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VIJAYARAGHAVAN SWAMINATHAN [email protected] +91 44 4344 0022

BHARANIDHAR VIJAYAKUMAR [email protected] +91 44 4344 0038

December 23, 2016

I N D I A N R OA D S

Industry Update

Date Dec 23, 2016

Market Data

SENSEX 25979

Nifty 7979

Market Performance

% 1m 3m 12m

ASBL 8% -10% -23%

KNRC 14% 14% 37%

PNCL -8% -15% -3%

IRB 8% -21% -20%

SADE -8% -10% -23%

SENSEX 0% -10% 2%

Industry Update

Demonetisation impact on Toll collection and Traffic: Our channel checks (at 25 toll roads in 12 states) indicate that on an

average the traffic count has dropped by ~15% (yoy compared to similar period in 2015) and consequently the toll collection has

dropped by ~12% (since start of regular toll collection). However, there were stretches where the traffic has either grown yoy in this

period or has not been significantly affected (predominantly in West Bengal, Orissa and Gujarat stretches). Stretches in Tamil Nadu

wer affected more due to disruption in traffic/ low vehicular movement due to the acting Chief Minister passing-away and due to a

strong cyclone. We also noted that in all the stretches that we spoke to, card swiping machines (POS terminals) have been installed

in all the lanes and the percentage of card payment has gone up steadily over the last few weeks.

NHAI interaction and Industry Update: Project award activity on the national highway front (both by NHAI and MoRTH) has slowed

down in the last few months with a total award of 4,592kms till Nov-2016 (18% achievement of the overall target of 25,000kms for

FY17). Of this NHAI has awarded 2,509kms (17% achievement of the 15,000kms target) and MoRTH has awarded 2,082kms (21%

achievement of the 10,000kms target). Seasonality, land acquisition problems, delay in execution of the projects awarded in 2016

(Delhi Meerut expressway and Meerut Bulandshahr Expressway in particular) and large number of pending Financial Closures (FC)

for the Hybrid Annuity Model (HAM) projects (only 8 out of 27 projects awarded has FC, while 2 have been terminated) are the

principal reasons for the hold-up in awarding activity.

Bankers have been loath to agree for the terms of the HAM model (low compensation in case project is terminated has been an

issue); short execution track-record with low equity funding capability from the winning concessionaires also have been the reasons

for the delay in financial closures. We expect stronger players like Ashoka Buildcon and PNC Infratech to eventually finalise the

financial package for their recently won HAM projects, while projects of newer players are more likely to be terminated. However, with

the tender pipeline strong in the end of December and in 4QFY17E, we expect project award activity to pick-up; this should enable

NHAI to award atleast 5,000kms in FY17E

Effect on Stocks under coverage: Loss of toll revenues is likely to create short term cashflow mismatch for players with several

projects in their portfolio (IRB, Sadbhav and Ashoka); though this will be offset in the long-term by mix of cash compensation plus

increase in concession term. Toll roads are likely to see very low/ no traffic growth yoy for the next few months due to the impact on

economic activity post demonetisation; this is likely to affect IRB, Sadbhav and Ashoka the most in our coverage. Delays in project

execution (primarily due to land acquisition) is already evident in the pace of execution in all the Companies we cover. PNC Infratech

is the worst affected (80% of road projects awarded since FY16 is delayed) followed by Ashoka Buildcon (47%), Sadbhav (43%) and

KNR (19%)

We cut our rating for Sadbhav Engineering and PNC Infratech from BUY to ADD due to the risks highlighted above affecting them

more than others (traffic risk is likely to have a stronger effect on Sadbhav given the higher D/E ratio and due to higher equity

requirement for the 5 HAM projects, while concentration risk is likely to be higher for PNC with 5 projects in U.P. and Bihar not being

able to achieve land acquisition). Overall, EPC/road construction companies are expected to be impacted the LEAST from the

demonetization process and the execution is likely to recover 1QFY18. EPC companies with strong orderbook, lean balance sheet

are likely to benefit from increased spending expected in roads, metros, building and irrigation sectors. This along with reduction in

cost of debt is likely to result in better fortunes for the sector. We continue to remain positive on KNR Constructions (due to 37%

revenue growth for FY16-18E compared to <20% for the others and with relatively lower project delays) and on Ashoka Buildcon (due

to road assets benefitting from mining activity and due to a well funded BOT portfolio). BUY KNR (TP: 185/ share), Ashoka Buildcon

