Infra giants return to highways sector

Larsen & Toubro, Punj Lloyd, Gammon and Jaiprakash Associates bagged 16 of the 40 EPC contracts awarded in financial year 2015-16

Large infrastructure players have made a comeback in the road sector with companies like L&T, Punj Lloyd, Gammon and Jaiprakash Associates bagging 16 of the 40 engineering, procurement and construction (EPC) contracts awarded in 2015-16.

L&T also bagged two projects in the quarter ended June of the current financial year (2016-17 or FY17). The National Democratic Alliance government's strategy of giving out EPC contracts for the highway sector over the past year seems to have brought bigger firms back to the sector.

These companies were missing from the space in FY14 and FY15. Experts believe one of the reasons for revival of interest is that the market for projects through the public-private-partnership (PPP) mode is yet to pick up.

In FY14 and FY15, the government's focus was on PPP projects rather than EPC. However, these companies had already made investments through the PPP route and opportunities in the EPC segment were limited, Vishwas Udgirkar, partner, Deloitte Touche Tohmatsu India said.

In FY16, 87 per cent of projects were awarded on EPC basis. In FY15, the figure was 91 per cent. According to the National Highways Authority of India (NHAI) data, in the list of 62 EPC projects, L&T bagged seven highway contracts in FY16 apart from the two in FY17.

In FY16, Punj Lloyd bagged four contracts, Jaiprakash Associates three, and HCC and Gammon bagged one each.

Punj Lloyd is upgrading a section of road in West Bengal, the contract for which it bagged in November 2015. In December, the company got another four road projects on EPC basis.

However, even as these companies revive their interest in the EPC segment, it's small and medium-sized companies that are ruling the roost. The share of such companies in executing road projects has tripled in the past three financial years.

As many as eight projects were awarded to companies such as Zignego Company, Gawar Construction, GKC Project, Corsan Corviam, Transstroy, Ceigell India and Dilip Buildcon. The number of medium-sized companies bagging EPC projects increased three times since 2013-14. EPC is the next best bet, Udgirkar said.

About 40 per cent of the 25,000 km to be awarded in FY17 would be on the hybrid annuity model, introduced by the government earlier this year. Another 15 per cent would be on build-operate-transfer (BOT) basis. In both the hybrid annuity and BOT models, investments are made by private developers.

The remaining 45 per cent of projects would be on EPC basis, where the government pays for the construction of highways. On an average cost of Rs 13 crore per km, the Union government would put up for bidding projects roughly worth Rs 3.25 lakh crore this year.

WELCOME REVIVAL

• L&T, Punj Lloyd, Gammon revive interest in EPC contracts
   
• Bag EPC road projects in FY16, while they were missing in FY14, FY15
   
• Experts say EPC interest revival because of lull in market for PPP projects
   
• However, it’s small and medium-sized firms that are ruling the roost
   
• The share of such companies in road projects has tripled in the past three financial years
   
• About 40% of the 25,000 km to be awarded in FY17 would be on the hybrid annuity model, introduced by the government earlier this year
   
• Another 15 per cent would be on build-operate-transfer (BOT) basis