Adani Group may now look at projects under toll-operate-transfer model

Under the TOT model, the NHAI allows companies, including pension funds and private equity firms, to lease certain national highways by paying an upfront fee

Having entered the road construction business with its first hybrid annuity model project, the Adani Group may now look at the toll-operate-transfer (TOT) model, according to a spokesperson for the group.

Under the TOT model, the National Highways Authority of India (NHAI) allows companies, including pension funds and private equity firms, to lease certain national highways  by paying an upfront fee. The lessee gets the right to collect the toll, operate and maintain the asset for a fixed period. Once the period ends, the lessee needs to transfer the asset ownership back to NHAI.

Last week, Adani Enterprises announced its first award win worth Rs 11.40 billion under the hybrid annuity model. However, the company would not shy away from exploring other opportunities in the transport sector, the spokesperson added. “We are certainly open to look at TOT projects in the road sector in future,” the spokesperson said in an emailed response to Business Standard.

In March, Adani Enterprises incorporated Adani Transport as a wholly-owned subsidiary. The Adani Group started as a coal trading company in 1988. It later diversified into coal mining, port operations and ownership, power generation, logistics, and more recently power distribution and real estate.

Road construction does not fit naturally into the group’s value chain. However, the company spokesperson said construction was the missing link. “We are known for our scale of ambition, speed of execution, and quality of operations across core sectors, including resources, logistics and energy. However, the missing link here was the lack of a presence in the transport sector such as roads, railways and mass rapid transport systems like metros,” the spokesperson added.

In the road construction space, with only one order worth Rs 11.40 billion, the company is likely to face tough competition, even though companies such as MEP, Ashoka Buildcon, IRB Infrastructure and Dilip Buildcon are much smaller in scale. 

Adani, however, is open to inorganic growth options. “We are always keen to explore opportunities that offer attractive valuation across chains of businesses,” the spokesperson said on whether the firm will look to acquire operational road assets.

The focus right now is likely to be on under-construction projects, investment bankers in the know said. “They are looking at new road construction projects. They are not keen on operating roads,” said a banker on condition of anonymity.

Even as the company says its entry into road construction plugs the missing link, analysts and industry officials see it as a hedging activity. “Adani is always optimistic about various sectors. This could also be a way to hedge risks, which the group’s other businesses face,” said an executive with a leading energy and metals company.

“Two of its main businesses, ports and power, are highly sensitive to various risks. There is not much clarity on the Australian project either. Adani Enterprises foray into other sectors may be part of a larger strategy to hedge risks,” said another analyst.