas a positive for the sector as it will address a number of issues faced by road developers:a) Long-term funding; b) Increasing the scope for SPV-level companies for external fundraising; c) Funding in domestic currency unlike in ECBs that carry currency risk.

Although appetite for such papers is increasing, we believe currently the takers are limitedto companies with AAA or AA+ rating in the road sector. Investors seem to prefer annuityprojects to toll road projects and this move would benefit larger and quality companies ininfrastructure space rather than smaller players.

Growth in lending to road sector

Source: RBI, PINC Research Source: Bloomberg, PINC Research

SBI PLR

29% 17%18%24%31%31%

16%15%

41%32%43%

27%43%

112%

42%

78%55%

36%38%

27%

58%67%

58%

36%

0%

60%

120%

180%

240%

2003 2004 2005 2006 2007 2008 2009 2010

Total bank credit grow th Infra lending grow thRoad lending grow th

Crowding out leading to higher cost of funding forinfrastructure developers

IIFCL Sanctions & Disbursement

Source: Company, PINC Research * till Dec.2010

97

239

42

128 95

165

0

60

120

180

240

300

Total Roads

(Rs

bn)

0

50

100

150

200Net Sanctions Amount Disbursed No of projects (RHS)

Infra credit requirement outpacing credit growthrate

10

11

12

13

14

Apr-9

9

Jul-0

0

Sep-

01

Dec-

02

Feb-

04

Apr-0

5

Jul-0

6

Sep-

07

Nov-

08

Feb-

10

Apr-1

1

(%)



Ownership of cars per thousand

Source: Company, PINC Research Source: Company, PINC Research

Vehicles per 1000 people

565

453451

12457271810

0

150

300

450

600

India

Indo

nesia

China

Thail

and

Braz

il

Japa

n

US

Germ

any

623593563

300140132103

54363527130

200

400

600

800

India

Afric

a

Indo

nesia

China

Asia,

Far

Eas

t

Asia,

Midd

le Ea

st

Cent

ral &

Sou

th A

mer

ica

Braz

il

Euro

pe, E

ast

Pacif

ic

Euro

pe, W

est

Cana

da

Density of vehicle in India amongst lowest in the world - adressestraffic growth concernLatest data from SIAM (Society of Indian Automotive Manufacturers) shows that of every1000 person in India, only 10 own cars, which is among the lowest in the world. In countrieslike China and Brazil, the number is 27 and 124 respectively per thousand people. In termsof total vehicles owned, it is 13 per thousand people in India compared with 36 and 140 inChina and Brazil respectively.

Lower penetration ofvehicles in India...

Stage of development (Developed vs Developing)

Source: US Department of Energy Note: Above line indicates vehicles per 1000 ppl in US

Year

India in 2008, is where USwas in 1912...



Phases of Motrisation

Source: ADB, PINC Research

Most developing countriesare still at the bottom of thisgrowth curve or only justentering the steeper centralsection of the curve...

100

200

300

400

500

Moto

risat

ionCa

rs /

1,00

0 pe

rson

s

Initial growth

Theoretical Saturation Level

Explosive growth Mature growth and eventual saturation



SIAM projects 12-15% CAGR in automobiles

SIAM, in its recent annual conclave, has projected a five-year CAGR of 14-16% forpassenger cars and 10-14% for MHCV until 2016.

Traffic growth to rise ahead

Considering the early stage of motorisation in India, we believe traffic growth would notonly sustain but will show an uptick in the coming years underpinned by favourabledemographics, higher disposable income and economic activity, and lower penetrationlevel of automobiles will be key catalysts for higher traffic growth. Hence, we have consideredtraffic growth of 6-8% for companies under our coverage.

India Automobile growthParticulars FY10 FY11 YTD FY16E FY12 gr. FY11-16 CAGR

Car Sales 1.53 1.60 3.98 14-16% 14-16%UV 0.42 0.44 - 11-15% 11-13%LCV 0.25 0.25 0.76 18-21% 18-21%MHCV 0.20 0.21 0.47 13-16% 10-14%Buses 0.08 0.07 0.13 8-10% 8-10%

Source: Company, PINC Research

Passenger cars growth


Utility vehicles

LCV growth


MHCV goods growth

100 121 168 188 174252

318382

462560

677

819

0

250

500

750

1,000

FY05

FY06

FY07

FY08

FY09

FY10

FY11

P

FY12

P

FY13

P

FY14

P

FY15

P

FY16

P

T

Units

('00

0s)

173 179

247 234

149202 222

252286

325369

418

0

100

200

300

400

500

FY05

FY06

FY07

FY08

FY09

FY10

FY11

P

FY12

P

FY13

P

FY14

P

FY15

P

FY16

P

T

Units

('00

0s)

15.1% CAGR FY11-16P11% CAGR FY11-16P

20.8% CAGR FY11-16P

13.5% CAGR FY11-16P

0.8 0.91.1 1.2 1.2

1.51.7

2.02.3

2.63.0

3.5

0.0

1.0

2.0

3.0

4.0

FY05

FY06

FY07

FY08

FY09

FY10

FY11

P

FY12

P

FY13

P

FY14

P

FY15

P

.

mn

units

176 195 220 245 226273

308341

379421

467518

0

140

280

420

560

FY05

FY06

FY07

FY08

FY09

FY10

FY11

P

FY12

P

FY13

P

FY14

P

FY15

P

FY16

P

T

Units

('00

0s)



Issues Existing regulation Revised regulation PINC view

Pre-qualification Individual projects are evaluated each time for Now a developer would be annually appraised This move would save time bothbidding for prequalification for a particular size of project for developers and NHAI and inturn

result in quicker awarding of projects

Networth requirement Irrespective of project size, a consortium - Upto project cost of Rs20bn, a consortium Definitely benefit large developers,should have networth of 25% of project cost should have networth of 25% of project cost as for large projects, it will reduce

- From Rs20bn-Rs30bn, a consortium should competition from smaller & nonhave networth of 25% of Rs20bn + 50% of serious developers.incremental cost- For Rs30bn & above, a consortium shouldhave networth of Rs10bn + 100% of incrementalcost over Rs30bn

Financial closure No criteria of Financial closure Now, developers would be ineligible for bidding Would again save time, as developersif three or more projects are not financially closed would prioritise to achieve financial

closure as soon as possible to bid foranother projects against waiting forbetter cost of funding and delayingprojects.

Technical & financial score Scores were assigned to consortium, Now, scores are assigned proportionately to This will put a check on the 'Nameirrespective of their stake in JV equity participation in the consortium lending' practice by which smaller

developers used to get qualified

Recent policy changes

Source: Media, PINC Research

Issues Existing regulation Revised regulation PINC view

Single bid Projects with single bid are rejected & Board is empowered to accept single bids after Would save time & speed upre-tendered examining the reasonableness of the project awarding activity

VGF for Six laning of four Policy restricted overall cap of 5% & Overall VGF cap raised to 10% & individual would encourage participation, aslaning under Phase V individual project at 10% on VGF for Phase V project to 20% with approval from CCI projects become more viableTermination clause Contract would be terminated, if avg. daily traffic If traffic exceeds, then DPR is prepared & based Assured 15% IRR is positive &

exceeds designed capacity for three consecutive on that extension (max 5 yrs) is allowed at lend comfort to developeryears, unless highway is augmented 15% IRR on incremental investment

Exit policy Winning bidder must hold 51% stake till CoD, Minimum 51% stake till CoD, thereafter 26% till Would free up capital forthereafter 33% for next 3 yrs in operation & finally next two years, & then allowed to completely developer & allow to explore26% till end of concession exit further opportunities

Conflict of interest A bid is rejected, in case a bidder holds above Crossholding of stake raised to 25% Would help developer attract PE5% in other bid across the same project investors & infrastructure funds

Grant 40% grant was distributed during construction Now the entire 40% is available during Would financially aide the project,(20%) & during O&M (20%) construction phase as developer contribution reduces

Forfeiture of bid security A disqualified / non-responsive bid would result Only disqualification due to Conflict of Interest Would encourage widerin forfeiture of entire bid security amount of 1-2% criteria would result in forfeiture of 5% of bid participation from developersof project cost security amount

Pre - Qualification Pre qualifcation is done for individual project or Pre-qualification would be an annual exercise, Would help developer save timea set of three valid for 12 months or till 30th September,

whichever is earlierAward Mechanism Priority given to BOT Toll project, in case of Concurrent evaluation of all three modes of Would speed up awarding

poor response, it is converted to BOT Annuity awardingbasis, & then further to EPC

B K Chaturvedi committee recommendations

Source: BKC Committee Report, PINC Research

The CatalystBKC Report – paving way for growth of road sectorThe B K Chaturvedi committee was set up to resolve procedural impediments to the NHDPprogram and to arrive at a financial plan for the program. Acceptance of the B K ChaturvediCommittee’s recommendation has been a blessing for the road sector and for developers sincemost projects had no takers during the period of economic slowdown. The revised concessionagreement and regulations generated rejuvenated interest from investors and developers. Thishas resulted in NHAI awarding 5100km in FY11, which is highest in its history.



High opportunity…high competition…over the next three yearsWe foresee a strong business opportunity for strong players in the Road BOT segmentbased on the assumption that NHAI tenders 6500km in FY12 and 8000km in FY13.

Following the acceptance of BKC recommendations, we have seen higher competition inroad bidding, with high divergence in bidding prices.

NHAI awarding expected in next two years


Panvel - Indapur project Jetpur - Somnath project

Dhankuni - Kharagpur project

Source: NHAI, PINC Research Source: NHAI, PINC Research

Tumkur - Chitradurga project

(4,500)

(3,000)

(1,500)

-

1,500

0 2 4 6 8 10 12 14

(Rs

mn)

(4,500)

(3,000)

(1,500)

-

1,500

0 1 2 3 4 5 6 7

(Rs

mn)

(4,000)

(2,000)

-

2,000

4,000

0 2 4 6 8 10 12 14(Rs

mn)

0

400

800

1200

1600

0 2 4 6 8 10 12

(Rs

mn)

979

3,216

8,000

6,500

5,208

560,000520,000

349,393305,415

129,210

-

2,500

5,000

7,500

10,000


Leng

th (k

m)

-

150,000

300,000

450,000

600,000

(Rs

mn)

Km (LHS) Ex penditures (RHS)

Intense competition...leading to irrational bidding



The competition is likely to be lower for high value projects like mega projects. But suchbidding certainly brings in the risk of irrational project win, thus increasing risk of projectfailure in year to come.

The best solution would be to invest in companies which have shown the background tomanage bidding phase well, generated high project RoEs and have seen the completeproject cycle.

Increasing size of companies

Operational projects (adj. length)

Operational + New project win (adj. length)


481 61

0 782

61

481 67

5 803

95

481 67

5

994

114

591

839 1,

007

143

591

839

1,66

4

189

-

500

1,000

1,500

2,000


Leng

th (k

m)


497 61

0 782

61

993 1,086

238

695

1,10

7

1,12

9

238

922

1,62

7

1,45

4

498

1,20

2

2,18

7

1,77

4

778

497

-

600

1,200

1,800

2,400


Leng

th (k

m)


-

200

400

600

800

1,000

1,200

- 500 1,000 1,500 2,000

Ashoka - FY10Ashoka - FY11Ashoka - FY12IRB - FY10IRB - FY11IRB - FY12ITNL - FY10ITNL - FY11ITNL - FY12Sadbhav - FY10Sadbhav - FY11Sadbhav - FY12

Total length (km)

Adj.

lengt

h (k

m)

* size of bubble is project size

* Includes Chhattisgarh in FY13, excluding it 1,158km

*

Ashoka and IRB to witnessthe highest lane km growthover FY10-FY12E......

Sadbhav

ITNL

IRB

Ashoka



A case study on Interstate HighwayNHDP is among the largest road development programs globally, hence to find out how thephase of development and success pan out, we looked at other large programs globally.We found that the interstate highways of the US are the nearest comparable. Hence, wetried to find out how the interstate highways were developed and funded and how theybenefited the US.

Interstate Highway System – USA

Interstate Highways, which changed the face of the US, were originally mooted by theRoosevelt administration in 1940s. However, it was President Dwight D Eisenhower whowas inspired by the German Autobahns and the need for a road system to move militarysupplies and troops in case of emergency. He signed the bill on 29th June, 1956, of FederalAid Highway Act of 1956 for launching a massive federal project of 41,000 miles nationwide,subsequently extended to current length of 46,876 miles (75,440 km). Officially knowtoday as “The Dwight D Eisenhower National System of Interstate and Defense Highways”.

The Interstate Highways replaced the existing old highways know as “US Numbered Highwaysystem” or “US Routes”. US routes, built in the 1930s, were inadequate to handle fasterand wider cars of 1950s even after widening and straightening of roads. The Interstates werebuilt along or on top of US routes. The originally planned system was to be completed in 12years but it took 35 years and cited to be complete with the opening of Interstate 70 in1992. The Interstate of 46,876 miles includes 5,500 bridges, 104 tunnels, 14,750 interchangesand zero traffic lights. Interstates were built by state highway or transportation agencieswith funding from the federal government and are owned and operated by the states.

~92% of funding was from federal government

The total cost of Interstate construction was USD128.9bn, of which federal governmentpaid ~92% i.e. USD119bn and remaining being contributed by the states. After initial plansof tolling or raising funds by issuing bonds failed, the federal government created a “HighwayTrust Fund” with initial seeding of USD25bn and continuously replenished through gasolinetaxes. The federal and state governments agreed to share the cost on 90:10 basis.



Travel time reduced due to Interstate systemParticulars Travel time declined by

Seattle and Portland, Oregon 25%Cleveland and New York city 33%Atlanta and Birmingham 40%Chicago and Minneapolis 25%


The changing face of AmericaAmerica has seen tremendous changes until date since the Interstate system has comeinto existence, as depicted in figure below. The population in the metropolitan area increasedfrom 56% to 80% of national population and most of the growth in metropolitan areasoccurred in suburban areas, which now constitutes closer to two-third of metropolitan areavs. 50% in 1950s. This also resulted in increased employment opportunity both during theconstruction phase and post-completion as most interstates cut travel time between citiesby more than 20%.

Impact on EconomyStimulated economy and fuelled American addiction to automobility.

Reduced the burden on railways, and trucking industry flourished

Substantially reduced freight cost; it is estimated that tractor-trailer operating costreduced 17% in Interstates vs. other highways.

Transformed the American shipping industry. It makes shipping time not only faster,but highly predictable, helping bring about a revolution in manufacturing and retailingthroughout the country. The freeways make “just in time” system possible, which meansgoods spend less time sitting around; this lowers overheads and consumer prices.

Reduced production and distribution costs in virtually every industry and increasedproductivity.

Improved inter-regional accessibility and created a national domestic market helpingcompanies cater to larger markets and at lower cost.


The Interstate System & Population Density



Particulars India US China

Programme National Highway Development Program (NHDP) Interstate Highway System National Trunk Highway System (NTHS)Implementing Authority NHAI State Governments / FHWA State CouncilWho built it State PWD / Private developers State government / transportation agencies Provincial Transport DepartmentWho owns it Government / Private operators State governments Majority by GovernmentLength (km) 54,454 68,872 35,000Total Cost incurred >USD25.8bn* USD128.9 bn -Initial cost estimated USD60 bn USD27.2 bn USD150bnIncrease in cost due to Higher raw material cost, land acquisition Increase in length, stricter design standard,

impediments & compliance with essential environmentrequirement & finally Inflation was a major factor Completed 13years ahead of schedule

Funding Budgetary allocation / Petrol Cess / Bonds / Tolls Gasoline tax Tolls / Provincial government fundingToll Majority roads are tolled Few roads are tolled Majority roads are tolled

Comparison of road development programs in other countries

Source: Company, PINC Research * ongoing ~28% completed and ~18.5% under implementation

GDP-USD billion


0

4000

8000

12000

16000

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

2010

Although it may appear an exaggeration to state that the Interstate system alone led tosuch drastic changes, nevertheless, it did act as a backbone for development.