(TP: 200/ share); ADD Sadbhav Engineering (TP: 290/ share), PNC Infratech (TP: 130/ share), IRB (TP: 190/ share)

Industry Update - Roads

Execution risks and Traffic risks come to the fore

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

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60%

Dec-1

5

Fe

b-1

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Ap

r-1

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Au

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Oct-

16

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ASBL IN IRB IN SADE IN

KNRC IN PNCL IN SENSEX

Sector View

Cautious

Valuation Matrix


Company Revenues, Rs.mn EBITDA, Rs.mn PAT, Rs.mn RoE

Standalone Numbers FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E

Ashoka Buildcon 19,667 19,358 20,121 27,121 2,498 2,652 2,802 3,438 1,422 1,594 1,480 1,769 14% 12% 9% 9%

IRB 26,579 21,084 31,311 36,238 8,382 7,207 9,597 10,124 3,342 1,925 3,625 3,142 14% 7% 12% 9%

KNR Constructions 8,761 9,025 14,081 16,835 1,262 1,553 2,052 2,436 730 1,611 1,410 1,423 13% 25% 18% 15%

PNC Infratech 15,610 20,142 19,432 24,186 2,166 2,660 2,970 3,234 1,004 2,427 2,506 2,018 15% 23% 17% 13%

Sadbhav Engineering 29,698 31,862 34,255 45,330 3,002 3,254 3,702 4,961 1,137 1,338 1,559 2,117 10% 9% 10% 12%

Company Revenues, Rs.mn EBITDA, Rs.mn PAT, Rs.mn RoE

Consolidated

Numbers FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E

Ashoka Buildcon 23,197 26,145 27,319 35,277 5,110 7,721 8,146 9,665 815 584 643 1,356 6% 4% 3% 7%

IRB 37,319 38,475 51,302 59,777 17,537 22,117 26,606 30,235 4,591 5,429 6,359 7,134 14% 14% 14% 12%

KNR Constructions 9,312 9,951 14,789 17,634 1,268 1,742 2,605 3,072 697 1,263 1,085 1,209 10% 17% 15% 14%

PNC Infratech 18,609 23,946 25,173 30,072 2,799 4,073 5,648 5,957 912 2,161 1,589 1,322 12% 20% 11% 9%

Sadbhav Engineering 34,480 38,775 45,401 58,561 5,867 8,035 12,055 15,184 (1,758) (468) 577 1,692 -13% -3% 3% 6%

Company CMP Shares M.Cap Net Debt to Equity (x) P/E (x) Price / BV (x) Target

Price Rating

Consolidated

Numbers Rs. (mn) Rs. bn FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E

Price

(Rs.)

Ashoka Buildcon 155 187 29.0 2.1 1.7 1.7 1.6 35.6 49.6 45.1 21.4 1.6 1.2 1.2 1.2 200 Buy

IRB 195 351 68.4 2.8 2.9 3.1 3.1 11.9 10.8 9.6 9.7 1.5 1.4 1.2 1.1 190 Add

KNR Constructions 160 141 22.5 0.8 0.9 0.8 0.6 6.5 3.6 4.1 3.7 0.6 0.6 0.6 0.5 185 Buy

PNC Infratech 105 257 26.9 1.9 1.1 0.9 0.8 29.5 12.5 16.9 20.4 3.1 2.1 1.8 1.7 130 Add

Sadbhav Engineering 260 171 44.5 3.8 3.7 3.0 2.4 NM NM NM 26.3 2.6 1.9 1.7 1.5 290 Add

