Rising through challenges
At the end of a challenging and volatile financial year I am filled with a sense ofimmense pride and satisfaction to share that IRB has emerged stronger than before. Even asthe market remained difficult and new opportunities were scarce our focus was onimplementing solutions to create value while enhancing growth for the business.
Performance review FY 2019-20
FY20 was a milestone year for your Company marked by two significant accomplishments:
1. We joined hands with one of the largest Global Sovereign Funds GIC (Government ofSingapore Sovereign Fund) to launch a Private Infrastructure Trust (IRB InfrastructureTrust) with 51:49 ownership between IRB and GIC Affiliates.
2. Secured the largest and one of the most prestigious TOTs in India - Mumbai PuneExpressway project for a fee of Rs 8262 Crores to be paid in four instalments till March2023 for concession tenure of 10 years and two months.
Private InvIT transaction
This transaction involves GIC Affiliates committing 4400 Crores for 49% stake in theTrust with ownership of 9 BOT assets (transferred from IRB) and incrementally exploringfuture opportunities together. Out of the first tranche of Rs 3750 Crores investment Rs3000 Crores has been used to part deleverage the 9 SPVs while the balance is earmarkedtowards equity contribution for under construction projects. With lower debt to beserviced the portfolio becomes cashflow positive and self-sustainable even during theinitial years of concession. Accordingly financial liabilities for IRB are now limited toits wholly owned projects and businesses - and you would find that we are moving topartial consolidation of our business segments to reflect the same. As a result yourCompany now has an encouraging net D:E of 0.76x and is poised for taking up growthopportunities with a bigger appetite as well as stronger balance sheet. Following thesedevelopments India Ratings has re-affirmed the Credit Rating of A+ for the Company.
Mumbai-Pune Expressway TOT
Winning country's largest road TOT concession for the second time in a row has beennothing less than a roaring success of our efforts and strategy. A lighter balance sheetwith reduced debt on books enabled the necessary headroom for us to take up thecommitment of a large fee of Rs 8262 Crores for this concession. Given the merits of thisproject driven by it being only road connectivity between the twin cities of Mumbai andPune we expect a promising equity IRR from the project. We have experienced the samewhile managing this project for 15 years earlier as well.
During the year we also achieved Provisional Commercial Operation Date (PCOD) forKarwar Kundapura project; with this all projects in our BOT portfolio are now tollingincluding 5 of our 4 to 6 laning projects - that are under various stages of construction.Around the end of February 2020 we were relishing the business momentum of the PrivateInvIT transaction closure Mumbai-Pune concession win strong pick-up in trafficregistering a comfortable double-digit y-o-y growth in collections when the world was hitby the unprecedented pandemic - COVID-19. The month of March was marred as constructionactivities as well as traffic movement slowed down until a complete national lockdown wasimplemented on orders from the Central Government - which extended until the end of May2020.
Our FY20 numbers are not comparable to that of FY19 due to the transfer of 9 assets toPvt InvIT for part of the year as well as the impact of pandemic. To combat liquiditychallenges caused due to the lockdown and compensate for slowed economic activity thegovernment has extended support in the form of moratorium for existing loans increase inworking capital limits NHAI loans and an extension of concession period of projects. Onthe whole these initiatives are expected to make the COVID impact NPV neutral.
We have meticulously planned and used each of these options selectively - to conservecash and shore up liquidity on books which has helped us in proposing a final dividend of50% for the year.
Strategy and game-plan
Liquidity and a strong balance sheet are the need of the hour to ride out the pandemicperiod while also tapping unfolding growth opportunities. The same focus and efforts couldnot have yielded results at a better time for us. We closed the transaction with GICAffiliates and won Mumbai-Pune concession just days before spread of COVID-19 graspedIndia. We were Rs 3000 Crores lighter on debt with fund availability for ongoingexecution and had also won strong cashflow stream with 10-year visibility.
With the Mumbai-Pune Expressway win we have been able to continue legacy and gainleadership at the same time.
IRB's business can now be simply modelled in two business segments: EPC and ownedassets which include 3 BOT 1 HAM and 1 TOT; and investments in two InvITs as theirsponsor. We have ~16% stake in the Public InvIT and 51% stake in the Private InvIT and wecontinue to manage O&M for all assets housed under both these InvITs through our EPCarm which also undertakes construction and execution of projects under the umbrella ofthe IRB Group.
We now have to our credit:
- The largest TOT project in India as per time value concept given the concessiontenure of 10 years 2 months
- The largest asset base of over Rs 45000 Crores backed by largest portfolio of tolledprojects in the country
- Single largest debt tie-up of Rs 6610 Crores for Mumbai Pune Concession closed inthe stipulated time even amidst the pandemic
- A long-term marquee financial partner for 49% stake in the largest roadsInfrastructure Trust in India
It will take some more time for the COVID-19 impact to be over. As a result of thepandemic a shift to usage of private vehicles is becoming apparent the world over and asimilar trend is expected to emerge in India. This will provide further boost to trafficin post-COVID times.
From here on our focus will be laid on consolidating our leadership further throughexecution of the order book in hand and new project wins. By FY21 end we expect to havecompleted the construction of all the projects in our portfolio except some part ofHapur-Moradabad - which will be completed in FY22.
BOT: Preferred choice for emerging times
There wasn't a significant awarding activity in FY20 by NHAI as most of Q4FY20 when agood number of tenders were lined up was lost due to the pandemic. The authority hadlined up some tenders on the BOT mode earlier as well of which a few will likely beawarded in the ensuing months. During the pandemic however the Government hasprioritised the usage of its corpus for supporting the financial health of the industrysafeguarding MSMEs and agriculture aiding marginalised population and expandinghealthcare infrastructure. The Authority too has had to spruce up funds available tocompensate the industry for losses due to the lockdown and slowed economic activity. Theauthority is also working on smoothening the Model Concession Agreement (MCA) for the BOTmodel to make it more bankable.
The Ministry of Road Transport and Highways has guided for 3000 kms of highways to bebuilt on the BOT mode and tenders to be awarded based on the new MCA soon.
IRB is the leading Roads BOT developer in India and is well poised to bag a meaningfulmarket share in the segment.
We witnessed a strong uptick in collections being clocked for our assets towards end ofFebruary 2020 which is indicative of the demand scenario in India. The same is alsoreflected in the rebound being witnessed in traffic as the country is opening up inphases. We are back to over 80% pre-COVID level traffic for our portfolio even when manycities or state sections are not allowing traffic movement freely and expect to reachpre-COVID collections in the coming months.
Further out of the 9 projects in Private InvIT 5 projects are under construction -all being 4 to 6 laning assets. 4 of these will be completed in FY21 resulting in over45% jump in tariffs on completion. This will provide a strong boost in collections andfacilitate operations.
With the transfer of 9 projects their corresponding O&M now becomes a part of ourorder book - which has increased to Rs 12000 Crores ensuring strong visibility for theEPC segment for foreseeable future.
We are well poised and geared up to win a large number of BOT projects in the upcomingbids which will ensure a steady growth in execution as well as our Toll revenues in thelong term.
All this has been made possible with the continued support and trust of all ourstakeholders over the years. I am humbled by your association guidance and encouragementand want to thank you all for helping IRB reach these heights.
We will continue to strive and remain focused on creating more value for all.
Virendra D. Mhaiskar
Chairman and Managing Director