Majority of Interstatehighways completed



Indian toll rates lower ... even on PPP termsParticulars Country rate /km Currency k m PPP Multiple PPP Factor Ex rate in Toll rates in

PPP PPP (Rs)/km

Expressways

407 ETR Canada 0.21 CAD 107 1.0 3.0 15.4 3.2

CityLink Australia 0.21 AUD 22 0.9 3.1 15.3 3.2

Hills M2 Australia 0.21 AUD 21 0.9 3.1 15.3 3.2

M5 South-West Motorway Australia 0.17 AUD 22 0.9 3.1 15.3 2.6

Lyon / Marseille Aix (A7/A8) France 0.07 EUR 303 0.8 3.5 18.3 1.3

Lyon / Montpellier (A7/A9) France 0.08 EUR 304 0.8 3.5 18.3 1.4

Paris / Angers (A10/A11) France 0.09 EUR 296 0.8 3.5 18.3 1.6

Bordeaux / Lyon (A89/A72) France 0.07 EUR 588 0.8 3.5 18.3 1.2

Bordeaux / Marseille France 0.07 EUR 646 0.8 3.5 18.3 1.3

Bordeaux / Espagne (A63) France 0.05 EUR 150 0.8 3.5 18.3 0.9

Rustenburg – Zeerust (Swartruggens) South Africa 0.50 Rand 129 1.8 1.6 4.0 2.0

M6 Toll Motorway UK 0.12 GBP 43 1.0 2.8 26.3 3.1

91 Express Lane US 0.33 USD 16 1.0 2.9 15.3 5.1

John F. Kennedy Memorial Hwy (I-95) US 0.06 USD 80 1.0 2.9 15.3 1.0

North Luzon Expressway Philippines 2.07 PHP 84 2.0 1.4 0.7 1.5

Northern Gateway Toll Road New Zealand 0.27 NZD 7.5 1.0 2.9 12.2 3.2

Mazatlan- Culiacan Mexico 1.06 MXN 181.5 1.8 1.6 2.3 2.5

India

Mumbai Pune Expressway India 1.47 INR 95 2.9 1.0 1.0 1.5

Ahmedabad Vadodara Expressway India 0.92 INR 93 2.9 1.0 1.0 1.0

Delhi Gurgaon Expressway India 0.74 INR 27 2.9 1.0 1.0 0.7

Jaipur Kishangarh Expressway India 0.61 INR 90 2.9 1.0 1.0 0.6

Chennai Bypass India 0.94 INR 32 2.9 1.0 1.0 0.9

Noida-Greater Noida Expressway India 0.84 INR 22 2.9 1.0 1.0 0.8

Tunnels / Links

Bandra-Worli Sea Link India 8.93 INR 6 2.9 1.0 1.0 8.9

Halifax Harbour Bridges Canada 0.58 CAD 1 1.0 3.0 15.4 8.9

The Seaway International Bridge Corp. Canada 0.69 CAD 5 1.0 3.0 15.4 10.6

Cross City Tunnel Australia 1.96 AUD 2 0.9 3.1 15.3 30.0

Lane Cove tunnel (East & West) Australia 0.78 AUD 4 0.9 3.1 15.3 11.9

Eastern Distributor (M1) Australia 0.92 AUD 6 0.9 3.1 15.3 14.0

Great Belt Fixed Link Denmark 32.84 DKK 7 0.7 4.4 2.0 64.5

Mackinac Bridge, Michigan US 0.43 USD 8 1.0 2.9 15.3 6.7

Source: Company, PINC Research Note: Prices as on April 25,2011



B B Currency Mcap EV Sales (mn) EV/EBIDTA P/B P/ETicker (mn) (mn) FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E

India

Ashoka Buildcon ASBL IN INR 13,670 24,045 14,901 17,915 5.4 4.7 1.3 1.1 7.0 5.6GMR Infrastructure GMRI IN INR 149,470 372,886 62,187 84,176 15.7 11.0 1.7 1.6 62.1 23.1IL&FS Transportation ILFT IN INR 43,380 71,093 55,452 68,905 5.8 4.4 1.7 1.4 10.3 8.4IRB Infrastructure IRB IN INR 66,473 106,042 35,219 42,943 7.9 6.9 2.2 2.0 11.8 13.1Larsen & Toubro LT IN INR 1,043,177 1,162,223 637,754 791,948 12.5 10.5 3.7 3.2 19.9 16.6Noida Toll Bridge NTB IN INR 5,316 6,657 882 974 9.9 8.9 1.2 1.1 13.6 11.9Reliance Infrastructure RELI IN INR 182,956 288,170 188,231 216,847 11.5 8.5 0.7 0.7 10.9 8.8Sadbhav Engg SADE IN INR 21,615 40,276 23,512 25,586 11.2 8.4 2.2 2.0 7.9 8.3

China (China listed)

Anhui Expressway 600012 CH USD 1,517 1,791 426 462 5.3 5.6 1.4 1.3 8.9 8.2Fujian Expressway 600033 CH USD 1,513 2,830 375 406 8.7 8.0 NA NA 16.2 13.8Gezhouba Co 600068 CH USD 6,469 9,337 8,303 9,275 21.1 16.3 NA NA 14.2 NAHubei Chutian Expressway 600035 CH USD 779 1,032 184 220 12.5 13.1 1.4 1.3 9.7 13.1Jiangsu Expressway 600377 CH USD 5,283 6,223 1,246 1,311 8.0 7.4 1.8 1.8 11.0 10.2Jiangxi Ganyue Expressway 600269 CH USD 1,989 2,451 714 788 5.9 4.9 1.1 1.0 8.9 8.0Shandong Expressway 600350 CH USD 2,494 2,608 830 985 3.8 3.8 1.3 NA 9.8 9.3Shenzhen Expressway 600548 CH USD 1,684 3,211 461 485 10.1 9.3 1.2 1.1 11.2 9.3

China (Hong Kong listed)

Anhui Expressway 995 HK USD 1,517 1,791 519 534 5.2 4.9 1.3 1.2 8.1 7.5Hopewell Highway 737 HK USD 1,943 2,512 333 372 9.9 9.2 1.8 1.8 15.3 14.6JIANGSU EXPRESS 177 HK USD 5,283 6,223 1,190 1,225 8.0 7.8 1.9 1.9 11.6 11.0SHENZHEN EXPRESSWAY 548 HK USD 1,684 3,211 478 503 9.8 9.1 1.0 0.9 9.3 7.8SICHUAN EXPRESSWAY 107 HK USD 2,746 2,989 525 546 7.3 8.5 1.2 NA 8.1 8.1ZHEJIANG EXPRESSWAY 576 HK USD 3,737 3,420 1,158 1,192 5.3 5.1 1.5 1.5 11.3 11.3

South East Asian Countries

Bangkok Expressway BECL TB USD 464 1,066 231 245 6.4 6.0 0.7 0.7 11.4 9.0CH Kamchang PCL CK TB USD 479 984 720 805 20.2 27.5 2.0 1.8 18.1 13.2Citra Marga Nusaphala CMNP IJ USD 259 330 104 NA 4.7 NA 1.0 NA 6.2 NALingkaran Trans LTK MK USD 622 973 118 120 9.3 9.2 3.8 3.6 14.7 14.7Plus Expressway PLUS MK USD 7,448 10,095 1,411 1,522 8.7 8.2 2.6 2.5 12.2 11.1

European

Brisa BRI PL USD 3,943 6,882 1,023 1,051 9.3 9.0 1.5 1.5 18.6 16.9Autostrada Torino AT IM USD 1,431 4,587 1,608 1,743 4.4 4.0 NA NA 7.2 7.5Societe Des Autoroutes ARR FP USD 8,356 16,536 3,012 3,137 8.0 7.6 15.0 18.2 10.6 11.7Abertis ABE SM USD 17,148 38,969 6,413 6,670 9.8 9.3 2.6 2.4 14.9 13.2Obrascon Huarte OHL SM USD 3,934 8,226 8,171 8,296 4.5 4.1 1.7 1.5 10.3 9.3Societa Iniziative SIS IM USD 2,869 5,175 1,675 1,792 5.4 4.7 1.3 1.2 10.6 9.4

Other Global Peers

Atlantia ATL IM USD 14,117 27,810 5,898 6,139 7.7 7.3 2.5 2.3 12.1 11.6Companhia De Concessoes CCRO3 BZ USD 13,649 17,001 3,414 3,718 7.5 6.8 7.1 6.8 15.9 13.5Transurban Group TCL AU USD 8,385 12,555 962 1,056 18.4 16.5 2.3 2.5 86.7 61.1

Global peer comparison

Source: Company, PINC Research Note: Prices as on April 27, 2011



MOEF. Delhi

Application of user agency to the Nodal Officer

To DFO through the conservator of Forest

Scrutiny of application, preparations of formal proposal

Scrutiny, recommendations

Scrutiny, remarks, recommendations of Principal CCF

Scrutiny, remarks and recommendations

Conservator of forest

State govt. (Forest dept.)

Sire inspection for proposalsabove 40 ha of forest land

Recommendations of theAdvisory Committee

Final decision issue of firststage approval

State Government’s compliance report

Formal Approval Order

MOEF. Delhi

Advisory Committee

Examination

MOEF. Delhi

State Govt.

Examination & final decision for cases upt 5ha forest landexcept those of mining and encroachment

Examination & putting before StateAdvisory Group for proposal other than

those mentioned above

Meeting recommendation

Examination and final decisionfor all cases

Regional Office MOEF (Proposals upto 40ha)

Road side plantations notified as PF

MOEF. Delhi (Proposal above 40 ha)

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Flowchart for Obtaining Forest ClearanceFlow chart showing various steps involved in examination of cases received under FC Act

Annexure 1

Nodal Officer

State advisory group

Co m

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Initi

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RELATIVE PERFORMANCE

ASHOKA BUILDCON LTD

Initiating CoverageSector: InfrastructureBSE Sensex: 19,292 RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH

BUYCMP Rs260TP Rs390

Ashoka Buildcon Ltd (ABL) has a portfolio of 23 BOT projectsof which 16 are operational. ABL has a strong understandingand history of performance in BOT. ABL handed over 4 BOTassets back to the Govt. The focus was slow and steady withsmall-to-medium-sized projects, but the emphasis being oncash generation, risk mitigation and securing a sustainablebusiness model. Now the tone has changed towardsaggressive growth. Hence this could catapult highervaluations for ABL over the next 2yrs bringing it more closerto the top leagues of IRB and ITNL. Currently, the stock isavailable at 1.3x P/BV FY12E.

Profitable 10 operating road BOT assets…All the operational projects are profitable. As of FY10, ABL recordedtotal BOT revenue of Rs1.65bn and PAT of Rs576mn. For FY12E,we expect revenue of Rs4bn and PAT of Rs941mn. Historicalhealthy performance, gives a thumbs-up to new wins.Building for the next league…Today ABL is qualified to bid for projects size of Rs16-20bn on itsown and is also venturing into new regions. Project worth Rs30bnwon in FY11. The approach is still measured but aggressive, ABLwon in re-bidding with L1 position of Rs1.21bn premium to NHAIwhile L2 was Rs~1.2bn.No Further Dilution...in the medium termWe do not expect dilution to happen at least for the next two year.On a best case basis ABL would require Rs8bn of equity funding(FY11E-FY13E) where as ABL is expected to end FY11 withRs2.5bn of cash. The D/E ratio remains at 0.5x, which keepsscope for future BOT win.VALUATION AND RECOMMENDATIONEquity invested until date by ABL is ~Rs4.5bn, which wouldincrease to Rs7bn and Rs10bn by FY12E and FY13E, we valueBOT (DCF) at equity multiple of 1.8x times and 1.2x times onFY12E and FY13E i.e. Rs12.5bn. Over FY10-13E, we expectrevenue of the standalone business to grow at 29.4% CAGR andPAT to grow at 28.2% CAGR. Adjusted for the BOT assets in thestandalone entity, PAT is expected to grow at 27% (BOT assetshave matured, leading to lower interest cost). We value thisbusiness at 9x FY12E adjusted earnings of Rs17.1 (EPC).

32

STOCK DATA

Market Cap Rs13.7bn.Book Value per share (FY12) Rs185Eq Shares O/S (F.V. Rs10) 52.6mn.Free Float 32.8%Avg Traded Value (6 mnths) Rs8.3mn52 week High/Low Rs362/226Bloomberg Code ASBL INReuters Code ABDL.BO

PERFORMANCE (%)

1M 3M 6MAbsolute (12.4) (3.6) (17.0)Relative (13.1) (6.6) (13.8)

SHAREHOLDING PATTERNName % holdingPromoters 67.2FII 2.4DII 17.2Public & Others 13.3

29 April 2011

Vinod Nair +91-22-6618 [email protected]

Subramaniam Yadav +91-22-6618 [email protected]

KEY FINANCIALS (CONSOLIDATED) Rs mn

KEY RATIOS

FY09 FY10 FY11E FY12E FY13ENet Revenues 5,184 7,956 9,965 14,901 17,915YoY Gr. (%) 60.6 53.5 25.3 49.5 20.2Operating Profit 1,640 2,143 2,704 4,427 5,169OPM (%) 31.6 26.9 27.1 29.7 28.9Adj. Net Profits 348 799 985 1,471 1,784YoY Gr. (%) 3.7 129.5 23.3 49.3 21.3

Diluted EPS (Rs) 7.6 17.5 18.7 27.9 33.9ROACE (%) 12.1 12.5 11.0 13.7 10.2ROANW (%) 11.1 20.6 16.1 17.4 17.7PER (x) 34.1 14.9 13.9 9.3 7.7EV/Sales (x) 4.6 3.0 2.4 1.6 1.3EV/EBIDTA (x) 14.7 11.2 8.9 5.4 4.7

200

250

300

350

400

Oct-10 Jan-11 Apr-11

ASBL BSE (Rebased)


RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH Ashoka Buildcon Ltd

BOT consolidated P/L Statement (Ex-Standalone)Particulars FY08 FY09 FY10 FY11E FY12E FY13E FY14E

Revenues 836.6 1,056.7 1,208.0 1,556.5 3,460.6 3,874.6 4,856.3Other Income 129.4 184.8 199.2 208.2 203.1 218.6 234.7O&M 96.1 232.4 201.6 230.6 395.5 371.7 763.9EBIDTA 740.5 824.4 1,006.9 1,325.9 2,755.1 3,177.4 3,744.0EBIDTA Margin (%) 88.5% 78.0% 83.4% 85.2% 79.6% 82.0% 77.1%Interest 308.9 388.9 300.9 248.6 1,343.7 1,283.4 1,628.6Depreciation 333.6 375.4 359.7 351.9 613.8 641.5 673.9PBT 224.4 241.7 541.9 930.8 997.9 1,468.6 1,602.0Tax 17.4 25.6 83.8 146.3 278.2 346.2 368.1PAT 207.0 216.2 458.2 784.4 719.7 1,122.3 1,228.4Growth (%) - 4.4 112.0 71.2 -8.3 56.0 9.5


BOT AssetsProjects Total Total Length Lane Holding Stake Stake Lane Equity invested(Rs mn) Cost Equity (kms) Km (%) (km) (km) till date *

Indore - Edalabad 1,641 428 203 406 87% 176 352 428Pune - Shirur 1,599 530 54 216 100% 54 216 530Dewas Bypass 613 166 20 40 100% 20 40 166Katni Bypass 709 211 18 35 100% 18 35 211FOBs - Eastern Exp Hway 37 14 0 0 100% 0 0 42Durg - Chhattisgarh 5,870 1,770 71 332 51% 36 169 1749Chhattisgarh - Bhandara 5,350 1,545 83 320 51% 42 163 1527Ahmednagar - Karmala 504 319 81 160 100% 81 160 437TOLL ANG (Anagar - Aurangabad) 1,027 357 42 168 100% 42 168 357Nasirabad ROB 147 77 5 8 100% 5 8 77Sherinallah Bridge 142 86 0 7 100% 0 7 -Waiganga river Bridge 409 80 13 26 50% 7 13 80Sambalpur-Baragarh 10,080 3,322 88 408 100% 88 408 836Belgaum Dharwad 6,300 1,730 80 454 100% 80 454 575Jaora - Nayegaon 4-Laning 8,470 2,417 319 319 37% 118 118 2,417Pimpalgaon-Nasik 16,000 3,382 60 452 26% 16 118 846Total 58,898 16,434 1,137 3,351 - 783 2,429 10,278

Source: Company, PINC Research *Not adj for percentage stake

A Healthy BOT Set

A feasible BOT portfolio that is already generating cash and profit

Ashoka Buildcon Ltd (ABL) has a portfolio of 27 BOT projects, of which 4 have beenhanded back to the government. Of this, 10 BOT road projects and 6 FOB projects areoperational. Of the 16 operational BOT projects, ABL (parent) operates 4, its subsidiariesand joint venture (JV) companies operate10, and an associate company (ABL: 50% stake)and a JV (ABL: 5% stake) operate one each.

All the operational projects are profitable. As of FY10, ABL recorded total BOT revenue ofRs1.65bn and PAT of Rs576mn. We expect revenue of Rs2.1bn & PAT of Rs982mn andrevenue of Rs4bn & PAT of Rs941mn for FY11E and FY12E respectively (note total BOTperformance).

All operational projects areprofitable...



BOT Standalone P/L Statement (Standalone) (Rs mn)Particulars FY08 FY09 FY10 FY11E FY12E FY13E FY14E

Revenues 227 388 448 515 533 583 681Other Income 13.3 14.1 5.6 5.6 5.6 5.6 5.6Branch Income 59.2 64.1 67.5 63.3 41.9 41.9 41.9O&M 18.8 36.1 68.9 78.4 77.5 82.2 87.2EBIDTA 267.2 415.9 446.3 500.2 497.7 542.9 636.0EBIDTA Margin (%) 93.4 92.0 86.6 86.4 86.5 86.9 87.9Interest 75.9 136.1 119.9 94.4 77.7 57.1 36.5Depreciation 111.0 218.2 214.3 214.3 203.7 203.7 203.7PAT 93.5 75.6 117.7 197.1 221.8 287.7 390.6Growth (%) - -19.2 55.7 67.5 12.5 29.7 35.8


Projects won in FY11Projects won in FY11 TPC (Rs mn) Authority K m

Sambalpur-Baragarh 10,080 NHAI 88Belgaum Dharwad 6,300 NHAI 80Dhankuni-Kharagpur 13,960 NHAI 111


Well established player…small but steady

ABL enjoys the first-mover advantage of knowing the business well, having seen the fullcycle of projects. The company has an established track record of identifying and runningBOT ventures profitably.

ABL has been focused on small-to-medium-sized projects at the regional level (stateprojects). Although the approach has been slow and steady, we understand that ABL'semphasis is on cash generation, risk mitigation and a thorough understanding of the businessdynamics. This approach has helped ABL in securing a sustainable business model, althoughthe company had to sacrifice fast growth in the process. We believe this is bound tochange now that the company has achieved critical mass and core competence.

Building for the next league…

Although the change is visible (tabled below new wins), ABL's approach seems measured.Our interaction with the company suggests that it is now keen about taking on largeprojects, building on the confidence of successful and profitable project execution over thepast 15 years. Today ABL is qualified to bid for projects worth Rs16-20bn on its own and isalso venturing into new regions.

Historical healthyperformance, gives athumbs-up to new wins...



Project Status Projects Land Acq % completed Tolling ‘E’ Status

Belgaum Dharwad 98% 5-6% FY12 Tolling to start by May 2011 end.Jaora - Nayegaon 4-Laning 100% 98.5% FY12 1st section tolling is expected to start in May

2011 while the rest 2 section by Sept 2011.RoB work in progress.

Pimpalgaon-Nasik 93-94% 35-40% FY14 6%-7% of land pending to be handed over.Sambalpur-Baragarh 70-75% 2-3% FY14 Awaiting appointed date by H1FY12, Environ-

ment clerance pending


L1 status suggests current bids would be profit accretive

ABL's latest round of bidding for NHAI projects fortifies our belief that the approach is stillmeasured but aggressive. For the Dhankuni Kharagpur project, TPC of which is Rs14bn,ABL won in rebidding with L1 position of Rs1.21bn premium to NHAI while L2 was Rs~1.2bn.