Tambaram

Tindivanam

Madurai

Tuticorin

Walajapet

Poonamallee

Tambaram-Tindivanam

1. 35%

2. 30 to 40%

3. POS

TAMIL NADU

Madurai Tuticorin

1. Not much affected

2. Normal

3. POS

Walajhapet - Poonamalai

1. 30%

2. 25%

3. POS

Hyderabad - Bangalore

1. 15%

2. 20 %

3. POS

ANDHRA PRADESH

Tada - Nellore

1. 20%

2. 40 %

3. POS

MP/Maharashtra Border – Dhule

1. 10%

2. 10 %

3. POS

MAHARASHTRA

Chattisgarh/Maharashtra Border - Wainganga Bridge

1. 10-15%

2. 10-15 %

3. POS

Pimpalgoan - Nashik – Gonde

1. 25% Now 5%

2. 5%

3. POS

Vadape - Gonde

1. 10-15%

2. 15-20%

3. POS

Indore – Dewas

1. 15%

2. 15%

3. POS

MADHYA PRADESH

Agra - Gwalior

1. 45%

2. 50%

3. POS

PUNJAB

Kiratpur - Kurali, Zirakpur –Parwanoo


2. Normal

3. POS

Delhi – Gurgaon

1. 20%

2. 40%

3. POS

DELHI

Barwa adda- Panagarh

1. 10-15%

2. Normal

3. POS

WEST BENGAL

Dhankuni –kharagpur


2. Normal

3. POS

Bhubaneshwar- Jagatpur - Chandikhole

1. 10%

2. 5-6%

3. POS

ORISSA

Bhadrak - Balasore

1. 5%

2. 10%

3. POS

Hyderabad

Bangalore Tada

Nellore

Chandikhol

Bhubaneswar

Wainganga Dhule

Nashik Gonde

Vadape

Dewas Dewas

Agra

Gwalior

Kiratpur Parwanoo Kurali

Barwa Panagarh

Delhi

Gurgaon

Jaipur – Kishangarh

1. 25%

2. 30%

3. POS

RAJASTHAN

Beawar- Pali- Pindwara

1. 15%

2. 20%

3. POS

Lucknow

Raebareli

Lucknow-Raibrelly

1. 25%

2. 30-35%

3. POS

UTTAR PRADESH

Agra-Aligarh

1. 10-15%

2. 10-15%

3. POS

Moradabad -Bareilly


2. Normal

3. POS

Ahmedabad – Vadodra

1. Normal

2. Normal

3. POS

GUJARAT

Godhra - Gujarat / MP Border

1. 20%

2. 20%

3. POS

1. What is the effect of demonetisation on toll collection? (% drop/ growth)

2. Effect on traffic post demonetisation? (% drop/ growth)

3. Are you collecting toll in Cash or have u installed POS machines?

Decrease Increase Neutral


Effect on Toll Collections/ Traffic post demonetisation

Ahmedabad

Vadodara

Jaipur

Kishangarh

9,794

1,916

6,321 7,890 8,295

-80%

230%

25% 5%

FY12 FY13 FY14 FY15 FY16

km

s

National Highway Projects Awarded (kms)

kms Awarded yoy growth, %

5,013 5,732

4,250 4,440

6,061

14%

-26%

4%

37%


km

s

National Highway Constructed (kms)

kms constructed yoy growth, %

27

5

17

22 23


Km

s/ d

ay

National Highway Projects Awarded (kms/ day)

kms awarded per day

14 16

12 12

17


Km

s/ d

ay

National Highway Constructed (kms/ day)

kms constructed per day


National Highways – award and construction history

NHAI Update – slowdown in projects awarded in the last few months; targets set by Govt. unlikely to be achieved


NHAI Project Awards

Kms FY16 YTDFY17

BOT 873 332

EPC 3,149 1,155

HAM 345 1,022

Total 4,368 2,509

15,000

10,000

25,000

2,509

2,082

4,592

0 5,000 10,000 15,000 20,000 25,000 30,000

NHAI

MoRTH

Total

National Highways - Project Award Target & Achievement YTDFY17

Achievement (kms) Target (kms)

8,000

7,000

15,000

1,417

2,174

3,591

0 5,000 10,000 15,000 20,000 25,000 30,000

NHAI

MoRTH

Total

National Highways - Road Construction Target & Achievement YTDFY17

Achievement (kms) Target (kms)

Source: NHAI, MoRTH, Spark Capital Research

NHAI Project Awards

nos. FY16 YTDFY17

BOT 7 3

EPC 63 20

HAM 9 16

Total 79 39

NHAI Project Awards

Rs. mn FY16 YTDFY17

BOT 119,341 35,841

EPC 481,298 158,636

HAM 83,339 144,784

Total 683,978 339,260

BOT – Build Own/ Operate Transfer, EPC – Engineering Procurement & Construction, HAM – Hybrid Annuity Model

