- Jayant D Mhaiskar, Vice Chairman and Managing Director, MEP Infrastructure Developers
Mumbai-headquartered MEP Infrastructure Developers, a leading infrastructure operator and toll management company, has a presence across 12 states in India. The company is a well-known name in the toll or operate-maintain-transfer (OMT) space since its establishment in 2002. And now, with the government´s focus on development of toll roads, ´We evaluated multiple options of actually venturing into construction of roads,´ says Jayant D Mhaiskar, Vice Chairman and Managing Director. The company has already bagged six projects for road construction under the hybrid annuity model (HAM), totalling Rs 3,836.99 crore. ´The primary reason for venturing into construction is quality and type of asset,´ says Mhaiskar, as he speaks on the HAM model and more, in conversation with SERAPHINA D´SOUZA.
What prompted you to bid for projects under HAM?
HAM is a classic example of deferred EPC, in which 40 per cent of the actual EPC bid project cost is shed as a grant by the government throughout the construction period, and the balance 60 per cent is brought in by the developer. This allows for actual construction or EPC profit during the first two-and-a-half to three years and gives a reasonable return on the annuity side going forward. Also, HAM is in line with the equity-light or asset-light philosophy, which has also been MEP´s approach since inception. Along with toll or OMT, it helps us at the construction stage. And, while there are not many players bidding under this mode, new entrants have a huge opportunity and bigger market share.
How will this new foray impact your order book?
We already have an order book of around Rs 3,900 crore to be done over the next two-and-a-half to three years. There is a huge trajectory of projects in EPC or HAM, and we are currently evaluating to bid for some of them before March. Besides, the ministry has also set a target of awarding about 15,000 km projects before March-end. Bidding for these will give us a good potential to enhance our order book as well as execute current orders in hand.
In 2016, the company successfully won six of the eight projects it bid for. What was your strategy?
Our prime strategy has been evaluating HAM correctly, which is nothing but deferred EPC. There are three basic aspects to this: The actual EPC cost considered at the time of evaluating a bid; the financial cost; and the debt-equity ratio. If you are able to match the three numbers and crunch them in the most-suited module, it is a winning strategy. What is the status on these projects and what are the execution challenges faced?
Construction work will commence on the appointed dates. As far as equipment is concerned, almost all the HAM projects currently bid out are on cement concrete pavement; so roads will be constructed under concrete pavement or rigid pavement. So, the amount of raw material - cement and steel - will be humungous. All the projects, except Arawali-Kante and Kante-Waked have a construction period of two-and-a-half years.
As HAM is a new model, there were initial challenges in funding these projects, which has been addressed by NHAI and the ministry. That said, execution will be the key for any HAM project. Unlike the BOT toll model, in which there is an extension of toll period, the timeframe in HAM remains construction plus annuity period unless there is a default by the government. So, timely execution is most critical in terms of EPC work.
Tell us about your investments in sourcing equipment.
The major three lines of equipment or capital-intensive assets we will be procuring are crushers, batching plants or RMC plants, and pavers. We have invested a capex of about Rs 30-40 crore in procuring equipment and have already ordered two RMC plants, two crushers and two pavers; the rest is under procurement. By March-end, we estimate around Rs 50-60 crore of actual capex for project execution; so we will invest an additional Rs 25-30 crore in buying equipment.
The company has received in-principle approval from SEBI to launch its infrastructure investment trust (InvIT)...
Currently, we are waiting for certain approvals from the authority and lenders, after which we should be able to file the draft red herring prospectus (DRHP). Once we receive regulator clearance, we should launch the InvIT. We have been talking to investors on the expected IRR or RoI, which will be between 9.75 per cent to 10.5-11 per cent. The size will depend on how the valuation pans out and we are currently deliberating on which assets will be brought in.
How has demonetisation impacted your OMT business?
There was a suspension of toll between November 9 and December 2, 2016. For this, as per the model concession agreement provided by NHAI or the Ministry, we expect to get the interest or O&M charges in the first quarter of 2017. In terms of loss of revenue, you either get a rebate of the amount payable to the authority or an extension of the concession period.
What is your growth plan going forward?
For 2017, we will focus on orders in hand and start proper execution to approach financial closures. Once we are there, the bidding cycle starts. We expect to add Rs 2,000-3,000 crore to our order book in the next two quarters. Further, the company is watching out for toll-operate and transfer (TOT), wherein the concession period for assets currently being operated by NHAI in a one-year tolling will be as high as 30 years. We expect the TOT concept to be floated between January and March, which in its first phase is likely to see around 75-odd projects bid out. We are talking to some large players for tie-ups in TOT and will bid for all the projects. So the total order book or monetisation that the government has allowed will be around Rs 50,000-75,000 crore.
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