We are yet to value Dhankuni project as we await FC and project details.

Projects under construction….Two approaching tolling

The result will be strong growth in BOT revenue, which will substantially enhance company'stransformation from a mid-tier BOT player to a sizeable BOT and EPC player.

Bidding in initial round...Ashoka at Rs1.16bn


-3442.5

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Ashoka Buildcon Ltd



No further dilution...in the medium term

We do not expect dilution to happen at least for the next two year. On a best case basisABL would require Rs8bn of equity funding (FY11E-FY13E) where as ABL is expected toend FY11 with Rs2.5bn as cash in book. The standalone cash flow situation of the companyis very comfortable and well managed. With the recent equity raising the Debt/Equity ratiohas reduced to 0.5x, which keeps enough scope for future BoT wins.

Standalone Cashflow position (Rs mn)Particulars FY 08 FY 09 FY 10 FY 11 FY 12E FY 13E

Cash From Operation (net of tax) 175.2 896.3 769.2 1,183.5 1,078.0 1,446.9Less: Interest payment 254.0 449.2 341.7 457.2 551.7 692.3Cash from Operation (78.9) 447.2 427.5 726.3 526.3 754.6Capex 929.2 471.9 225.2 377.2 300.0 265.0Net Cash generated (1008.1) (24.7) 202.3 349.0 226.3 489.6Eq Invst Req 281.7 224.3 1,483.3 2,440.3 3,709.3Debt Raised 163.2 13.7 250.0 750.0 1,500.0Equity Raised 0.0 0.0 2,250.0 0.0 0.0Debt/Equity (Gross) 1.0x 0.8x 0.5x 0.5x 0.6x


Equity Requirement (Rs mn)Particulars FY 11 FY 12 FY 13

Sambalpur-Baragarh 830.5 830.5 1,661.0Belgaum Dharwad 173.0 692.0 432.5Jaora - Nayegaon 4-Laning (37% stake) 260.1 - -Pimpalgaon-Nasik (26% stake) 219.7 219.8 219.8Dhankuni-Kharagpur 698.0 1,396.0Total 1,483.3 2,440.3 3,709.3


Ashoka Buildcon Ltd



Standalone sales (Rs mn)Sales Mix FY08 FY09 FY10 FY11E FY12E FY13E

Contract work receipts 2,247 6,223 9,945 11,664 16,875 22,500 Sales trading 680 812 769 908 999 1,099 Toll Collection - BOT 338 388 448 515 533 583 Toll Collection - Contract -- -- -- -- 220 -- Total 3,264 7,423 11,162 13,088 18,627 24,182


Standalone sales mix (Rs mn)

2,2476,223 9,945 11,664 16,875 22,500

680812 769 908 999 1,099388 448 515 533 583338

0%

30%

60%

90%

120%

FY08 FY09 FY10 FY11E FY12E FY13E

Contract w ork receipts Sales trading Toll Collection - BOT Toll Collection - Contract

EPC divisionABL has constructed 44 roads and bridges and built over 5.4 million square feet ofcommercial, industrial and institutional projects. The EPC division primarily executesengineering and designs works and procures raw material and equipment for own BOTdivision and third parties. It also: (1) maintains and repairs existing roads for own BOTdivision; (2) constructs and modernizes power distribution networks comprising distributiontransformers and electricity substations for third parties; and (3) constructs commercial,industrial and institutional buildings for third parties.

ABL has built a sizeable construction business; it ended FY10 with total constructionrevenue of Rs9.9bn and is likely to end the year with construction revenue of Rs11.7bn, up17%. We forecast total construction revenue to grow at 31% CAGR for FY10-13E. ABLhas ramped up its execution capability in the recent past. It now owns a large fleet ofequipment with gross block of Rs2bn and has 1,200 personnel executing the projects.


EBITDA Mix (Standalone) (Rs mn)Increasing EPC EBITDAmix...

Ashoka Buildcon Ltd

208 352 379 437 456 501

5465 62 73

80 88

327 795 1,048 1,143 1,654 2,205

0%

30%

60%

90%

120%


BOT Sales trading Toll Collection - Contract EPC



Consolidated Revenue (Rs mn)Particulars FY08 FY09 FY10 FY11E FY12E FY13E

Contract work receipts 1,377 2,931 5,527 6,999 9,703 12,375 Sales trading 678 809 776 894 984 1,082 Toll Collection - BOT 1,173 1,445 1,653 2,072 3,994 4,458 Toll Collection - Contract -- -- -- -- 220 --

3,228 5,184 7,956 9,965 14,901 17,915Source: Company, PINC Research

Consolidated sales mix (Rs mn)


EBITDA Mix (Consolidated) (Rs mn)


EPC Sales are netted off byown BOT construction workdone...

Ashoka Buildcon Ltd

171 335 628 805 1,067 1,3615465

62 7380 88

1,008 1,240 1,453 1,826 3,253 3,720

28

0%

30%

60%

90%

120%



1,3772,931

5,527 6,999 9,703 12,375

678809

776 894984 1,082

1,173 1,445 1,653 2,072 3,994 4,458

0%

30%

60%

90%

120%





Please note that ABL's consolidated accounts are stated as per AS 21, which does notallow business and profits earned from own/subsidiary companies to be consolidated.Hence, consolidated revenue is netted off from construction revenue of own BOT ventures.We see this proportion to be maintained at 40:45% over FY11E-13E.

Power distribution projects

In FY09, ABL ventured into the power EPC business. Its first contract was from MSEDCLfor construction and commissioning of sub-transmission lines, distribution lines, powertransformers and new sub-stations. This business has shown substantial traction andcurrently forms ~30% of revenue and 40% of the order book.

The management's emphasis on this business is strong, given that it has earned goodgrowth and profit from this relatively new venture. EBITDA margins in this business arebetween 10-12% with net margin of 5-7%. Further, management is looking at new initiativesto expand either on its own or through partnerships. The current distribution orders standat Rs7bn, which are from Maharashtra state.

RMC and bitumen division

The RMC and bitumen division sells ready-mix concrete and bitumen and supports theEPC division. ABL owns 14 RMC plants with total production capacity of 650 cubic metresper hour, 86 concrete transit trucks and 19 concrete pumps. This division also sells andprocesses bitumen to a higher grade for use in road projects from its plant in Pune with acapacity of 60 metric tonnes per day. This division is expected to grow at 13% until FY13Eto Rs1.1bn.

Toll collection contract division

ABL also has a toll collection contract division that leverages its experience in collectingtoll on BOT projects and has a proprietary computerised toll revenue auditing system.

Recently, ABL won a toll collection contract for the Bankapur-Devgiri stretch in Karnataka.This is an annual contract of Rs220mn and is likely to be completed in FY12E. Margins insuch projects are expected at 15-20%.

In the past too, ABL entered into four such agreements to collect toll on roads/bridgesowned and constructed by third parties. The last contract had expired in February 2007.

Ashoka Buildcon Ltd



ValuationBOT assetsWe value ABL using the SOTP methodology, BOT assets on DCF basis. We value theoperational tolled projects at 13% discount and under-construction projects at 14% discount.The cumulative equity value, adjusted for percentage stake, is Rs12.5bn. Equity investeduntil date by ABL is Rs4.5bn, which would increase to Rs7bn and Rs10bn by FY12E andFY13E, i.e. we value at equity multiple of 1.8x times and 1.2x times on FY12E and FY13E.The current operational projects yield RoE of 16% as of end-FY11. Although it would bedifficult to maintain this number on a consolidated basis for all the BOT assets since largeprojects are at the construction stage, our analysis suggests average project IRR of 10%and equity IRR of 19% for the under-construction projects over concession period.

EPC businessOver FY10-13E, we expect revenue of the standalone business to grow at 29.4% CAGRand PAT to grow at 28.2% CAGR. Adjusted for the BOT assets in the standalone entity,PAT is expected to grow at 27% (BOT assets have matured, leading to lower interestcost). We value this business at 9x FY12E adjusted earnings of Rs17.1 (constructionEPC). We foresee a substantial jump in profitability of the standalone business at 47%,led by growth of 42% in sales and 33% in EBITDA, even as EBITDA margin settles at11.8% for FY12E against 13.3% in FY10. The drop in margin is due to our assumption oflower EBITDA of 9.8% for the pure EPC division as against the historical average of 11-12%.

Despite robust expectations, we believe that a lower multiple of 9x is justified, given thatABL derives 30% of revenue from power distribution contracts that are competitive and40% from own EPC contracts. Further, we would like to see more traction in order inflow,which would enhance earnings visibility post FY12E.

BOT assets valued at 1.8xFY12E and 1.2x FY13E ofinvested equity...

P/E - One year Forward P/BV - One year forward

Ashoka Buildcon Ltd

IRR Table (Under construction)Project Project IRR (%) Equity IRR (%) D:E

Sambalpur-Baragarh 11.6 17.0 2.4Belgaum Dharwad 10.2 16.6 2.8Jaora - Nayegaon 4-Laning 12.1 22.0 2.5Pimpalgaon-Nasik 6.6 19.8 4.0



6

8

10

12

Oct-10 Nov -10 Jan-11 Mar-11 Apr-11

P/E Av . P/EAv g+1std dev Av g-1std dev

1.2

1.4

1.6

1.8


P/BV Av . P/BVAv g+1std dev Av g-1std dev



SOTP ValuationParticulars NAV Stake Adj NAV Per share

BOT Projects operational (SPV's)Indore - Edalabad 1,718 87% 1,490 28.3Pune - Shirur 580 100% 580 11.0Dewas Bypass 489 100% 489 9.3Katni Bypass 676 100% 675 12.8FOBs - Eastern Exp Hway 82 100% 82 1.6Dhule Bypass 47 100% 47 0.9Durg - Chhattisgarh 2,555 51% 1,303 24.8Chhattisgarh - Bhandara 2,009 51% 1,025 19.5BOT Projects operational (Standalone)Anagar - Karmala 750 100% 750 14.3TOLL ANG (Anagar - Aurangabad) 476 100% 476 9.0Nasirabad ROB 257 100% 257 4.9Sherinallah Bridge 147 100% 147 2.8Waiganga river Bridge 517 50% 258 4.9BOT Projects under constructionSambalpur-Baragarh 1,618 100% 1,618 30.7Belgaum Dharwad 757 100% 757 14.4Jaora - Nayegaon 4-Laning 5,269 37% 1,950 37.0Pimpalgaon-Nasik 1,946 26% 506 9.6Total BOT Value 19,894 12,411 236

PAT FY12E P/E (x)EPC Business 900 9 8,099 154Total Value 20,510 390CMP 259Appreciation 50%




Company Structure

Company

Toll collectionContract Division

EPC Division BOT Division RMC and BitumenDivision

Ashoka TechnolgiesPvt. Ltd.

Ashoka PreCon Pvt. Ltd.

L&T PNG TollwayPrivate Ltd. (NH 3

Pimpalgaon-Nashik-

Company’s BOT projects(Ahmednagar - Karmal Road)

(Nashirabad railway-over Bridge)(Sheri Nallah Bridge)

(Ahmednagar - Aurangabad Rd.)(Shopping mall-campus of

Rukmin, Bai Hospital, Kalyan,Maharashira)

Viva HighwaysPrivate Ltd.

(Indore-EdalabadRoad)

AshokaInfrastrucuture Ltd.

(Pune-Shirur Road)

AshokaInfraways

Private Ltd.

(Dewas Bypass)

JayaswalsAshoka

InfrastructurePrivate Ltd.(Wainganga

Bridge)

AshokaBridgeways

(Anawali-Kasegaon Road)

AshokaInfrastructures

(Dhule Bypass)

Ashoka High-wayAd

(6 foot-over-bridgesin Mumbai)

Ashoka SambalpurBaragarh Tollway

Private Ltd.(NH-6 Sambalpur-

Bargarh Rd)(6)

Ashoka Belgaumdharwad Tollway

Pvt. Ltd.(NH-4 Belgauvn-

Dharwhd)(7)

Ashoka-DSC KatniBypass Road Pvt. Ltd.

(Katni Bypass)

Ashoka Highways(Bhandara)

(NH-6 Bhandara Rd.)

Ashoka Highways(Durg) Ltd.

(NH-6 322.4) km-405 km)

Jaora Nayagoan TollRoad Company

(Jaora-NayagaonRoad.)

99.80% 50.99 26%

100% 86.74%(1) 100% 100% 50% 50%

99.99% 99.99%98.67% 98.67%

99.89% 52.02% 53.18% 13.76%

Source: RHP, PINC Research

BusinessABL is present in entire value chain of road construction from RMC division to construction,operation and maintenance and toll collection. ABL also has presence in power transmissionand distribution, manufacture and sales of pre cast concrete poles, RMC and bitumen tothird party. ABL is amongst the largest toll road operator in India and owns 27 BOT projects,of which 16 are operational (six Foot over bridges), six under construction, one underfinancial closure and four handed over to government.

ABL has four key division:

a) BOT division

b) EPC division (for own and third party works)

c) RMC and bitumen division

d) Toll collection contract division

(Dhankuni-Khargpur)

111.4 km.

100%

Ashoka Buildcon Ltd



In FY00 ABL ventured into manufacturing of RMC solely for use for own EPC division byFY02 they started selling it to third party as well. In FY05 processing of bitumen to a highergrade was also initiated in Pune for use in road projects. Having developed systems andprocedures for collecting tolls in own BOT projects, including developing proprietarycomputerised toll revenue auditing system, ABL tendered for and were awarded the firstcontract to collect the tolls on a road owned and constructed by a third party.

In FY09 ABL began undertaking EPC work in the power sector with the first project comingfrom Maharashtra State Electricity Distribution Company Limited for the construction andcommissioning of sub-transmission lines, distribution lines, power transformers and newsub-stations.

In September 2009 ABL started manufacturing pre-cast concrete poles. In FY10, theGovernment of Maharashtra issued us a letter of allotment for us develop a 1,500 KW perhour hydro electric power plant in Waghur, Maharashtra on a build, own, operate andtransfer ("BOOT") basis. Currently ABL has operations across the states of Maharashtra,Madhya Pradesh, Chhattisgarh, Rajasthan, Karnataka and Orissa.

BOT division

Currently have 23 BOT road projects in its kitty, i.e. 3,498.35 km of lanes in Maharashtra,Madhya Pradesh, Chhattisgarh, Karnataka and Orissa. The weighted average concessionperiod (including toll collection period) for these 23 BOT road projects was 21.09 years asat March 31, 2010. Out of the 23 BOT projects mentioned above, 16 are in operation andsix are under construction and one under financial closure. Of the 17 BOT projects inoperation four are operated by the Company; 11 are operated by the subsidiaries of theCompany/joint ventures controlled by the Company, one is operated by an associatecompany in which the Company has a 50% interest; and one is operated by a joint venturein which the Company has a 5% interest.

Of the six BOT projects under construction: four are being developed by subsidiaries of theCompany, one is being developed by PNG Tollway Private Limited, in which the Companyhas a 26% Interest, and one is being developed by Jaora Nayagoan Toll Road CompanyPrivate Limited in which the Company has a 13.76% beneficial interest. In addition, thecompany has successfully transferred four BOT projects to the Govt.

EPC division (for own and third party works)

The EPC division primarily does engineering and design works, procures raw material andequipment for own BOT division and third parties. It also does (1) maintains and repairsexisting roads for own BOT division, (2) constructs and modernizes power distributionnetworks, comprising distribution transformers and electricity substations, for third partiesand (3) constructs commercial, industrial and institutional buildings for third parties. ABL,has constructed 44 roads and bridges and built over 5.4 million square feet of commercial,industrial and institutional projects.

Ashoka Buildcon Ltd



RMC and bitumen division

The RMC and bitumen division sells ready-mix concrete and bitumen and supports theEPC division. ABL owns 14 RMC plants with a total production capacity of 650 cubicmetres per hour and 86 concrete transit trucks and 19 concrete pumps. This division alsosells and processes bitumen to a higher grade for use in road projects from its plant inPune with a capacity of 60 metric tonnes per day.

Toll collection contract division

ABL also has a toll collection contract division to leverage its experience of collecting tollson our BOT projects and has proprietary computerised toll revenue auditing system. ABLhas entered into four agreements to collect tolls on roads/bridges owned and constructedby third parties, but currently they are not tolling any project, their last contract expired inFebruary 2007.

Management Bandwidth

Ashok M. Katariya, aged 61 years, is the Executive Chairman of the Company. He is agold medalist in Bachelor of Engineering (B.E.) from COEP, Pune University, India. AshokM. Katariya has previously worked with the Public Health Department in Maharashtra. In1975, he started working as a contractor to the PWD, Maharashtra. Subsequently, heventured into civil construction and infrastructure development. He has received the "UdyogRatna" award from Indian Economic Council and Life Time Achievement award from theAssociation of Consulting Civil Engineers.

Satish D. Parakh, aged 50 years, is the Managing Director of the Company. He holds aB.E. degree in civil engineering. Satish D. Parakh has been with the Ashoka Group since1982 and has executed various industrial/residential and BOT projects. He has previouslyworked with Shapoorji Pallonji & Company. He is a Member of Maharashtra EconomicDevelopment Council. He was also the chairman of the Institute of Engineers, Nashik in2007.

Sunil B. Raisoni, aged 48 years, is an Executive Director of the Company. He holds aDiploma in civil engineering. Sunil B. Raisoni has an experience of over 26 years in thesector of civil engineering. He has been involved with execution of projects such as MandveBridge, Pune-Shirur Road Project and the Nagar-Karmala Road Project for Ashoka BuildconLimited.