NHAI Update – only 8 out of 25 HAM projects awarded so far has achieved Financial Closure


NHAI - Hybrid Annuity Projects awarded so far Rs. mn Rs. mn

# Bidder FC? months since

award Road

Award

Date kms State

NHAI

cost

Final

Cost

1 Agroh Infra No 2 4 laning of Tarsod-Fagne NH-6 Nov-16 87 Maharashtra 10,210 10,210

2 Agroh Infra Yes 8 4 laning of Kagavadar - Una May-16 41 Gujarat 7,236 5,550

3 Agroh Infra No 6 4 laning of Kodinar to Veraval NH-8E Jul-16 42 Gujarat 8,300 6,700

4 APCo Infratech No 12 Meerut - Bulandshahar Jan-16 61 U.P. 6,832 8,680

5 APCo Infratech No 12 Delhi - Meerut Expreeway PKG III Jan-16 22 Delhi & U.P. 10,816 10,570

6 Ashoka Concessions No 5 4/ 6 Laning of Kharar to Ludhiana section NH-95 Aug-16 76 Punjab 13,883 20,700

7 Chetak Enterprises No 5 2 laning Shimla Bypass (Kaithlighat to Shimla Section) Aug-16 27 H.P. 15,832 15,830

8 Dineshchandra R Agrawal No 7 4 laning Salasar - Nagaur section of NH-65 Jun-16 120 Rajasthan 6,372 5,330

9 Eagle Infra No 8 4 laning Laddowal bypass linking NH-95 with NH-1 May-16 17 Punjab 3,920 3,920

10 GR Infra No 5 4 laning Phagwara to Rupnagar Aug-16 81 Punjab 11,696 14,440

11 MBL Infra No 7 6 laning of Udaipur Bypass Jun-16 24 Rajasthan 7,260 7,790

12 MBL Infra No 10 4 laning of Chultmalpur - Ganeshpur Mar-16 53 Uttarakhand and U.P. 14,430 9,420

13 MBL Infra No 10 4 laning of Gagalgeri - Yamunanagar Mar-16 51 U.P. 16,680 11,840

14 MEP Infra & Sanjose India Infra No 8 4 laning of Talaja - Mahuva May-16 45 Gujarat 8,346 6,490

15 MEP Infra & Sanjose India Infra No 7 4 laning of Mahuva to Kagavadar PKG-III Jun-16 40 Gujarat 7,632 6,047

16 MEP Infra & Sanjose India Infra Yes 10 4 laning Ring Road / bypasses for Nagpur City PKG-I Mar-16 34 Maharashtra 5,460 5,310

17 MEP Infra & Sanjose India Infra Yes 10 4 laning Ring Road / bypasses for Nagpur City PKG-II Mar-16 28 Maharashtra 5,917 6,390

18 Oriental Structural No 3 4 laning of Binjhabahal - Telebani Oct-16 78 Odisha 10,090 11,614

19 PNC Infratech No 6 4 laning Dausa - Lalsot - Kauthun section of NH-11A Jul-16 83 Rajasthan 6,887 8,200

20 Sadbhav Infra Yes 8 4 laning of Bhavnagar - Talaja May-16 48 Gujarat 9,982 4,950

21 Sadbhav Infra Yes 8 4 laning of Una - Kodinar May-16 41 Gujarat 7,631 8,550

22 Sadbhav Infra No 4 2/4 laning of Tiger Reserve Boundary to Bangalore section Sep-16 171 Karnataka 9,507 7,995

23 Sadbhav Infra Yes 10 4 laning of Rampur - Kathgodam PKG-I Mar-16 43 U.P. 8,990 6,030

24 Sadbhav Infra Yes 10 4 laning of Rampur - Kathgodam PKG-II Mar-16 45 Uttarakhand and U.P. 7,200 5,250

25 Welspun Enterprises Yes 12 Delhi - Meerut Expreeway PKG I Jan-16 9 Delhi & U.P. 7,014 7,360

26 Gawar Infra - - Samrala Chowk-Ludhiana Apr-16 Punjab 8,530 10,490

27 Overseas Infra - - Kishangarh-Udaipur-Ahmedabad (Package VI) Apr-16 Gujarat - -

Only 8 HAM projects have got Financial Closure so far and it is evident that Companies with proven track record and balance sheet ability are not facing

significant delays. Two projects (Gawar Infra and Overseas Infra) have been terminated so far due to problems in achieving financial closure

