Unlisted companies are NHAI's new major infrastructure developers

The new set is a mixed bag of great execution and stretched working capital cycles

Unlisted companies, including those with a good execution record and ones whose working capital position is weak, are executing a majority of the National Highways Authority of India’s (NHAI)’s projects. While some are expected to be listed, a few may be a matter of concern for the NHAI.

In 2018-19, unlisted companies were executing 63 per cent of the NHAI’s hybrid-annuity model (HAM) projects, according to a report by Equirus Capital. 

This share is higher at 88 per cent for the NHAI’s engineering, procurement and construction (EPC) projects, the report stated.

In the past one year, new unlisted companies like Adani Transport, which was incorporated in March last year, grew rapidly.

According to the Equirus report, Adani Enterprises and Brij Gopal are two of the four main companies with a 40-45 per cent share of HAM projects in the unlisted space.

GR Infrastructure and Gawar Construction are ones that have dominated both the HAM and EPC segments.

“Unlisted companies executing road projects at present are a mixed bag. The list includes companies that have shown a good execution record and timely financial closure,” said Shubham Jain, senior vice-president and group, head, Corporate Ratings, ICRA.
 

“There are a few that have liquidity and working capital issues. We expect some of the stronger ones to tap the primary market,” he added.

A look at the rating reports for some of these unlisted companies shows concern. The outlook for DRN Infrastructure, for instance, was revised to stable from positive in March this year.

“The outlook revision also reflects higher than expected capital withdrawal by the partners of the firm. The partners withdrew ~72 crore in fiscal 2018 as against the expectations of around ~30 crore,” said a CRISIL note on the company. While executives of listed companies see the trend as a healthy sign, there is a word of caution. 

“The industry is seeing a churn, which is a healthy sign from the competition perspective. However, it also poses some risks for the stakeholders,” said Sandeep Garg, managing director and chief executive officer for Welspun Enterprises. 

“It would be best for clients and lenders to put in safeguards to ensure that the growth desire of new entrants is balanced with the ability to fund and execute projects. This will ensure long-term sustainable growth,” he said.

Among other points highlighted in the rating reports are non-recourse debt taken to fund road projects and special purpose vehicles executing road projects with any corporate guarantee from parent companies.

A few others like Gawar Construction and Brij Gopal Construction Company, where the finances are healthy, there are concerns about additions to their order-book.  In its most recent rating report on the company issued in February, ICRA said: “GCL’s liquidity position remains healthy with strong accruals.” 

It added: “However, addition of HAM projects in the short term can further increase the equity requirement and impact the liquidity position of the company.” In the case of Brij Gopal Construction Company, ICRA said in an April 2019 note, “Going forward, any new HAM/BOT (build-operate-transfer) project undertaken by the company or an increase in funding requirement for its ongoing HAM/BOT projects can adversely impact BGCC’s liquidity and credit profile.”