Ashoka Buildcon Ltd


Year Ended March (Figures in Rs mn)


[email protected] 45

Income Statement FY09 FY10 FY11E FY12E FY13E

Balance Sheet FY09 FY10 FY11E FY12E FY13E

Cash Flow Statement FY09 FY10 FY11E FY12E FY13E

Key Ratios FY09 FY10 FY11E FY12E FY13E

Revenues 7,423 11,162 13,088 18,627 24,182

Growth (%) 127.4 50.4 17.2 42.3 29.8

Operating Profit 1,211 1,488 1,649 2,198 2,853

Other Income 133 156 200 240 250

EBIDTA 1,345 1,644 1,849 2,438 3,103

Growth (%) 80.5 22.3 12.4 31.9 27.3

Depreciation & Amortization 331 356 384 410 436

EBIT 1,014 1,289 1,465 2,028 2,668

Interest Charges (Net) 449 342 457 552 692

PBT (Before E/o items) 564 947 1,007 1,476 1,975

Tax provision 91 235 242 354 474

E/o Income / (Loss) - - - - -

Net Profits 478 757 766 1,122 1,501

Adjusted Net Profits 474 712 766 1,122 1,501

Growth (%) 115.6 50.3 7.5 46.5 33.8

Basic EPS (Rs) 10.4 15.6 14.5 21.3 28.5

Diluted EPS (Rs) 10.4 15.6 14.5 21.3 28.5

Growth (%) 115.6 50.3 (6.7) 46.5 33.8

Profit before tax 568 992 1,007 1,476 1,975

Depreciation 117 142 172 206 244

Income from inv & int. (profit) - - (200) (240) (250)

Interest paid 449 342 457 552 692

Taxes (85) (223) (227) (329) (434)

(Inc)/Dec in working capital 1,314 807 (239) (791) (972)

Other operating activities (1,619) (1,396) - - -

Cash from operations 896 769 1,183 1,078 1,447

Net capital expenditure (436) (216) (377) (300) (265)

Net Investments (282) (178) (1,055) (1,550) (1,250)

Interest & dividend recd 62 78 200 240 250

Cash from inv. activities (656) (316) (1,232) (1,610) (1,265)

Equity raised/(repaid) - 837 2,250 - -

Debt raised/(repaid) 163 (823) 250 750 1,500

Dividend (incl. tax) - - - - -

Other financing activities (449) (358) (457) (552) (692)

Cash from finan. activities (286) (344) 2,043 198 808

Inc/(Dec.) in cash (46) 108 1,994 (334) 990

Equity Share Capital 457 457 526 526 526

Reserves & Surplus 2,721 3,468 6,414 7,536 9,037

Shareholders' Funds 3,309 4,049 7,065 8,187 9,688

Minorities Interest - - - - -

Total Debt 3,255 3,269 3,519 4,269 5,769

Capital Employed 6,564 7,318 10,583 12,455 15,457

Fixed Assets 1,055 1,105 1,295 1,525 1,681

Cash & cash eq. 479 587 2,582 2,248 3,238

Net current assets 3,591 4,083 6,118 6,236 7,871

Investments 1,935 2,160 3,215 4,765 6,015

Deferred tax asset (18) (30) (45) (70) (110)

Total Assets 6,564 7,318 10,583 12,455 15,457

OPM (%) 16.3 13.3 12.6 11.8 11.8

Net Margin (%) 6.4 6.4 5.9 6.0 6.2

Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0

Net Debt/Equity (x) 0.8 0.7 0.1 0.2 0.3

Net working capital (days) 81 73 69 64 64

ROACE (%) 16.1 19.1 16.4 17.6 15.7

ROANW (%) 16.2 21.3 14.1 15.0 17.0

EV/Sales (x) 2.2 1.5 1.2 0.9 0.7

EV/EBIDTA (x) 13.5 11.0 9.9 7.4 5.7

PER (x) 25.0 16.6 17.8 12.2 9.1

PCE (x) 20.1 13.9 14.5 10.3 7.8

Price/Book (x) 3.3 2.7 1.8 1.6 1.4

Standalone Financials

Ashoka Buildcon Ltd



Ashoka Buildcon Ltd







Revenues 5,184 7,956 9,965 14,901 17,915

Growth (%) 60.6 53.5 25.3 49.5 20.2


Other Income 150 182 240 300 350

EBIDTA 1,790 2,324 2,944 4,727 5,519

Growth (%) 27.1 29.8 26.7 60.6 16.8

Depreciation & Amortization 645 661 770 1,050 1,175

EBIT 1,145 1,663 2,174 3,677 4,344

Interest Charges (Net) 646 490 700 1,468 1,652

PBT (Before E/o items) 499 1,173 1,473 2,210 2,693

Tax provision 116 319 398 619 754


Net Profits 348 804 985 1,471 1,784


Growth (%) 3.7 129.5 23.3 49.3 21.3

Basic EPS (Rs) 7.6 17.5 21.6 27.9 33.9

Diluted EPS (Rs) 7.6 17.5 18.7 27.9 33.9

Growth (%) 3.7 129.5 7.1 49.3 21.3

Profit before tax 499 1,177 1,473 2,210 2,693

Depreciation 645 661 770 1,050 1,175

Income from inv & int. (profit) - - (240) (300) (350)

Interest paid 646 490 700 1,468 1,652

Taxes (111) (307) (383) (601) (732)

(Inc)/Dec in working capital 368 (889) (224) (1,559) (685)

Other operating activities 94 512 - - -

Cash from operations 2,092 1,553 2,187 2,388 3,908

Net capital expenditure (3,664) (4,777) (5,054) (6,269) (6,920)

Net Investments (194) (576) (800) (1,400) (1,400)

Interest & dividend recd 41 466 104 (121) (208)

Cash from inv. activities (3,818) (4,887) (5,750) (7,790) (8,528)

Equity raised/(repaid) - - 2,250 - -

Debt raised/(repaid) 2,105 3,995 4,500 5,250 5,250

Dividend (incl. tax) - - - - -

Other financing activities (682) (507) (700) (1,468) (1,652)

Cash from finan. activities 1,423 3,488 6,050 3,782 3,598

Inc/(Dec.) in cash (302) 154 2,487 (1,620) (1,023)




Minorities Interest 287 813 903 1,023 1,178

Total Debt 7,226 11,221 15,721 20,971 26,221


Fixed Assets 4,636 9,283 13,907 9,250 16,031

Cash & cash eq. 692 845 3,333 1,713 690


Investments 911 1,487 2,287 3,687 5,087


Total Assets 10,936 16,658 24,483 31,324 38,513

OPM (%) 31.6 26.9 27.1 29.7 28.9

Net Margin (%) 6.7 10.0 9.9 9.9 10.0

Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0

Net Debt/Equity (x) 1.9 2.2 1.6 2.1 2.3


ROACE (%) 12.1 12.5 11.0 13.7 10.2

ROANW (%) 11.1 20.6 16.1 17.4 17.7

EV/Sales (x) 4.6 3.0 2.4 1.6 1.3

EV/EBIDTA (x) 14.7 11.2 8.9 5.4 4.7

PER (x) 34.1 14.9 13.9 9.3 7.7

PCE (x) 12.0 8.1 6.8 5.4 4.6

Price/Book (x) 3.2 2.4 1.4 1.4 1.2

1 year forward rolling P/E Band 1 year forward rolling P/B Band

7x

9x

10x

11x

Consolidated Financials

150

220

290

360

430


8x

200

240

280

320

360


1.3x

1.5x

1.6x

1.4x

Initi

atin

g C

over

age


IRB INFRASTRUCTURE DEVELOPERS LTD.

Initiating CoverageSector: InfrastructureBSE Sensex: 19,292 RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH

BUYCMP Rs185TP Rs253

IRB's unique ability to win bids at competitive levels v/s L2and L3 is a trademark. We understand that IRB identifiesassets, and bids as per competitive and strategic value. Thisgives us immense confidence about IRB's businesssustainability. Recent correction in the stock price makesIRB a valuable investment proposal at 2x P/BV FY13E.

Ability to win the right project at the right time…

IRB has demonstrated the knack to win large strategic BOT assets;Mumbai-Pune and Surat-Dahisar are good proven example. Therecent Vadodra-Ahmedabad win, has been underscrutiny from thefinancial community, we believe given the management's businesscredentials and worst case 13% equity IRR, would not be valueerosive to the shareholders. We currently assign no value to theproject due to the long gestation towards financial closure.

Cashing EPC…

IRB has consistently made abnormally high EPC margins, 20%in FY10 and 25% in FY11E. This has resulted in strong free cashflow, increasing the ability to take more future projects at low dilutionrisk. We maintain margins at 18%-19% for FY12E and FY13E.We expect the EPC division to record 52% CAGR in FY10-13E.

BOT projects to record 15% revenue CAGR over FY10-13E

The BOT segment is expected to deliver healthy CAGR of 15%over FY10-13E on back of addition of new toll roads and rateincreases. We expect the Tumkur-Chitradurga and Kolhapur projectto start tolling in FY12 at Rs1.5bn and Rs402mn resp. and factor18% rate increases in Mumbai-Pune Expressway, NH4 (16%-oldMumbai Pune highway), and Pune-Solapur highway in FY12 andKolhapur and Pune-Nashik in FY13.

VALUATION AND RECOMMENDATION

We value EPC business at PE multiple of 11x for its FY12Eearnings of Rs8.2 and thus arrive at a value of Rs90. We valuethe BOT project at Rs138, at 12% cost of equity for operationalprojects and 14% for under-construction projects. We value theland at a discount to market price at Rs10 per share and cash inbook at 1x, at Rs15 per share, arriving at a SOTP valuation ofRs253.

47

STOCK DATA

Market Cap Rs61.3bn.Book Value per share Rs89.1Eq Shares O/S (F.V. Rs10) 332.4mn.Free Float 25.2%Avg Traded Value (6 mnths) Rs470mn52 week High/Low Rs313/148Bloomberg Code IRB INReuters Code IRBI.BO

PERFORMANCE (%)

1M 3M 12MAbsolute (7.6) (16.6) (33.1)Relative (9.3) (18.0) (40.1)

SHAREHOLDING PATTERNName % holdingPromoters 74.8FII 14.1DII 3.9Others 7.3

29 April 2011




KEY RATIOS

FY09 FY10 FY11E FY12E FY13ENet Revenues 9,918 17,049 25,160 35,219 42,943YoY Gr. (%) 35.4 71.9 47.6 40.0 21.9Operating Profit 4,388 7,990 11,010 13,502 15,291OPM (%) 44.2 46.9 43.8 38.3 35.6Adj. Net Profits 1,758 3,854 4,958 5,629 5,069YoY Gr. (%) 54.3 119.3 28.6 13.5 (10.0)


150

200

250

300

350

May -10 Aug-10 Oct-10 Jan-11 Apr-11

IRB BSE (Rebased)


RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH IRB Infrastructure Developers Ltd.

Ability to win the right project at the right time

The inflection point in IRB’s history has been winning the prestigious Mumbai-PuneExpressway (MPEWL), which today is a cash cow. When it won the project, the viability ofproject and IRB’s ability to pay Rs9.2bn upfront and manage the road were questioned.Today, however, MPEWL is amongst the busiest and the highest per-day toll-collectingroads. Continuing with its legacy of winning prestigious projects, in FY08, IRB won theSurat-Dahisar project, which made logical sense since it already had the Bharuch-Suratstretch in its portfolio. In FY10, in a relatively lower competitive environment, IRB won383km length of project vis-à-vis 114 km in FY11 in a highly competitive scenario, thusavoiding aggressive bidding rounds.

Mumbai Pune Expressway - Strong cashflow (Rs mn)


6

1,3551,2421,474

1,1491,178

2,3902,110

1,452

1,116

-

650

1,300

1,950

2,600

FY09 FY10 FY11E FY12E FY13E

FCFE FCFF

IRB - Portfolio growth


782 803994 1,007

1,664

782

1,086 1,129

1,454

1,774

-

500

1,000

1,500

2,000


Leng

th k

m

Operational Adj. length km Operational+Underconstruction Adj. length km

Mumbai Pune Expressway - Strong revenue stream (Rs mn)Particulars FY09 FY10 FY11E FY12E FY13E

Revenue 2,883 3,063 3,247 4,042 4,305MPEW 1,877 2,006 2,136 2,521 2,685NH4 1,006 1,057 1,126 1,306 1,391Ebidta 2,332 2,552 2,727 3,436 3,659PAT 500 556 788 1,283 1,509




Cash flow from EPC enables competitive bidding

Bagging bigger projects has strengthened IRB’s EPC arm, which is making PBITD marginof above industry average at 20% for FY10 and 25% for FY11E. This has resulted in freecash flow generation from the EPC arm and the existing profitable MPEWL has lent comfortto the company in bidding for bigger and more lucrative projects at competitive rates. Thisalso resulted in executing projects without equity dilution, unlike other infrastructuredevelopers.

Mumbai Pune Expressway Upfront payment (Rs mn)

IRB Infra 9,180

Gammon India, Ashoka Buildcon & Viva Highways JV 9,100

Shaktikumar Sancheyati, Sangam India & Nidihi Mercantile JV 8,000

Surat Dahisar Revenue sharing (%)

IRB Infra 38.0%

L&T 35.2%

Reliance Energy 33.6%

Jaipur- Deoli Grant (Rs mn)

IRB Infra 3,060

L2 3,150

Amritsar- Pathankot Grant (Rs mn)

IRB Infra 1,270

L2 1,620

Goa- Karnataka Grant (Rs mn)

IRB Infra 1,860

L2 1,875

Talegaon- Amravati Grant (Rs mn)

IRB Infra 2,160

L2 2,261

Tumkur - Chitradurg Premium (Rs mn)

IRB Infra 1,404

BSCPL 1,271

Sadbhav 1,110

Gammon 1,110

Ahmedabad-Vadodara Expressway Premium (Rs mn)

IRB 3,096

Madhucon Projects 1,917

Oriental Structures 1,369

BID lost

Belgaum- Dharwad Premium (Rs mn)

Ashoka Buildcon 310

IDFC - Plus Expressway 300

IRB Infra 288

List of competitive bidding



BOT Details

Source: Company, PINC Research *not adjusted for stake

Particulars Total Length Lane Holding Stake Stake Lane Equity investedCost (Rs mn) Equity (kms) (Km) (%) (km) (km) till date* (Rs mn)

MIPL 12,920 1,050 206 1014 100 206 1014 1,050Surat Dahisar 25,870 12,330 239 1432 90 215 1289 4,840IDAA (surat Bharuch) 14,040 1,930 65 390 100 65 390 1,934IRB Infra (Kharpada Bridge) 320 100 1 3 100 1 3 100NKT (Nagar -Karmala- Tembhurni) 368 150 60 120 100 60 120 150TGTRPL (Thane Ghodbunder) 2,485 319 15 60 100 15 60 2,370ATRPL (Pune Nashik) 740 60 30 119 100 30 119 518ATR Infra (Pune Solapur) 630 180 26 104 100 26 104 450Thane Bhiwandi 1,040 340 24 96 100 24 96 610MMK (Mohol Kamtee) 450 150 33 67 100 33 67 70IRDP, Kolhapur 4,300 1,720 50 100 100 50 100 1,720Panji Goa 8,213 3,350 69 276 100 69 276 1,072Amritsar Pathankot 14,417 3,908 102 408 100 102 408 1,048Jaipur to Deoli 17,057 4,997 149 595 100 149 595 1,490Talegaon Amravati 8,850 1,941 67 267 100 67 267 626Tumkur Chitradurga 10,800 3,240 114 684 100 114 684 -Total 122,499 35,764 1,250 5,735 - 1,226 5,592 18,048

Largest integrated player; present in entire value chain of the BOT project

IRB Infrastructure is among the largest integrated players with a presence across theentire value chain of a BOT project. It has 10 operational and 6 under-construction projectstotaling 5735 lane km. IRB won projects on DBOT basis as well as O&M and tollingcontracts. This along with a strong in-house EPC arm makes IRB the largest integratedplayer in the country. This helps the company reduce costs and maintain a healthyoperational margin.

IRB Infrastructure Developers Ltd.



Key beneficiary of NHAI awarding process in recent years

IRB which already owns ~750km and has added ~500km (~2222 lane km) of road length inthe past two years totaling c1250km (c5735 lane km). It has cornered 6% of NHAI’s awarding.As against its earlier strategy of concentrating on Maharashtra, IRB expanded to otherparts of the country and won five new projects. As NHAI targets to award c7300km of roadproject in FY12, we expect IRB to try and maintain its share of 6-8% of awarding.Incrementally, IRB is looking at mega projects to build its portfolio and has already tied upwith Reliance Infra to bid for mega projects as the size of the project is more than USD1bn.Recently, IRB won six laning of Ahmedabad-Vadodara highway and improvement of existingExpressway, the concession period is for 25yrs and entails a project cost of Rs36bn. IRBwill pay a premium of Rs3.1bn every year with 5% increase. We have not valued thisproject as of now, given its pending financial closure. Given its strong balance sheet andcomfortable cash position, we believe IRB is poised to win billion dollar worth of projecteach year without diluting equity.

List of Mega HighwaysProject State Km Nature

Kishangarh-Udaipur-Ahmedabad Rajasthan / Gujarat 557 Six laning

Ichapuram-Visakhapatnam-Rajahmundry AP 436 Six laning

Dhule-Jalgaon-Akola-Amravati Maharshtra 485 Four laning

Gwalior-Shivpur-Biaora-Dewas MP 450 Four laning

Amritsar-Bikaner-Nagaur-Jodhpur-Pali Punjab /Rajasthan 700 Two laning

Lakhnadon-Jabalpur-Katni-Reva MP 284 Four laning

Indapur-Goa/Maharashtraborder Maharashtra / Goa 390 Four laning

Ahmedabad-Bamanbore-Rajkot-Gondal Gujarat 425 Four laning

Bhavnagar-Pipavav-Porbandar-Dwarka Gujarat 445 Six / Four laning

Beawar-Pali-Pindwara Rajasthan 246 Four laning

Baihata Chariali-Banderdewa Assam 314 Four laning

Total 4,732

Source: NHAI, Media, PINC Research



Revenue CAGR of 36% over FY10-13E – EPC to drive growth

EPC revenue CAGR of 52% over FY10-FY13EWe expect IRB to record 36% revenue CAGR over FY10-13E, driven largely by the EPCsegment. Currently, IRB has five (including three recently won projects) projects underconstruction with order book of Rs89.8bn. The other two projects, Tumkur-Chitradurga andGoa-Karnataka are also likely to go into construction by Q2FY12. We expect the EPCdivision to record 52% CAGR in FY10-13E. However, IRB continues to surprise in its EPCmargin at 25% in FY11E, due to lower raw material prices in the Surat-Dahisar projectagainst higher cost built in during bidding. We expect the margin to soften to 19% in FY12and to 18% in FY13.

