Government’s Rs 7 Lakh Crore Road Push Can Double Order Inflows: NCC
Road construction orders may go beyond 15-20 percent after Bharatmala, said NCC’s Murthy.
The government's Rs 7 lakh crore road and highway construction plan, which includes the Bharatmala scheme, may not translate into orders immediately but can double road orders in the year.
The National Highways Authority of India awarded road construction orders of 5,000 kilometers last year and the first half of 2017 has been lean, YD Murthy, executive vice-president of finance at NCC told BloombergQuint in an interview. The scheme can boost order inflows by more than 15-20 percent, he added.
Watch the full interview with the NCC management here.
Here are edited excerpts from the interview.
Is this the aggregation of the ongoing, leftover or proposed works for the next five years?
Yes. There was the National Highway Development Program (NHDP) started by the BJP government back in 1998 and taken forward by the UPA government. One basic factor is India is deficit in transportation network and the government is setting it right by starting various initiatives like NHDP-2,3,4. Now, they call it Bharatmala. The 80,000 kilometers in the five years, particularly the economic cluster is going to be connected which will give more mobility and help the manufacturing sector. The logistic cost of transportation will come down...
Does this amount to substantial new orders or is this business already potentially factored in?
The potential is not there. NHAI is awarding 7,000-8,000 kilometers of road network per year on the Engineering, Procurement and Construction (EPC) and Hybrid Annuity Model. There will be some more improvement in it with the Bharatmala program and more orders will come. That will be a positive thing for companies like us. And we will definitely participate in new road networks that the government has planned.
Could you quantify the improvement? Do you expect order opportunities to expand by 10-15 percent over the next five years?
For the current year, NHAI has not given too many orders. Last year, they had given nearly 5,000 kilometers. Bharatmala will see that order award improve substantially, even beyond 15-20 percent as compared to what it was so far.
What will be the estimate for this year?
It is difficult to say at this stage. If they have the detailed project reports available with them and they have acquired 80 percent of the land in advance, only then can they call for bids. To give a number at this stage is very difficult. But it’s a step in the right direction. 80,000 kilometers for five years, then they are planning approximately 10,000-12,000 kilometers per year which will be a good thing for the economy.
There is an estimate that this is a doubling of the current run rate from 20 kilometers a day to 40 kilometers a day. Do you think this is a realistic target?
Yes. If 5,000 becomes 10,000, then its doubling which means per day construction activity should go from 20 kilometers to 40 kilometers. This is possible. The other point is, the Indian construction industry had matured a lot. We have got capabilities to execute projects faster and quicker provided the right environment is available, land acquisition is taken care of and payment cycle has improved.
Do you think it has become easier for you to execute projects after the changes made by the ministry over the last few months and quarters?
As far as the cash contracts are concerned, the EPC where NHAI has to bring money to the table and pay construction companies like us, the sector is doing very well. There is aggressive bidding and good price discovery. But the question is how NHAI will find that money. They have got a game plan including market borrowing, monetisation of existing road assets. So, that part is clear.
Only thing that is difficult to ascertain is the PPP mode i.e the Hybrid Annuity Mode where the developers also have to bring equity money and take up projects. Also, they should be able to arrange for debt financing from the banking system. Banks are not willing to fund these projects because of borrowers’ profile. So, all these issues have to be carefully examined.
Immediately, do you expect any benefits from this?
Orders will come. In the five-year plan, for the next three months it may not come. But the direction is clear. The road sector will have good opportunities which is good for the country, the economy and us.