IRB, Sadbhav Infra soar up to 5% as NHAI mulls arbitration settlement

In December last year, Union minister for road transport and highways Nitin Gadkar had informed the Parliament that the ministry has 318 ongoing arbitration cases worth nearly Rs 80,000 crore

Shares of highway developers, including IRB Infrastructure, Sadbhav Engineering, and Ashoka Buildcon, were trading higher on Monday after National Highways Authority of India (NHAI) chairman Sukhbir Singh Sandhu said that the Authority was looking at out-of-court settlement of arbitration claims worth Rs 70,000 crore.

"We are calling all parties, saying let’s sit across the table and decide instead of first going through arbitration, high courts, speed courts. It takes years and years... If we go into conciliation, the payout will be less than Rs 17,000-18,000 crore, because arbitration is a long-drawn process, and in conciliation, you get the money almost immediately,” Sandhu told business-daily The Economic Times. 

Individually, IRB Infrastructure surged 4.9 per cent to hit an intra-day high of Rs 86.8 per share. Besides, Sadbhav Infrastructure Projects advanced 4.2 per cent to Rs 41.25, KNR Constructions (2.7 per cent to Rs 286), Ashoka Buildcon (1.8 per cent to Rs 105.45), Larsen & Toubro (1 per cent to Rs 1,338.10), and Sadbhav Engineering (1.9 per cent to Rs 123.35).

That apart, HG Infra, and J.Kumar Infra gained 2.9 and 2.5 per cent, respectively. In comparison, the benchmark S&P BSE Sensex was at 41,846.53 level, up 247 points or 0.59 per cent while the BSE Infrastructure Index was tradinf 0.57 per cent higher.

In December last year, Union minister for road transport and highways Nitin Gadkar had informed the Parliament that the ministry has 318 ongoing arbitration cases with a claim amount of around Rs 80,000 crore. 

"The average payout in arbitration cases, however, does not exceed 20-25 per cent... Even with that percentage, the highways ministry stares at a liability of Rs 16,000-Rs. 20,000 crore," a government official had told ET.

"While the NHAI awarded road projects of 7,400kms (Rs 1.2 lakh crore in value terms) in FY18, awarding activities slowed considerably in FY19, as the NHAI could award mere 2,200kms in FY19 and barely 1,000kms in FY20 YTD led by delay in land acquisition and funding constraints. Given Rs 102 trillion investment in infrastructure sector over the next five years, as per National Infrastructure Pipeline, we expect the construction companies to witness a healthy traction in the ensuing quarters," analysts at Reliance Securities wrote in a Q3 preview note. The brokerage remains positive on HG Infra and Ahluwalia Contracts.

"With the average value of tenders floated standing at Rs 46,000 crore in August-November, 2019, we believe this could further pick up as the Finance Minister recently announced a roadmap for infrastructure investment in FY20-25 under the NIP. Of the total Rs 102 trillion, the government has proposed Rs 19.6 lakh crore capex towards roads. We anticipate this could lead to strong ramp up in tendering and awarding activity of the road projects, going ahead," wrote analysts at ICICI Securites in an earnings preview note.