BOT projects to record 15% revenue CAGR over FY10-13E

The BOT segment is expected to deliver healthy CAGR of 15% over FY10-13E on back ofaddition of new toll roads, toll increases and traffic growth. We expect the Tumkur-Chitradurga and Kolhapur project to start tolling in FY12 at Rs1.5bn and Rs402mn resp.and expect major toll rate increases in the Mumbai-Pune Expressway (18%), NH4 (16%–old Mumbai Pune highway), and Pune-Solapur highway in FY12 and Kolhapur and Pune-Nashik in FY13.

EPC revenue & Margin (Rs mn)


9,14416,912

25,26932,060

18.019.022.8

16.3

0

10,000

20,000

30,000

40,000

FY10 FY11E FY12E FY13E0.0

6.0

12.0

18.0

24.0Rev enue Ebidta Margin


Order book details (Rs mn)

EPC & ongoing BOT projects 49,480

BOT projects in O&M Phase 21,025

Funded Construction projects 210

BOT projects under award 19,140

Total 89,855

O&M Contracts23%

Surat-Dahisar16%

IRDP Kolhapur2%Panji-Goa

8%Amritsar-Pathankot

13%

Jaipur-Tonk-Deoli16%

Sindhudurg Airport2%

Tumkur-Chitradurga12%

Funded work0%

Order Book Mix



BOT Revenue (Rs mn) & Margins (%)


Key project avg revenue per day (Rs mn)


Other project avg revenue per day (Rs mn)


7,214 8,248 9,950 10,883

85.486.2

86.8

88.5

0

3,000

6,000

9,000

12,000

FY10 FY11E FY12E FY13E82.0

84.0

86.0

88.0

90.0BOT Rev enue Ebidta Margin

8.7 8.89.0

10.4

8.49.5 10.1 9.7

7.9 8.4 8.3 8.5 8.8

3.83.33.5 3.3

0

3

6

9

12

Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11

Surat Dahisar BOT Project Mumbai -Pune BOT Project Bharuch -Surat BOT Project

1.5

0.8

0.6 0.60.4 0.4 0.40.2 0.2 0.20.2

1.31.51.4

1.2 1.2

0.70.80.7 0.80.8

0.50.50.50.4

0.20.0

0.4

0.8

1.2

1.6

Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11

Thane Bhiw andi By pass 4 Lane BOT Project Thane Ghodbunder BOT Project Pune -Nashik BOT Project Pune -Sholapur BOT Project Nagar -Karmala -Tembhurni BOT Project Mohol -Mandrup -Kamtee BOT Project Kharpada Bridge BOT Project

BOT revenue to grow at cagrof 15.5% over FY10-FY13E...

i.e. daily revenue to increasefrom Rs20mn to 30mn byFY13E...

Key projects has mainatineda healthy momentum...



P/E - One year forward

P/B - One year forward


5

15

25

35

45

Feb-08 Dec-08 Sep-09 Jul-10 Apr-11

P/E Av . P/E

Av g+1std dev Av g-1std dev

1.0

2.0

3.0

4.0

5.0



Valuation – Projectwise BOT revenue

Valuation and Recommendation

We use sum-of-the-parts methodology to value IRB. We value its EPC business using thetraditional PE method and BOT projects on DCF basis. For its EPC business, we assigna PE multiple of 11x (earlier 12x) for its FY12E earnings of Rs8.2 and thus arrive at a valueof Rs90. We value the BOT project at Rs138, valuing cost of equity at 12% for operationalprojects and 14% for under-construction projects. We value the land at a discount tomarket price at Rs10 per share and cash in book at 1x, at Rs15 per share, arriving at aSOTP valuation of Rs253.

Available at substantiallycorrected valuation, thestock provides an entry levelfor longterm investors...aswe believe roads and IRBare here to stay

Available at 2x P/BV againstavg of 3x P/BV...



SOTP ValuationParticulars Holding Length Debt: Total Cost New NPV/

(%) (kms) Equity (mn) Share

MIPL 100 206 11.3 12,920 44.5Surat Dahisar 90 239 1.1 25,870 7.9IDAA (surat Bharuch) 100 65 6.3 14,040 18.8IRB Infra (Kharpada Bridge) 100 1 2.2 320 0.8NKT (Nagar -Karmala- Tembhurni) 100 60 1.5 368 1.7TGTRPL (Thane Ghodbunder) 100 15 6.8 2,485 8.2ATR Infra (Pune Solapur) 100 30 11.3 740 5.5ATRPL (Pune Nashik) 100 26 2.5 630 2.4Thane Bhiwandi 100 24 2.1 1,040 7.5MMK (Mohol Kamtee) 100 33 2.0 450 1.0IRDP, Kolhapur 100 49 1.5 4,300 11.4Panaji Goa 100 65 0.9 8,213 3.6Amritsar Pathankot 100 102 2.4 14,417 6.9Jaipur to Deoli 100 149 1.8 17,057 9.2Talegaon Amravati 100 67 2.4 8,850 8.1Tumkur Chitradurga 100 114 2.3 10,800 0.3BOT Fair Value 138

Construction BusinessMRMPL FY12E Net Profits 2,715No. of Shares (IRB Cons.) 332EPS contribution to IRB 8Assigned P/E multiple 11Fair Value per Share 90

Real Estate @ Rs4mn/acre 3,300Fair Value per Share 10

Cash in Holding Company's Books 15

SOTP 253





Background

IRB started in 1977 as road construction company and is today one of the largest roaddevelopers in India. IRB is among the few companies that has in-house design, build andoperational capabilities. The company manages one of the largest road portfolios in Indiawith 10 operational and 6 under-construction BOT road assets totaling 1250km (5735lane km) of BOT road assets.

Mr. Virendra D. Mhaiskar is the Chairman and Managing Director of IRB. He is responsiblefor spearheading the group’s business and strategy. He is a civil engineer with more than20 years experience in the construction and infrastructure industry.

Mr. Dattatraya P. Mhaiskar is a civil engineer with more than 50 years experience in theconstruction and infrastructure industry. He is the chief mentor of the group. In 1977, Mr.Mhaiskar promoted IRBPL, a subsidiary of IRB

Mrs. Deepali V. Mhaiskar is the Executive Director of IRB. She joined the company in1998. She is an economics graduate and oversees administration of the company.

IRB Group Structure

Engineering & Construction

Modern Road Makers Pvt. Ltd.(100%)

Real Estate

Aryan InfrastructureInvestments Pvt. Ltd. (66%)

Lolhapur Hotel Project(100%)

BOT Projects

Operational

IRDP, Kolhapur (100%)

Under construction

Mhaiskar Infrastructure PrivateLtd. (Mumbai-Pune) (100%)

Surat - Dahisar (90%)

IDAA Infrastructure Private Ltd.(Bharuch-Surat) (100%)

IRB Infrastructure Private Ltd.(Patalganga-Kharpada)

(100%)

NKT Road & Toll Private Ltd.(Ahmednagar - Karmala-

Tembhurni) (100%)

Thane Ghodbunder Toll RoadPrivate Ltd. (100%)

ATR Infrastructure Private Ltd.(Pune-Nashik) (100%)

Aryan Toll Road Private Ltd.(Pune-Solapur) (100%)

Thane Bhiwandi (100%)

MMK Toll Road Private Ltd.(Mohol-Kurul-Kamati-Mandrup

Road) (100%)

Goa Karnataka Border (100%)

Amritsar Pathankot (100%)

Jaipur Deoli (100%)

Talegaon Amravati (100%)

Tumkur Chitradurga (100%)

IRB Infrastructure Developers Ltd. (IRB)

Ahmedabad - Vadodara Highway(100%)











Revenues 9,918 17,049 25,160 35,219 42,943

Growth (%) 35.4 71.9 47.6 40.0 21.9


Other Income 282 490 622 537 629

EBIDTA 4,669 8,480 11,632 14,040 15,920

Growth (%) 0.7 81.6 37.2 20.7 13.4

Depreciation & Amortization 1,144 1,819 2,287 2,560 4,256

EBIT 3,526 6,661 9,345 11,479 11,664

Interest Charges (Net) 1,377 2,494 3,047 4,084 4,576

PBT (Before E/o items) 2,149 4,167 6,298 7,395 7,088

Tax provision 378 787 1,232 1,667 2,103

Minority Interest 13 179 109 99 (84)

Net Profits 1,758 3,854 4,958 5,629 5,069

Adjusted Net Profits 1,758 3,854 4,958 5,629 5,069

Growth (%) 54.3 119.3 28.6 13.5 (10.0)

Basic EPS (Rs) 5.3 11.6 14.9 16.9 15.3

Diluted EPS (Rs) 5.3 11.6 14.9 16.9 15.3

Growth (%) 54.3 119.3 28.6 13.5 (10.0)

Profit before tax 2,149 4,167 6,298 7,395 7,088

Depreciation 1,144 1,819 2,287 2,560 4,256

Income from inv & int. (profit) (184) (291) (622) (537) (629)

Interest paid 1,344 2,437 3,047 4,084 4,576

Taxes (424) (812) (1,232) (1,667) (2,103)

(Inc)/Dec in working capital (1,401) 1,849 (234) 248 (339)

Other operating activities 35 15 - - -

Cash from operations 2,615 9,033 9,544 12,084 12,849

Net capital expenditure (8,114) (10,657) (21,658) (20,946) (18,685)

Net Investments 953 (713) - - -

Interest & dividend recd 90 4 622 537 629


Equity raised/(repaid) - - - - -


Dividend (incl. tax) (223) (429) (681) (681) (700)

Other financing activities (952) (2,455) (3,047) (4,084) (4,576)


Inc/(Dec.) in cash (123) 241 1,781 (589) 17

Equity Share Capital 3,324 3,324 3,324 3,324 3,324



Minorities Interest 599 779 887 986 902

Total Debt 24,859 29,152 46,152 58,652 69,152

Deferred Tax liability 182 267 267 267 267


Fixed Assets 34,707 43,477 63,148 81,878 96,327

Cash & cash eq. 4,147 5,102 6,583 5,649 5,646


Investments 1,108 451 451 451 451

Total Assets 42,940 50,597 71,983 89,531 104,316

OPM (%) 44.2 46.9 43.8 38.3 35.6

Net Margin (%) 17.7 22.6 19.7 16.0 11.8

Dividend Yield (%) 0.9 0.8 0.9 0.9 1.0

Net Debt/Equity (x) 1.2 1.2 1.6 1.8 1.9

Net working capital (days) 107.7 32.9 25.6 15.8 15.8

ROACE (%) 12.7 19.4 23.4 22.6 18.2

ROANW (%) 10.5 20.4 22.0 20.7 15.9

EV/Sales (x) 8.3 5.0 4.0 3.2 2.9

EV/EBIDTA (x) 18.7 10.7 9.2 8.5 8.2

PER (x) 34.9 15.9 12.4 10.9 12.1

PCE (x) 21.1 10.8 8.5 7.5 6.6

Price/Book (x) 3.5 3.0 2.5 2.1 1.8


5x

10x

15x

20x


0

100

200

300

400

500


25x

-

100

200

300

400


1x

2x

3x

4x

Initi

atin

g C

over

age

IL&FS TRANSPORTATION NETWORKS LTD.


HOLDCMP Rs217TP Rs254

ITNL's emergence as a leading player in BOT space is hereto stay with likely 1000km of win over next 2yrs (+700km inFY10-FY11). In the medium term we would like to see andassess more the performance of its BOT assets, given thatinitial phase could be low in profitability (Consolidatedproject IRR), also EPC capability is low (outsourced model)leading to lower valuation multiple for the business. Werecommend HOLD rating.

Strong wins in last two years - the run should continue...ITNL has a total of 12,000 lane km, which includes the Almaty-Horgos project. ITNL added 2,851lane km in FY10, and 2,600 lanekm in FY11. Given the high NHAI and State outlay, we expect themomentum to continue. We forecast ITNL to win 525km and 520kmprojects in FY12E and FY13E. Our estimates are based on ITNL's4.5% - 5% share in NHAI projects and rest from state projects.BOT Performance - Mixed bagThe current portfolio is a mixed bag, though the projects arerelatively new. Performance of RIDCOR (ph I) and West Gujaratneed to improve. RIDCOR (ph I) will generate profit only by FY16.Valuation could be impacted... in the initial stageITNL has eight projects that are debt heavy, most of which areloaded with sub-debt financed by ITNL at higher interest rate. Aproject may not be profitable initially but ITNL would be able togarner cash as interest income from such projects. Fee and Interestincome could not be strong value drivers.From fee to EPC…ITNL will keep a light balance sheet and outsource work to local ortier-II contractors. But as ITNL does not build infrastructure towardsbuilding EPC capability, there is no incentive for investors to provideattractive multiples to EPC revenue.VALUATION AND RECOMMENDATIONWe recommend a HOLD rating with a SOTP based target price ofRs254, we have not valued the MP border check post andChhattisgarh project, the total value of the BOT projects is Rs115(Rs22.2bn), EPC business has been valued at 7x (light assetmodel) at Rs125 per share and Elsamex at Rs14 per share (1xequity invested)

29 April 2011




KEY RATIOS

FY09 FY10 FY11E FY12E FY13ENet Revenues 12,254 24,029 33,933 55,452 68,905YoY Gr. (%) - 96.1 41.2 63.4 24.3Operating Profit 1,833 7,942 10,441 12,344 16,000OPM (%) 15.0 33.1 30.8 22.3 23.2Adj. Net Profits (179) 3,295 3,946 4,213 5,177YoY Gr. (%) - (1,941.2) 19.7 6.8 22.9

Diluted EPS (Rs) (1.0) 17.0 20.3 21.7 26.6ROACE (%) 18.4 21.0 17.7 15.4 12.4ROANW (%) 5.9 27.0 21.5 19.4 20.1PER (x) - 12.8 10.7 10.0 8.2EV/Sales (x) 5.7 2.9 2.1 1.3 1.0EV/EBIDTA (x) 38.1 8.8 6.7 5.7 4.4


Initiating CoverageSector: InfrastructureBSE Sensex: 19,292

STOCK DATA

Market Cap Rs42.2bn.Book Value per share (FY12) Rs131Eq Shares O/S (F.V. Rs10) 194.3mn.Free Float 24.9%Avg Traded Value (6 mnths) Rs30.7mn52 week High/Low Rs368/189Bloomberg Code ILFT INReuters Code ILFT.BO

PERFORMANCE (%)

1M 3M 12MAbsolute 4.0 (18.4) (22.7)Relative 2.1 (19.7) (30.8)


150

210

270

330

390


ILFT BSE (Rebased)

58


RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH IL&FS Transportation Networks Ltd.

BOT DetailsTotal Total Length Lane Holding Stake Stake Lane Equity invested

Particulars Cost ( Rs mn) Equity (kms) Km (%) (km) (km) till date*

East Hyd Expressway 4,278 293 13 173 74% 10 128 293Guj Rd & infra 4,657 1,265 131 523 84% 110 437 1,265IRIDCL (Beawer Gomti) 3,550 400 116 248 100% 116 248 400North Karnataka (Belgaum) Expressway 5,995 1,000 78 472 87% 68 411 1,006West Gujarat Expressway 2,758 400 67 389 100% 67 389 400Andhra Pradesh Expressway 7,871 337 75 328 100% 75 328 337Hazaribagh ranchi Expressway 8,692 1,310 71 319 74% 53 236 1,311Pune-Sholapur 14,027 1,600 101 571 100% 101 571 1,600Jharkhand Rd 14,078 1,702 98 466 100% 98 466 851Moradabad 19,836 2,217 121 522 100% 121 522 1,108Chenani - Nashria 39,842 5,194 11 38 100% 11 38 -Chhattisgarh 23,000 4,693 684 1,368 74% 506 1,012 -Noida Toll 5,888 3,308 8 60 25% 2 15 3,308Ramky Elsamex 3,994 450 13 152 26% 3 40 450Thiruvanthapuram (Phase I & II) 3,724 1,491 42 158 50% 21 79 1,015RIDCOR 16,180 1,000 1,053 2,106 50% 527 1,053 250Jorabat - Shillong 8,240 840 62 262 50% 31 131 210Narketpally - Addanki 17,289 2,343 213 888 50% 107 444 469Chandrapur - Warora 6,700 1,760 61 275 35% 21 96 352Total 210,598 31,604 3,018 9,318 2,046 6,644 14,625

Source: Company, PINC Research * not adjusted for stake

The BOT Portfolio

Strong wins in last two years

ITNL’s BOT project size has increased substantially in the past two years. It has a total of12,000 lane km, which includes the Almaty-Horgos project (1,212 lane km). ITNL addedBOT projects with lane km of 2,851 in FY10, and 2,600km in FY11.

BOT Projects won in FY10Projects TPC (Rs mn) length km lane km

Hazaribagh Ranchi Expressway 8,692 71 319

Pune-Sholapur 14,027 101 571

Moradabad 19,836 121 522

Jharkhand Rd 14,078 98 466

Mega Highway Rajasthan 7,500 349 698

Chandrapur – Warora 6,700 61 275Total 70,833 801 2,851


BOT Projects won in FY11Projects TPC (Rs mn) length km lane km

Chenani - Nashria 37,200 11 38

Jorabat - Shillong 8,240 62 262

Narketpally - Addanki 17,605 213 888

MP entry point 10,940 - -Total 73,985 285.9 1,188




The run should continue...

