What The Acquisition Of Essel’s BOT Project Means For Welspun Enterprises

Welspun Corp. Ltd. said it has agreed to acquire a highway toll project from the Essel Group as it attempts to boost its order book.

Subsidiary Welspun Enterprises will acquire a build-operate-transfer toll project from Mukarba Chowk-Panipat Toll Roads Ltd. through harmonious substitution—where lenders to an incomplete project can transfer it to another company. The National Highways Authority of India and the project’s lenders had approved the deal, Welspun Enterprises said in a statement.

The Essel Group subsidiary had completed a third of the 71.1-km-long highway from Mukarba Chowk, Delhi, to Panipat in Haryana and has debt of around 600 crore.

This project is expected to add Rs 1,100 crore to Welspun Enterprises’ EPC (engineering procurement construction) order book, taking it to Rs 4,800 crore.

Deal Details

Welspun Enterprises, in response to queries from BloombergQuint, said the project has Rs 200 crore of equity commitment and a grant from NHAI amounting to Rs 189 crore.

The company said that as of March 31, it had cash and cash equivalents amounting to more than Rs 500 crore. “There’s no debt at the standalone level except for Rs 30 crore for equipment loans which is also being prepaid.”

The company has also secured board approval to raise long-term financing of Rs 200 crore, to capitalise on the future growth potential in infrastructure sector.

Project Details

• Original cost estimated at Rs 2,122 crore.
• Additional cost to be incurred is Rs 1,593 crore.
• To be completed by June 2021.
• Scheduled concession end date is October 2033, extendable by up to 3.4 years.
• Toll revenue for Haryana section is about Rs 200 crore per annum.
• Toll revenue to go up to Rs 300 crore upon achieving commercial operational date for both Haryana and Delhi.

Deal Implications

Welspun Enterprises told BloombergQuint that it would attempt to achieve 15 percent internal rate of return for any acquired project, including the present one.

The deal comes at a time when Welspun Corp.’s order book has started dwindling and HAM (hybrid annuity model) projects are going out of vogue due to upfront equity requirement of 40 percent.

Rohit Natarajan, associate vice president of research at Antique Stock Broking Ltd., said Welspun Enterprises has won the project at a very low rate as most of the players usually earn internal rate of return in single digits.

That’s because the expression of interest had a clause of equity requirement, which dissuaded many players. The financial strength to close the BOT project was a not a strategic fit for many players, leaving Welspun Enterprises as the sole bidder, he said.

However, Binod Modi, equity research analyst at Reliance Securities Ltd., suggested that toll revenue projection of Rs 300 crore is subject to company not facing any delays in execution amid the Covid-19 pandemic.

Any delay in execution will not just put revenue projections at risk but would also eat into the internal rate of return for the project, he said. “Besides, revival of economic activity can also impact traffic flow and toll collection.”