Given the high projected NHAI outlay and state projects, we expect the momentum tocontinue. We forecast ITNL to win 525km and 520km projects in FY12 and FY13. Ourestimates are based on ITNL’s 4.5%-5% share in NHAI projects and rest from state projects.This will enhance near-term performance and help record higher revenue from construction,fee income and O&M. Thus, we believe that business growth is not a concern over the next2-3 years.

Consolidated sales mix


Standalone sales mix


48.5 58.873.7 74.1

38.4 28.417.2 13.7

9.3 11.5 8.3 11.60.60.91.43.8

0%

25%

50%

75%

100%

FY10 FY11E FY12E FY13E

Construction Rev enue Elsamex Toll/Annuity Fee Income

11,642 19,95840,867

51,0839,230

9,621

9,5239,426

3,887

7,9614,580

2,242

24.3%

63.4%41.2%

96.1%

-

20,000

40,000

60,000

80,000

FY10 FY11E FY12E FY13E0.0%

30.0%

60.0%

90.0%

120.0%

Construction Rev enue ElsamexToll/Annuity Fee IncomeGrow th (%)

6,908

5,386

4,8294,346800

650

553374

540%

16%51%55%-

8,000

16,000

24,000

32,000

FY10 FY11E FY12E FY13E0%

200%

400%

600%

Construction Rev enue Fee Income 0

O&M Income 0 Grow th (%)

IL&FS Transportation Networks Ltd.

Lane km growth chart


782 803994 1,007

1,664

782

1,086 1,129

1,454

1,774

-

500

1,000

1,500

2,000


Leng

th k

m

Operational Adj. length km Operational+Underconstruction Adj. length km

Standalone sales growth (Rs mn)

Consolidated sales growth (Rs mn)

13.86

54.7572.31 77.65

81.71

41.0424.41 18.87

3.473.294.214.43

0%

25%

50%

75%

100%


Construction Rev enue Fee Income O&M Income



But in the long run, quality/performance of BOT assets is the key

As business growth risk is low given the opportunity, we believe in the long run quality ofBOT assets will be looked at as the essential value driver, although we believe this scenariois at least 2-3 years away.

Performance of ITNL’s BOT assets as of FY10…ITNL’s operational BOT portfolio is relatively new and does not provide a complete overviewof future performance. ITNL follows the practice of awarding tolling contracts which isreviewed yearly. Hence it is a learning curve and BOT projects take 6–18 months to achievetrue traffic potential.

The current portfolio is a mixed bag, though the projects are relatively new. Performance ofRIDCOR (phase I) has to improve substantially and we have not factored in phase II as it islikely to be operational by FY14. We believe Phase I will generate profit only by FY16.

Based on FY10, ITNL booked consolidated revenue of Rs2.2bn, which is adjusted forcapital charge on annuity. Excluding RIDCOR, we expect consolidated PAT of Rs150–250mn. Based on the 9-month FY11 performance, we expect revenue from ITNL’s tolledoperational assets to grow at 43.8% in FY11E, including RIDCOR.

The Guj Rd & Infra Ltd underwent CDR package and ITNL is assured of a guaranteed returnin the project.

Guj Rd & Infra (Ahm Vadodara) West Gujarat RIDCOR

Particulars FY09 FY10 FY11E FY09 FY10 FY11E FY09 FY10 FY11E

Sales 659.7 747.4 828.6 225.3 311.7 329.7 572.0 826.1 1,056.1EBITDA 532.7 623.0 695.9 122.2 210.1 224.4 N.A 636.0 908.2EBITDA margin (%) 81% 83% 84% 54% 67% 68% N.A 77% 86%PAT 96.6 181.8 239.6 -85.4 -166.1 -129.5 N.A -1,535.9 -1,351.9PAT (%) 15% 24% 29% -38% -53% -39% N.A N.A N.AEff interest rate 12% 13% 13% 10% 13% 13% N.A 10.4% 10.5%

BOT Projects won in FY10 (Rs mn)


Projects TPC (Rs mn) Equity Grant Debt D/E D/E&Grant D/TPC

East Hyd Expressway 4,278.0 293.0 776.5 3,208.7 11.0 3.0 0.75Guj Rd & infra 4,657.0 1,265.4 - 3,391.6 2.7 - 0.73IRIDCL (Beawer Gomti) 3,550.0 400.0 390.0 2,760.0 6.9 3.5 0.78North Karnataka (Belgaum) 5,995.0 1,000.0 - 5,278.0 5.3 - 0.88West Gujarat 2,758.0 400.0 180.0 1,974.0 4.9 3.4 0.72Andhra Pradesh Exp 7,870.9 337.0 0.0 7,533.9 22.4 - 0.96Hazaribagh ranchi 8,692.0 1,310.0 0.0 7,382.0 5.6 - 0.85Pune-Sholapur 14,027.0 1,600.0 2,850.0 9,577.0 6.0 2.2 0.68Jharkhand Rd 14,078.0 1,702.0 0.0 12,375.0 7.3 7.3 0.88Moradabad 19,836.0 2,216.6 4,433.0 13,187.0 5.9 2.0 0.66Chenani - Nashria 39,841.7 5,194.2 - 34,647.5 6.7 - 0.87Thiruvanthapuram (Ph I&II) 3,724.0 1,491.0 - 2,233.0 1.5 - 0.60RIDCOR (Ph I) 16,180.0 1,000.0 2,150.0 14,355.0 14.4 4.6 0.89Jorabat - Shillong 8,240.0 840.0 - 7,400.0 8.8 - 0.90Narketpally - Addanki 17,288.6 2,343.4 4,670.2 10,274.9 4.4 1.5 0.59Chandrapur - Warora 6,700.0 1,760.0 1,760.0 3,180.0 1.8 0.9 0.47

Project wise capital structure





Valuation could be impacted... in the initial stageHence, other than traffic and tariff growth, the capital structure of BOT assets will play animportant role in determining profitability of the projects and RIDCOR is a good example of this.

ITNL has eight projects that are debt heavy, most of which are loaded with sub-debt financedby ITNL at higher interest rate. Hence, we would like to highlight that although a projectmay not be profitable initially, ITNL would be able to garner cash as interest income fromsuch projects. However, profitability for such projects at the initial stages may suffer,impacting valuations.

Consolidated project IRR...key to decision making

We would also like to highlight that for ITNL, a BOT project is not a pure project IRR gamefrom traffic and tariff growth perspective. In other words, profitability from toll revenue orannuity alone is not a deciding factor for ITNL. Hence, to arrive at consolidated project IRR,we would need to fully analyze a project across the entire revenue chain comprising fee,construction, and O&M income and interest earned on sub-debt. Further, having IL&FS asa parent would also play a significant part here (financing).

EPC/Fee Income to drive growth...wait and watch for BoT performance

Following this analysis (low profitability in initial phase), we examine that EPC revenue andfee income that will drive valuation over the next 2-3 years following which these woulddepend on the new NHAI/State outlay plans. By this time, the BOT assets would be moremature and provide a better visibility of likely performance.

ITNL has a large annuity portfolio. Further, heavy debt projects may limit substantial valueaccretion. However, it is too early to comment on this. Moreover, ITNL would earn sizeableincome from interest on sub-debt, although it will be netted off during consolidation of otherincome. Nevertheless, this will leave cash for future growth plans. We would not assign ahigh multiple of such cash flow. Ultimately, we need to see how the BOT companies evolvetheir business plans and use BOT cash toward new business avenues.

Project IRR table for projects under constructionProject Project IRR (%) Equity IRR (%) D:EEast Hyderabad Expressway 0.6 2.2 3.0Ramky Elsamax (Hyd RR) 1.5 4.2 6.4

Hazaribagh Ranchi 1.5 8.8 5.6

Pune Solapur 6.6 12.6 6.0

Moradabad 3.7 18.4 5.9

Jharkhand Road 2.6 16.5 7.3

Chennani Nashri 4.4 16.7 6.7Warora-Bamini 10.1 17.8 1.8

Jorbhat shillong 3.6 6.6 8.8

Narkatpally-Addanki 6.6 18.0 4.4





From fee to EPC…

ITNL envisages a change in its revenue model from a fee-based income stream where itcharged 5%–20% of the cost of the project to the respective SPV as project developmentcharges. Henceforth, ITNL will bring down the fee income structure to 3% over the next fewyears. Instead, ITNL would start booking construction/EPC revenue through the respectiveSPVs or the standalone entity. This will lead to income being deferred over a longer period.Strong growth in order book and gradual reduction in fee income will take care of anyadverse reduction/impact on profitability.

Maintain light balance sheet

We would like to highlight that increasing EPC revenue is not at the cost of increase incapital equipment or construction ability. ITNL will keep a light balance sheet and outsourcework to local or tier-II contractors. This will help ITNL from taking on construction risks andWC management issues. Arithmetically, it’s more a transfer of fee income to EPC marginswith a large top line.

EBITDA Mix Consolidated


24.235.1 36.3

49.24.23.8 3.8

3.966.2

56.4 56.143.9

5.3 4.6 3.9 2.9

0%

20%

40%

60%

80%

100%


BOT Consolidated Non BOT Indian SubsidiariesStandalone Ebidta Elsamex Ebidta


EBITDA Mix Standalone

2.515.3

28.5 35.4

96.282.8

69.4 62.0

2.52.11.91.4

0%

25%

50%

75%

100%


Construction Rev enue Fee Income O&M Income



Change in revenue booking

It is difficult to assess the immediate impact of the change of the revenue model on valuations.Neverthelss, we try to arrive at a fair picture using a pro-forma estimate. We believe hadITNL continued with its fee income model, it would have earned fee income in its standaloneentity of Rs8bn for FY12, based on 8.4% rate to the order book as in FY10. Much of thisfee income would have flown to the consolidated profitable entity. Against this, we expectITNL to book Rs40bn construction revenue with EBITDA of Rs3.6bn. Thus, the change inrevenue model appears more as deferment of income since construction would be executedover 2-3 years.

As ITNL does not build infrastructure towards building EPC capability, there is no incentivefor investors to provide attractive multiples to EPC revenue.


Change in revenue booking - No impact (Rs mn)Particulars FY11E FY12E FY13E

Earlier ModelFee Income 6,240 8,112 9,734

Margin assumed @ 80% 4,992 6,490 7,787

Current ModelFee Income 5,386 4,829 4,346

Margin assumed @ 60% 3,231 2,897 2,607

Construction Revenue 19,958 40,867 51,083

Margin assumed @ 10% 1,996 4,087 5,108

Total EBITDA 5,227 6,984 7,716




Order Book - Not an issue…


Order Book (Rs mn)


86,139 96,532 99,174

22,05628,796 32,47114,40615,846 17,431

-

40,000

80,000

120,000

160,000

FY11E FY12E FY13E

NHAI Projects Non NHAI Projects Non Roads

Road win assumptionsFY09 FY10 FY11 FY12E FY13E

NHAI (km) 979 3,216 5,208 6,500 8,000Outlay (Rs mn) 129,210 305,415 349,393 520,000 560,000

Avg Cost per km 132 95 67 80 70AwardsAshoka 60 - 280 228 280

IRB - 383 114 520 560

ITNL - 302 74 325 320

Sadbhav 89 214 - 260 280Share (%)Ashoka 6.1 - 5.4 3.5 3.5

IRB - 11.9 2.2 8.0 7.0

ITNL - 9.4 1.4 5.0 4.0

Sadbhav 9.1 6.7 - 4.0 3.5

Adjusted for stakeAshoka 16 - 280 - -

IRB - 383 114 - -

ITNL - 284 43 - -

Sadbhav 24 177 - - -

State km awardITNL - 309 213 200 200


Order book is likely to growat a CAGR of 11% overFY11E-FY13E...

Our Order book assumptionis understated by the likelyorder wins from non roadprojects and O&M contracts.

We have assumed anaverage project cost per kmof Rs105mn - Rs115mn forITNL...

A single win like Chenanicould lead to high growth inorder book...

Order inflow or businessgrowth is not the concern forITNL



Other Business ventures

Apart from BOT road projects, ITNL is keen to look at other urban infrastructure projects ona case-to-case basis. Nevertheless, in the medium term, the emphasis will continue to beon BOT road assets. Currently, the non-road proportion of assets is small and not a significantvalue driver. These are possible building tools for the next leg of business value.

Rapid Metro Rail Gurgaon Ltd

The company will develop the first fully privately financed Metro Rail project in privatesector in India: the Metro Link from Delhi Metro Sikanderpur Station on MG Road to NH-8over 60 meter wide sector road (Vishwakarma Marg) and on the green belt along NH-8 withprovision for future extension to Sector 55-56 in South and Udyog Vihar and Sector-21Dwarka in North. The route length of the metro link is approx. 5km.

As a first step in this direction, the company received LOI from HUDA (Haryana UrbanDevelopment Authority) in July 2009 and subsequently it signed a 99 years ConcessionContract (CC) with HUDA in December 2009.

The project is expected to be completed in 30 months time after achieving financial closure.As of March 31, 2010, company incurred capital expenditure of Rs303.9mn. The projecthas been financially closed in FY10 and debt of Rs7,700mn has been tied up. We have notyet valued the project as we await further details. ITNL now holds 100% stake in theventure (35% directly and 65% through ITNL Enso Rail System).

Vansh Nimay Infrastructures

The project involves running and maintaining the Nagpur City Bus Services on BOO basis(Build, Own and Operate) for the Municipal Corporation of Nagpur (NMC) for concessionperiod of 10 years since February 9, 2007. The project was approved under the JNNURMscheme.

Initially, the plan was to operate 200 buses. Subsequently, the scope of the project increasedby 300 more buses to a total of 500. ITNL currently operates more than 400 buses. Thetotal project cost is Rs720mn of which Rs560mn comprises term loans, the balance beingfunded by NMC (70:30). NMC asked VNIL to fund 30% of the cost of acquisition of busesagainst operation and maintenance obligations as well as collection of fare and otherrevenue as per mutually terms agreed between NMC and VNIL. The agreement provides foran extension of the concession period by another 5 years subject to satisfactory operationsof the Project by VNIL.

We do not value the project; the equity capital of the project is Rs100mn with accumulatedlosses of Rs107mn. Total revenue of the project as on FY10 stood at Rs283mn. ITNL is notinvesting further equity in the project. Its stake in the project is 90% and capex is fundedthrough term loans, grants and internal accruals.

MP border check post project

In FY11, ITNL bagged the border check post upgradation and operation project of Rs10.9bnfrom the state of Madhya Pradesh (MP). ITNL will have 51% stake in a consortium withSpanco. The scope involves management of 24 border check posts in MP for 12.5yrsincluding a two-year construction period. The project is to achieve financial closure; we donot value the project and await project details.




Regional Airport

The Karnataka Govt awarded two minor airports to ITNL and Comet group consortium atGulbarga and Shimoga with a total project cost of Rs4000mn. ITNL will hold 40% in theproject. We do not value the project and await project details.

Elsamex SA

ITNL acquired 90% in Elsamex (now 100%) in March 2008 for Rs766.54mn with debt onbook of ~Rs7bn. In FY10, Elsamex (standalone) recorded revenue of Rs7bn and net profitof Rs121mn.

Elsamex earns major revenue from maintenance contracts of BOT assets in Road andGas stations. Its maintenance business has very thin margins due to high fixed and interestcosts.

Since acquisition of Elsamex, ITNL infused further capital; as of March 2010, ITNL’saccumulated investment stands at Rs2,722mn. We do not expect ITNL to invest furthercapital in Elsamex.

Given the thin EBITDA margin and uncertainty of European economy, we value Elsamex at1x of equity investment.


Elsamex consolidated P/L


(Rs mn) CY 08 CY 09

Revenues 10,750 10,343

Other Income 9 7

EBIDTA 248 441

EBIDTA % 2.3% 4.3%

Interest 292 463

Depreciation 69 49

PBT (80) (67)

Tax (12) 71

PAT (68) (137)



ValuationBOT value …Rs144 per share

We value ITNL’s BOT assets on FCFE basis. We assume CoE of 14% for all projectsunder construction. We have discounted operational projects at 12% for annuities and13% for tolled projects.

We value the Noida project at current Mcap at 10% holding discount. We have excludedthe Chhattisgrah and MP border projects from our valuation as we await FC and projectdetails. The total value of BOT project based on our calculation adjusted for stake isRs22.2bn (adj for stake) against an equity investment of Rs10bn FY11E and Rs13bn inFY12E, i.e. 2.3x and 1.7x respectively. We believe this is reasonable, given the initialdevelopment stage of most of ITNL’s assets.

Construction division…Rs143 per share

We value the construction division based on consolidated EPC EBITDA for FY12E at 8x.We have accorded a lower-than-peer EV/EBITDA multiple as it is a pure outsourcing andlow-capex model. The fee income is transferred to another division as construction margins.We conservatively assume EBITDA margin of 8.5–9%. However, we believe that given thelight balance sheet model, ITNL can book higher margins, which would surprise us on theupside. We do not accord any value to cash in book in the standalone entity.

Elsamex…Rs14 per share

Standalone numbers of Elsamex improved in FY10 and we believe this is likely to bemaintained in FY11. Further, given that a full picture of Elsamex, valuing the companywould be complicated.

Elsamex works on thin margins. During FY10, the standalone entity reported 5.8% marginwhereas our calculations suggest a margin of 4.3%. Thus, we assume 5% margin. Giventhe heavy debt structure of Elsamex and the fact that limited information is available on thecompany, we do not consider EV/EBITDA a reliable valuation tool. Equity invested untildate by ITNL in Elsamex is Rs2,722mn. So we value the venture at 1x of equity invested.



7

10

13

16

19

Mar-10 Jul-10 Oct-10 Jan-11 Apr-11


1.0

2.0

3.0

4.0






SOTP ValuationParticulars Length Holding TPC Equity NPV /

(km) (%) (Rs mn) (Rs mn) D:E NPV Share

East Hyd Expressway 13 74% 4,278 293 3.0 366 1.9Guj Rd & infra 131 84% 4,657 1,265 2.7 4,002 20.6IRIDCL (Beawer Gomti) 116 100% 3,550 400 6.9 434 2.2North Karnataka (Belgaum) Expressway 78 87% 5,995 1,000 5.3 901 4.6West Gujarat Expressway 67 100% 2,758 400 4.9 1,025 5.3Andhra Pradesh Expressway 75 100% 7,871 337 22.4 (506) (2.6)Hazaribagh ranchi Expressway 71 74% 8,692 1,310 5.6 1,023 5.3Pune-Sholapur 101 100% 14,027 1,600 6.0 2,331 12.0Jharkhand Rd 98 100% 14,078 1,702 7.3 894 4.6Moradabad 121 100% 19,836 2,217 5.9 1,254 6.5Chenani - Nashria 11 100% 39,842 5,194 6.7 1,060 5.5Chhattisgarh 684 74% 23,000 4,693 - - -Noida Toll 8 25% 5,888 3,308 0.5 1,274 6.6Ramky Elsamex 13 26% 3,994 450 6.4 188 1.0Thiruvanthapuram (Phase I & II) 42 50% 3,724 1,491 2.6 81 0.4RIDCOR 1,053 50% 16,180 1,000 14.4 4,582 23.6Jorabat - Shillong 62 50% 8,240 840 8.8 757 3.9Narketpally - Addanki 213 50% 17,289 2,343 4.4 1,927 9.9Chandrapur - Warora 61 35% 6,700 1,760 1.8 682 3.5

BOT Valuation 115

EPC businessEbidta 3,474Multiple 7Valuation 24,316 125

ElsamexBook Value 2,722Multiple 1

Valuation 2,722 14

Total 254











Revenues 1,321 8,455 13,123 19,782 23,025

Growth (%) - 540.1 55.2 50.7 16.4

Operating Profit 368 5,479 5,894 6,924 7,023

Other Income 801 868 938 1,004 1,074

EBIDTA 1,169 6,346 6,832 7,927 8,096

Growth (%) - 443.0 7.6 16.0 2.1


EBIT 1,142 6,303 6,732 7,785 7,892

Interest Charges (Net) 596 1,425 1,439 2,145 2,500


Tax provision 296 1,724 1,928 2,031 1,941


Net Profits 404 3,247 3,366 3,610 3,451

Adjusted Net Profits 250 3,154 3,366 3,610 3,451

Growth (%) - 1,163.7 6.7 7.3 (4.4)

Basic EPS (Rs) 1.5 16.2 17.3 18.6 17.8

Diluted EPS (Rs) 1.5 16.2 17.3 18.6 17.8

Growth (%) - 1,015.0 6.7 7.3 (4.4)


Depreciation 27 43 100 142 204

Income from inv & int. (profit) (396) (538) - - -

Interest paid 596 1,425 1,439 2,145 2,500

Taxes (445) (2,105) (1,924) (2,026) (1,937)

(Inc)/Dec in working capital (67) (4,445) (4,195) (7,994) (4,864)

Other operating activities (151) 5 3 - -

Cash from operations (26) (720) 716 (2,093) 1,296


Net Investments 345 (9,882) (3,500) (3,500) (3,500)

Interest & dividend recd 71 970 - - -


Equity raised/(repaid) - 5,758 - - -



Other financing activities (593) (1,452) (1,439) (2,145) (2,500)

Cash from finan. activities 2,337 11,665 3,882 (1,325) 1,320

Inc/(Dec.) in cash (58) 1,402 633 (7,327) (1,277)





Total Debt 7,190 15,250 21,250 22,751 27,251


Fixed Assets 331 100 393 551 597

Cash & cash eq. 26 1,429 2,060 (5,267) (6,544)


Investments 8,611 13,954 17,454 20,954 24,454


Total Assets 14,855 31,008 39,694 44,125 51,396

OPM (%) 27.8 64.8 44.9 35.0 30.5

Net Margin (%) 18.9 37.3 25.6 18.2 15.0

Dividend Yield (%) 0.6 1.4 1.4 1.4 1.4

Net Debt/Equity (x) 0.9 1.0 1.2 1.1 1.1

Net working capital (days) 1,735 658 540 506 512

ROACE (%) 17.5 27.9 19.0 18.6 12.5

ROANW (%) 10.5 27.7 19.7 18.1 15.2

EV/Sales (x) 42.4 6.6 4.3 2.8 2.4

EV/EBIDTA (x) 152.4 10.2 9.5 8.1 8.0

PER (x) 149.2 13.4 12.5 11.7 12.2

PCE (x) 134.7 13.2 12.2 11.2 11.5

Price/Book (x) 4.0 2.4 2.1 1.8 1.6












Revenues 12,254 24,029 33,933 55,452 68,905

Growth (%) - 96.1 41.2 63.4 24.3


Other Income 625 694 772 850 926

EBIDTA 2,458 8,637 11,213 13,193 16,926

Growth (%) - 251.3 29.8 17.7 28.3


EBIT 2,105 8,033 10,598 12,477 16,059

Interest Charges (Net) 1,743 2,941 4,431 5,872 7,972


Tax provision 483 1,858 2,159 2,312 2,831


Net Profits 263 3,445 3,946 4,213 5,177

Adjusted Net Profits (179) 3,295 3,946 4,213 5,177

Growth (%) - NM 19.7 6.8 22.9

Basic EPS (Rs) (1.0) 17.0 20.3 21.7 26.6

Diluted EPS (Rs) (1.0) 17.0 20.3 21.7 26.6

Growth (%) - NM 19.7 6.8 22.9


Depreciation 353 603 616 717 867

Income from inv & int. (profit) (246) (434) - - -

Interest paid 1,743 2,941 4,431 5,872 7,972

Taxes (572) (1,903) (2,079) (2,217) (2,751)

(Inc)/Dec in working capital (1,321) (3,008) (2,148) 261 (4,123)

Other operating activities (437) 13 599 65 65

Cash from operations 175 3,190 7,586 11,302 10,118

Net capital expenditure 338 (5,372) (8,400) (8,550) (8,550)

Net Investments 539 (4,137) (500) 500 500

Interest & dividend recd (1,046) (5,349) (10,100) (15,000) (15,000)

Cash from inv. activities (184) (14,586) (19,000) (23,050) (23,050)

Equity raised/(repaid) - 5,758 - - -


Dividend (incl. tax) (1,751) (2,941) (4,431) (5,872) (7,972)

Other financing activities (8,902) (16,475) (4,399) 50 60

Cash from finan. activities (300) 15,226 10,922 12,499 14,409

Inc/(Dec.) in cash (308) 3,830 (493) 751 1,477




Minorities Interest 774 1,118 1,150 1,200 1,260

Total Debt 18,542 33,215 49,215 68,215 91,215


Fixed Assets 1,633 1,323 1,608 1,941 2,125

Cash & cash eq. 1,601 5,502 4,493 5,244 6,721


Investments 2,010 4,544 5,044 4,544 4,044

Deferred tax asset 11,424 15,879 25,754 40,514 55,289

Total Assets 28,528 51,370 70,669 93,252 120,810

OPM (%) 15.0 33.1 30.8 22.3 23.2

Net Margin (%) (1.5) 13.7 11.6 7.6 7.5

Dividend Yield (%) 0.6 1.4 1.4 1.4 1.4

Net Debt/Equity (x) 1.8 1.6 2.2 2.6 3.0


ROACE (%) 18.4 21.0 17.7 15.4 12.4

ROANW (%) 5.9 27.0 21.5 19.4 20.1

EV/Sales (x) 5.7 2.9 2.1 1.3 1.0

EV/EBIDTA (x) 38.1 8.8 6.7 5.7 4.4

PER (x) - 12.8 10.7 10.0 8.2

PCE (x) 214.0 10.8 9.3 8.6 7.0

Price/Book (x) 3.5 2.3 1.9 1.7 1.4


8x

12x

14x

16x

130

210

290

370

450


10x

160

220

280

340

400


1.6x

1.9x

2.2x

2.5x

2.8x


Initi

atin

g C

over

age

SADBHAV ENGINEERING LTD.


HOLDCMP Rs140TP Rs165

Sadbhav Engg (SEL) has a well-established EPC division withhealthy historical performance. In the last two years, SELhas added 9 BOT assets, we believe in the near term,valuations could be driven by the performance in theseassets, which are likely to ramp up only post FY13E. With noBOT wins in FY11, the strategy that SEL would adapt inFY12&FY13 would be watched eagerly. Execution in FY12Ecould be flat due to a flatish opening order book. Werecommend a HOLD rating given the price outperformancepost Q4FY11 results and near term growth bottleneck.A healthy core business… generating cashSEL has a well-managed core EPC business, which is built on ahealthy mix of road, mining and irrigation projects. The divisionhas grown at 43% over the past five years. Although we expectthis growth trend to even out over the next three years, we believethe core business would continue to generate cash.But growth could slow down for the core business…With no BOT win in FY11 and order inflow in the road segmentdown by 30% execution could slow down in FY12E. Nevertheless,given a competitive scenario especially in small-to-medium-sizedBOT assets, the years ahead needs to be seen cautiously. Theemphasis could be to execute the current projects in hand forSIPL than new wins in a competitive world.SIPL valued at Rs18bn to Rs20bn by PE…we value it at 28%discountBased on DCF, we arrive at a consolidated value of Rs18.2bn forall the nine projects (not adjusted for stake share). Adjusted forSIPL's stake share in the respective projects, the value is Rs14.4bn.We have considered the best-case scenario with share of 80% forSEL in SIPL, assuming SEL will increase its stake in SIPL byinfusing Rs2bn. Hence at 80% stake, we value SEL at Rs11.6bni.e. Rs77.3 per share.VALUATION AND RECOMMENDATIONAlthough estimates for the core business are flat, we value theEPC at a healthy P/E multiple of 12x on FY12E, which isunderpinned more by the inherent qualities of the business model.We value the BOT assets at Rs11.6bn i.e. Rs77.3 per share,adjusted for 80% stake in SIPL. We recommend a HOLD rating.

29 April 2011




KEY RATIOS

FY09 FY10 FY11E FY12E FY13ENet Revenues 10,974 13,340 23,362 23,512 25,586YoY Gr. (%) 26.5 21.6 75.1 0.6 8.8Operating Profit 1,429 2,220 3,324 3,606 4,784OPM (%) 13.0 16.6 14.2 15.3 18.7Adjusted Net Profits 429 363 933 1,182 1,246YoY Gr. (%) (19.6) (15.4) 157.2 26.7 5.3



Initiating CoverageSector: InfrastructureBSE Sensex: 19,292

STOCK DATA

Market Cap Rs21.0bn.Book Value per share (FY12) Rs65Eq Shares O/S (F.V. Rs1) 150mnFree Float 52.4%Avg Traded Value (6 mnths) Rs22.0mn52 week High/Low Rs164/94Bloomberg Code SADE INReuters Code SADE.BO

PERFORMANCE (%)

1M 3M 12MAbsolute 24.8 37.1 9.1Relative 22.5 34.8 (2.4)


50

90

130

170


SADE BSE (Rebased)

72


RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH Sadbhav Engineering Ltd.

A healthy core business…generating cashSEL has a well-managed core EPC business, which is built on a healthy mix of road,mining and irrigation projects. The division has grown at 43% over the past five years.Although we expect this growth trend to even out over the next three years, we believe thecore business would continue to generate cash.

The mining division is the cash cow, and the primary reason for SEL's healthy blendedmargin of 11-11.5%. Hence the proportion if this business in the overall mix plays an importantrole in cash generation. Order book of the mining business increased to Rs10bn to beexecuted over 2-7yrs.

Why we expect growth to slow down for the core business…

SEL's road segment drove bulk of growth in the core business. Furthermore, a major portionof this has come through own BOT asset wins over the past 2-3 years. But this momentumslowed down in FY11 and order inflow in the road segment reduced 30% with no NHAI wins.Nevertheless, given a competitive scenario especially in small-to-medium-sized BOT assets,the years ahead brim with promise.

Sales Mix (Rs mn)


Cash from operation graph (Rs mn)


283(249)

894

16

2,101

1,4481,774

(500)

--

500

1,000

1,500

2,000

2,500

FY07 FY08 FY09 FY10 FY11A FY12E FY13E

7481 7672 9792

17,110 16649.8 17327.1953 1462752

2,200 2397.5 2423.1

266 14752021

2691.62825.62,782

0

7000

14000

21000

28000

FY08 FY09 FY10 FY11 FY12E FY13E

Roads Irrigation Mining



Order book scenario

We have factored in healthy 22.5% CAGR for the road segment over FY11-13E and weexpect the opening total order book to grow at 7% CAGR FY11E-13E. Our expectation isbased on average execution of 26% vs. 30%.

Historically SEL used consortium partners to bid for BOT assets, based on which EPCwork is assigned. We assume 4% share in NHAI projects for FY12 and 3.5% for FY13, butthese are not adjusted for stake share. But the EPC order that would flow to SEL will alsodepend on the JV share as witnesses historically.

Healthy Balance sheet maintained…

Despite exponential growth in BOT asset wins since FY09, SEL's standalone balance sheetremains healthy. The company has maintained gross debt/equity ratio well below 1x at0.85x FY11E.

With the BOT assets been transferred to Sadbhav Infrastructure Projects Ltd (SIPL) now,the burden of equity infusion would reduce.

Order book mix and growth graph (Rs mn)


Healthy working parameters FY07 FY08 FY09 FY10 FY11 FY12E FY13E

RoE (%) 19.4 24.2 20.1 17.7 23.5 15.8 12.0RoCE (%) 14.7 18.0 14.0 9.1 21.7 16.7 13.6

RoIC (%) 16.7 18.5 14.0 9.4 22.5 17.5 14.6

Asset Turnover 2.3 2.7 2.1 1.8 2.4 1.9 1.6

NOPAT 311.3 631.5 795.8 720.3 2041.4 1975.2 2001.3

Debt equity ratio 0.5 0.5 0.6 1.1 0.6 0.7 0.9

Book value per share 13.5 24.4 27.5 31.3 41.7 48.1 53.5


17424 1325329928

52034 51230 541474760 9086

7063

6447 9590 9693

5305

6399

9205 8830 8411

2615

0

20000

40000

60000

80000

FY08 FY09 FY10 FY11 FY12E FY13E

Roads Irrigation Mining



BOT performance

SEL currently has three operational BOT assets: Aurangabad-Jalna, Ahm Ring Road andMumbai-Nashik, which are likely to emerge profitable by FY15. Similarly, our consolidatedBOT analysis suggests that SIPL would start generating profit from FY15. We have assumedperiodical maintenance to start from FY12 for Ahm Ring Road. So our EBITDA margin islower, but for which profit would have been higher by ~Rs70mn in FY12 and Rs150mn inFY13.

In case of the Nagpur-Saone project, we have valued only 50% of the project assuming 50%of annuity payment. We have assumed no further capex for the project and await the finalorder from NHAI. Based on our project analysis, we believe it will be time since we startseeing book and cash profit from the projects. However, that is also typical for most BOTprojects. Further, we believe that much would depend on new project wins for SEL that arebecoming competitive. Although the core business is likely to do well, it will be under pressureto generate cash for future BOT wins.

SIPL Revenue statement (Rs mn)Particulars FY 11 FY 12 FY 13 FY 14 FY 15

Revenues 1,357.2 1,639.5 3,144.6 7,738.5 8,427.1

EBIDTA 1229.6 1,375.1 2,494.7 6,005.7 6,647.8

EBIDTA (%) 90.6 83.9 79.3 77.6 78.9

Interest 634.1 8,16.3 1,374.0 4,063.8 4,272.1

Depreciation 376.6 536.6 780.1 1,498.1 1,721.3

PBT 227.7 31.5 360.4 464.1 675.1

Tax (0.6) (1.6) 103.7 141.5 54.7

PAT 228.4 33.1 256.7 322.6 620.4

Source: Company, PINC Research Please note: Toll revenue does not include Mumbai Nashik and Dhule Panesar

Projects Total Cost Total Length Lane Holding Stake Stake Equity invested Concession Equity(Rs mn) Equity (kms) K m (%) (km) Lane till date* period of SIPL

Mumbai Nashik Expressway 7,901 891 100 398 20% 20 80 891 20 178Ahmedabad Ring Road 5,008 521 76 304 80% 61 243 105 20 417Aurangabad Jalna Tollway 2,770 830 66 276 51% 34 141 20 23.5 423Nagpur Seoni Expressway 4,897 1,076 56 226 51% 29 115 578 20 549Maharashtra Border Check Post Network 14,264 2,853 0 422 90% 0 380 1,141 24.5 2,568Dhule Palasner Tollway 14,200 3,550 89 392 27% 24 106 2,308 18 959Hyderabad Yadgiri Tollway 4,802 1,000 36 143 60% 21 86 600 23 600Rohtak Panipat Tollway 12,134 2,427 81 323 100% 81 323 243 25 2,427Bijapur Hungund Tollway 12,571 1,370 97 389 77% 75 299 548 20 1,055Total 78,547 14,518 601 2,873 344 1,773 6,433 9175

BOT Details

Source: Company, PINC Research * not adjusted for stake



SIPL valued at Rs18bn to Rs20bn by PE…we value it at 28% discount

Norwest Venture Partners and Xander Group Inc infused Rs4bn in SIPL in Aug'10 for 22.2%stake, valuing the entity at Rs18bn, SEL has the right to bring in Rs2bn more within 18months and reduce the PE partners stake to 20%, which accords it a future valuation ofRs20bn.

However, using the DCF-based approach, we arrive at a consolidated value of Rs18.2bn forall the nine projects (not adjusted for take share). Adjusted for SIPL's stake share in therespective projects, the value is Rs14.4bn. We have considered the best-case scenario withshare of 80% for SEL in SIPL, assuming SEL will increase its stake in SIPL by infusingRs2bn. Hence at 80% stake, we value SEL at Rs11.6bn i.e. Rs77.3 per share.

Sadbhav Engineering Ltd.



ValuationEPC standalone business

SEL has a well-established EPC division with healthy historical performance. In FY12E, weexpect modest performance as order inflows in FY11 have not been encouraging. However,we expect momentum to pick up in FY13. Based on our current order inflow estimates, weexpect the top line to grow at 15%.

Although the debt level is not a concern, interest cost as a percentage of sales is expectedto move up from 2.1% in FY11E to 3.4% in FY13E, based on 10% average cost of capital.

Margins are expected to reach a historical high of 11.4% in FY11, which we have evened outto 11% in FY13, given the strong movement in commodity prices. The next impact is thatprofitability for the core EPC business is likely to be flattish for FY11-FY13E. The risks toour estimate are higher order wins and better execution in FY12, which SEL is capable ofand which would surprise us on the upside.

Although estimates for the core business are flat, we value the EPC at a healthy P/Emultiple of 12x on FY12E, which is underpinned more by the inherent qualities of the businessmodel.

BOT assets

We have valued the BOT business on DCF basis (FCFE). We are not valuing it using theP/E deal approach which is at 38% premium to our valuation as our analysis suggestsprofits are back-ended. We value the BOT assets at Rs11.6bn i.e. Rs77.3 per share, adjustedfor 80% stake in SIPL.



5

15

25

35

45

Apr-07 Apr-08 Apr-09 Apr-10 Apr-11


-

1.5

3.0

4.5

6.0





SOTP ValuationParticulars NAV Stake SEL's Stake Per Share

SPV's

Aurangabad-Jalna 1,026 51% 523 3.5

Ahmedabad Ring Road 1,966 80% 1,572 10.5

Maharashtra Border 7,639 90% 6,875 45.8

Nagpur-Seoni 122 80% 97 0.6

Hyd Yadgiri 295 60% 177 1.2

Bijapur Hungund 2,647 77% 2,038 13.6

Rohtak Panipat 2,703 100% 2,703 18.0

Associates

Mumbai Nashik 1,174 20% 235 1.6

Dhule Palesnar 2,549 27% 688 4.6

Total BOT Value 20,120 14,909 99

Sadbhav Stake in SIPL 80%

Total BOT value per share 80

PAT FY12E Multiple Total Value

EPC Business 1,062 12 12,750 85

Total value per share 165

CMP 140

Appreciation 18%




BackgroundSadbhav Engineering Ltd. (SEL) started by Mr Vishnubhai Patel in 1988, later took over itsfamily owned business M/s Bhavna Construction Company in 1989. SEL is amongst theleading player in roads (both BOT & EPC), irrigation and mining. With its initial forte inirrigation and mining, the company forayed into roads in late 1990. In order to increase itsfootprint in BOT assets, SEL has partnered with other players to increase its bid capacityand win bigger projects. Currently out of nine BOT assets, the company has JV for eight ofthe projects. SEL has till date constructed more than 1370km of roads & highways &currently constructing ~1,180km. At present, SEL is working on 15 road projects, 12 irrigationand 9 mining projects with outstanding value of Rs77.8bn.

Evolution of the company

Executed largest portionof the canal work of

Sardar Sarovar Nigam

Executed first road project for L&T

Awarded firstMining project

Awarded firstIrrigation project

Bonus from NHAIfor early completion

of road project

Completed first canalSyphon across

Wartak river

13.82 kms Kakraparcanal remodeled in

75 days

Appreciation letter fromthe world bank for

quality of work

Listing with an IPO ofRs540 mn

Order Book crossesRs10000 mn

First BOT project -MNEL

Awarded DhulePalasner BOT (DPTL)

ARRIL becomes the1st BOT of SEL to be

operational

AwardedLakhanadon-Seoni

BOT (NSEL)

Awarded SardarPatel Ring Road

BOT (ARRIL)

AwardedAurangabad Jalna

BOT (AJTL)

Awarded MaharashtraBorder Check Post

BOT (MBCPNL)

Awarded HyderabadYadgiri BOT Project

(HYTPL)

Awarded RohtakPanipat BOT

Project (RPTPL)

Awarded BijapurHungund BOT Project

(BHTPL)

Awarded Multai-Chindwara-Seoniand Narsinghpur-

Amarwara-Chindwara-Saoner -

cash contract ofRs 14, 113 mn

PE of INR 4 bn in SIPLby Norwest VenturePartners & XanderGroup for 22.22%

Rights Issue of equityshares & warrants of

Rs 1250 mn

1993-97

1992-93

1989 - 90

1988 - 97Entry

2003 - 04

2001 - 02

2000 - 01

1997 - 2004Establishment

2005 - 06

2005 - 06Growth Phase

2008 - 09

2007 - 08

2006 - 07

2006 - 2010Asset Build up

2009 - 10

2010Creating Value





Management Bandwidth

Vishnubhai M. Patel, Promoter, Managing Director & Chief Executive Officer

Vishnubhai Patel, 67 years, is the Promoter, MD and CEO of the company. He has earnedover forty years of construction experience in the family business as partner of M/s BhavnaConstruction Co, which was absorbed into SEL in 1988. The company has completedseveral high quality projects under his guidance, prominent being the canal woks done forSardar Sarovar Narmada Project. He has also been a recipient of prestigious 'Udyog RatnaAward' for outstanding performance in the field of Industrial Development of the country.

Shashin V. Patel, Joint Managing Director

Shashin Patel, aged 28 years, is on the company's board as the Joint MD since 2000. Heis a post graduate in Business Administration from K.S. School of Business Management,Gujarat University. At SEL, his responsibilities include managing day to day affairs inconsultation with the MD and making strategic management decisions. He is also in-chargeof the MIS in the company.

Corporate Structure

Sadbhav Engineering Ltd

EPC Division Sadbhav Infrastructure Project Ltd (SIPL)

Roads & Highways

Irrigation

Mining

Operation Projects

MNEL* - Toll

ARRIL - Toll

AJTL - Toll

NSEL - Annuity

Under Constructions

MBCPNL - Toll

DPTL - Toll

RPTPL - Toll

HY TPL - Toll

HY TPL - Toll

Source: Company, PINC Research * Partially operational




Nitin Patel, Executive Director (ED)

Nitin Patel joined SEL in 1999 as an internal auditor and has subsequently grown to becomethe ED of the company. He is a certified Chartered Accountant and was associated with M/s Manubhai & Co., Chartered Accountants before joining SEL. His current areas ofresponsibility include execution of project, human resources as well as overall functioning ofcorporate affairs. He was actively involved in the management of the Orissa project whichdealt with widening and strengthening of the 2-lane carriage way of NH-5. He also plays animportant role in policy implementation and liaison with banks & financial institutions forobtaining funds.

Ajay H. Kadia, Chief Financial Officer (CFO)

Ajay Kadia, 27 years old, is associated with the company since 2005 as the CFO of SEL.He is a qualified Chartered Accountant and has a total work experience of four years. Priorto joining SEL, he was working with Jasmin B. Shah & Co., Chartered Accountants. He iscurrently heading the accounts department of the company and is responsible for all finance& accounts related matters.






Income Statement FY09 FY10 FY11 FY12E FY13E

Balance Sheet FY09 FY10 FY11 FY12E FY13E

Cash Flow Statement FY09 FY10 FY11 FY12E FY13E

Key Ratios FY09 FY10 FY11 FY12E FY13E

Revenues 10,609 12,565 22,092 21,873 22,442

Growth (%) 18.0 18.4 75.8 (1.0) 2.6


Other Income 133 170 52 90 100

EBIDTA 1,200 1,543 2,310 2,321 2,389

Growth (%) 12.9 28.6 49.7 0.5 2.9


EBIT 1,043 1,310 2,041 1,975 2,001

Interest Charges (Net) 214 331 284 388 600


Tax provision 196 441 562 525 487


Minority Interest - - - - -

Net Profits 633 538 1,196 1,062 915

Adjusted Net Profits 633 538 1,196 1,062 915

Growth (%) 20.7 (14.9) 122.1 (11.2) (13.9)

Diluted EPS (Rs) 5.1 4.3 8.0 7.1 6.1

Growth (%) 20.7 (14.9) 85.1 (11.2) (13.9)


Depreciation 157 233 269 346 388

Income from inv & int. (profit) - - - - -

Interest paid 128 331 284 388 600

Taxes (183) (393) (542) (500) (442)

(Inc)/Dec in working capital (63) (1,149) 333 (396) (197)

Other operating activities 27 15 - 23 23

Cash from operations 894 16 2,101 1,448 1,774


Net Investments (41) (53) (1,823) (1,388) (2,269)

Others (441) (1,295) - - -

Cash from inv. activities (760) (2,117) (2,573) (1,888) (2,819)


Debt raised/(repaid) 608 2,128 (278) 1,200 2,300


Other financing activities (221) (325) (284) (388) (600)

Cash from finan. activities 329 1,745 583 708 1,596

Inc/(Dec.) in cash 463 (356) 111 268 550





Total Debt 2,111 4,239 3,961 5,161 7,461


Fixed Assets 1,545 2,101 2,298 2,736 2,899

Cash & cash eq. 100 448 846 827 1,377


Investments 1,246 1,441 3,265 4,653 6,922


Total Assets 5,546 8,154 10,218 12,374 15,485

OPM (%) 10.1 10.9 10.2 10.2 10.2

Net Margin (%) 6.0 4.3 5.4 4.9 4.1

Dividend Yield (%) 0.3 0.3 0.4 0.4 0.4

Net Debt/Equity (x) 0.6 1.0 0.5 0.7 0.9


ROACE (%) 14.0 9.1 21.7 16.7 13.6

ROANW (%) 20.1 17.7 23.5 15.8 12.0

EV/Sales (x) 1.8 1.7 1.1 1.2 1.3

EV/EBIDTA (x) 18.3 15.5 10.7 11.7 12.4

PER (x) 27.7 26.8 17.6 19.8 22.9

PCE (x) 22.2 19.8 14.3 14.9 16.1

Price/Book (x) 5.1 4.5 3.4 2.9 2.6








Income Statement FY09 FY10 FY11 FY12E FY13E

Balance Sheet FY09 FY10 FY11 FY12E FY13E

Cash Flow Statement FY09 FY10 FY11 FY12E FY13E

Key Ratios FY09 FY10 FY11 FY12E FY13E

Revenues 10,974 13,340 23,362 23,512 25,586

Growth (%) 26.5 21.6 75.1 0.6 8.8


Other Income 142 202 199 99 120

EBIDTA 1,570 2,423 3,523 3,705 4,904

Growth (%) - 54.3 45.4 5.2 32.3

Depreciation & Amortization 378 564 679 882 1,168

EBIT 1,192 1,858 2,844 2,823 3,736

Interest Charges (Net) 618 1,132 1,435 1,204 1,974


Tax provision 197 459 639 523 590


Minority Interest (51) (95) (162) (87) (74)

Net Profits 429 363 933 1,182 1,246


Growth (%) (19.6) (15.4) 157.2 26.7 5.3

Diluted EPS (Rs) 3.4 2.9 6.2 7.9 8.3

Growth (%) (24.8) (15.4) 114.3 26.7 5.3


Depreciation 378 564 679 882 1,168

Income from inv & int. (profit) - - - - -

Interest paid 528 1,132 1,435 1,204 1,974

Taxes (229) (393) (611) (443) (480)

(Inc)/Dec in working capital (948) - (416) (714) (539)

Other operating activities 211 31 138 (311) 5

Cash from operations 311 2,060 2,635 2,236 3,890

Net capital expenditure (2,734) (769) (9,246) (10,940) (11,822)

Net Investments 172 (53) 610 (200) (200)

Others (252) (1,295) - - -





Other financing activities (619) (325) (1,435) (1,204) (1,974)


Inc/(Dec.) in cash 126 1,688 1,179 748 2,370




Minorities Interest 678 583 2,012 1,925 1,851

Total Debt 9,383 14,554 20,026 30,987 43,567


Fixed Assets 10,118 13,001 24,385 34,443 45,097

Cash & cash eq. 324 507 1,365 2,435 4,804


Investments 255 864 254 454 654


Total Assets 13,582 18,742 30,765 42,732 56,394

OPM (%) 13.0 16.6 14.2 15.3 18.7

Net Margin (%) 3.9 2.7 4.0 5.0 4.9

Dividend Yield (%) 0.3 0.3 0.4 0.4 0.4

Net Debt/Equity (x) 2.6 3.9 2.1 2.9 3.5


ROACE (%) 18.5 12.0 12.1 8.1 7.8

ROANW (%) 12.2 10.2 15.1 12.8 12.0

EV/Sales (x) 2.7 2.6 1.7 2.1 2.3

EV/EBIDTA (x) 21.0 15.8 11.9 13.7 12.5

PER (x) 3.4 2.9 6.2 7.9 8.3

PCE (x) 21.7 18.9 13.0 10.2 8.7

Price/Book (x) 5.0 4.9 2.4 2.1 1.9


20x

25x

30x


0

50

100

150

200


15x

10x

-

50

100

150

200


0.8x

1.6x

2.4x

3.2x


T E A MEQUITY DESKSadanand Raje Head - Institutional Sales [email protected] 91-22-6618 6366

Technical Analyst

Rajeev Gupta Equities [email protected] 91-22-6618 6486Ankur Varman Equities [email protected] 91-22-6618 6380Himanshu Varia Equities [email protected] 91-22-6618 6342Shailesh Kadam Derivatives [email protected] 91-22-6618 6349Ganesh Gokhale Derivatives [email protected] 91-22-6618 6347

Mehul Desai Head - Sales Trading [email protected] 91-22-6618 6303Naresh Panjnani Co-Head - Sales Trading [email protected] 91-22-6618 6333Amar Margaje [email protected] 91-22-6618 6327Ashok Savla [email protected] 91-22-6618 6321Sajjid Lala [email protected] 91-22-6618 6337Raju Bhavsar [email protected] 91-22-6618 6322Kinjal Mehta [email protected] 91-22-6618 6333Chandani Bhatia [email protected] 91-22-6618 6324Hasmukh D. Prajapati [email protected] 91-22-6618 6325Kamlesh Purohit [email protected] 91-22-6618 6357

SALES

DEALING

RESEARCHVineet Hetamasaria, CFA Head of Research, Auto, Cement [email protected] 91-22-6618 6388Nikhil Deshpande Auto, Auto Ancillary, Cement [email protected] 91-22-6618 6339Tasmai Merchant Auto, Auto Ancillary, Cement [email protected] 91-22-6618 6377Vinod Nair Construction, Power, Capital Goods [email protected] 91-22-6618 6379Ankit Babel Capital Goods [email protected] 91-22-6618 6551Hitul Gutka Power [email protected] 91-22-6618 6410Subramaniam Yadav Construction [email protected] 91-22-6618 6371Madhura Joshi Power [email protected] 91-22-6618 6395Satish Mishra Fertiliser, Natural Gas, Engineering [email protected] 91-22-6618 6488Urvashi Biyani Fertiliser, Natural Gas, Engineering [email protected] 91-22-6618 6334Naveen Trivedi FMCG [email protected] 91-22-6618 6384Rohit Kumar Anand IT Services [email protected] 91-22-6618 6372Ronak Bakshi IT Services [email protected] 91-22-6618 6411Namrata Sharma Media [email protected] 91-22-6618 6412Sakshee Chhabra Media [email protected] 91-22-6618 6633Bikash Bhalotia Metals, Mining [email protected] 91-22-6618 6387Harleen Babber Metals, Mining [email protected] 91-22-6618 6389Dipti Vijaywargi Metals, Mining dipti.vijaywargi @pinc.co.in 91-22-6618 6393Sushant Dalmia, CFA Pharma [email protected] 91-22-6618 6462Suman Memani Real Estate, Mid caps [email protected] 91-22-6618 6479Abhishek Kumar Real Estate, Mid caps [email protected] 91-22-6618 6398C Krishnamurthy Technical Analyst [email protected] 91-22-6618 6747

SINGAPORE DESKAmul Shah [email protected] 65-6327 0626

DIRECTORSGaurang Gandhi [email protected] 91-22-6618 6400Hemang Gandhi [email protected] 91-22-6618 6400Ketan Gandhi [email protected] 91-22-6618 6400

COMPLIANCERakesh Bhatia Head Compliance [email protected] 91-22-6618 6400

bright thinking

Member : Bombay Stock Exchange & National Stock Exchange of India Ltd. : Sebi Reg No: INB 010989331. Clearing No : 2111216, Maker Chambers V, Nariman Point, Mumbai - 400 021; Tel.: 91-22-66186633/6400 Fax : 91-22-22049195

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Disclaimer: This document has been prepared by the Research Desk of M/s Infinity.com Financial Securities Ltd. (PINC) and is meant for use of therecipient only and is not for public circulation. Each recipient of this document should make such investigations as it deems necessary to arrive atan independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), andshould consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not besuitable for all investorsThe information contained herein is obtained and collated from sources believed reliable and PINC has not independently verified all theinformation given in this document. Accordingly, no representation or warranty, express or implied, is made as to the accuracy, completeness orfairness of the information and opinions contained in this document.The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated asendorsement of the views expressed in the report. The opinion expressed or estimates made are as per the best judgement as applicable at thatpoint of time and PINC reserves the right to make modifications and alternations to this statement as may be required from time to time without anyprior approvalPINC, its affiliates, their directors, employees and their dependant family members may from time to time, effect or have effected an own accounttransaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investmentbanking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entitiesfunctions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the documentThis report has been prepared on the basis of information, which is already available in publicly accessible media or developed through analysisof PINC. The views expressed are those of analyst and the PINC may or may not subscribe to all the views expressed thereinThis document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, toany other person or published, copied, in whole or in part, for any purpose. Neither this document nor any copy of it may be taken or transmitted intothe United State (to U.S.Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributedin Japan or to any resident thereof. The distribution of this document in other jurisdictions may be restricted by law, and persons into whosepossession this document comes should inform themselves about, and observe, any such restrictionsNeither PINC, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, specialor consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.Copyright in this document vests exclusively with PINC and this document is not to be reported or circulated or copied or made available to others.

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