We analysed the data given by Ministry of Road Transport and Highways on the land acquisition status of NHAI, key takeaways are:

• 9,287hectares of land was obtained in possession in FY16 by NHAI for roads (38% yoy growth). Haryana (1,662 Ha), Rajasthan (1,264 Ha),

Maharashtra (988 Ha), Orissa (940 Ha), Karnataka (676 Ha), Bihar (539 Ha) are the top states in which most land have been taken into possession

• Rs. 190.2bn has been deposited by NHAI in FY16 towards compensation for land (111% yoy growth) vs. Rs. 90.3bn in FY15

• U.P. (Rs. 49.5bn), Bihar (Rs. 21.1bn), West Bengal (Rs. 19.1bn), Maharashtra (Rs. 19.1bn), Haryana (Rs. 16.6bn) and Jharkhand (Rs. 15.6bn) are the

top states where most compensation had been paid in FY16

• Given >40% of the remaining road projects to be awarded by NHAI are in U.P.(10%), Rajasthan, Orissa, Maharashtra, Karnataka we are likely to see

large amounts being spent in these states for land acquisition in the future also

• Intensity of land acquisition in FY17 is likely to be lower which we believe is the reason for 47% lower allocation in FY17 budget to NHAI from Central

Road Fund

• NHAI is looking to acquire 10,000ha for FY17E (4000ha already acquired till September; FY16 – 9000ha). Cost of land acquisition is expected to be ~Rs

300bn in FY17. Our channel checks indicate that the new land acquisition act is hurting the projects badly – where the increasing cost of land acquisition

pose risk to the sector

Land Acquisition, hectares Compensation deposited with Competent Authority

State FY13 FY14 FY15 FY16 Rs. mn FY13 FY14 FY15 FY16

Haryana 687 218 87 1,662 Uttar Pradesh 4,939 13,210 13,932 49,493

Rajasthan 1,506 458 1,723 1,264 Bihar 1,643 5,253 6,308 21,125

Maharashtra 391 1,336 561 988 West Bengal 7,820 9,861 11,744 19,137

Orissa 396 236 190 940 Maharashtra 4,310 9,251 6,103 19,086

Karnataka 213 668 749 676 Haryana 8,037 5,370 22,101 16,624

Bihar 439 235 351 539 Jharkhand 860 244 101 15,562

West Bengal 176 299 222 537 Himachal Pradesh 18 5,156 130 9,203

Uttrakhand 11 23 89 437 Andhra Pradesh 3,920 4,501 1,192 6,975

Gujarat 550 302 151 373 Tamil Nadu 3,964 3,318 3,117 6,742

Tamil Nadu 803 315 855 325 Rajasthan 816 2,696 4,337 5,320

Andhra Pradesh 197 455 153 316 Orissa 1,766 697 4,973 5,202

Uttar Pradesh 473 1,227 566 307 Uttrakhand 2,998 592 983 4,465

Punjab 41 47 50 233 Karnataka 4,003 4,767 7,369 3,421

Himachal Pradesh 0 159 0 208 Gujarat 1,668 1,036 2,166 2,606

Jharkhand 120 37 0 204 Madhya Pradesh 908 5,957 0 1,745

Chhattisgarh 381 563 66 115 Kerala 1,375 2,592 2,745 1,547

Madhya Pradesh 483 1,992 883 111 Jammu & Kashmir 905 1,294 484 894

Kerala 2 5 24 40 Chhattisgarh 2,755 907 956 783

Jammu & Kashmir 15 66 0 12 Meghalaya 79 627 249 228

Assam 41 0 0 0 Assam 277 310 1,244 44

Goa 0 0 0 0 Goa 0 0 0 0

Meghalaya 0 14 13 0 Punjab 985 300 36 0

Total India 6,925 8,655 6,733 9,287 Total India 54,043 77,939 90,270 190,200


NHAI – land acquisition history

NHAI projects won Rs. mn kms No. of projects

Bidder FY16 YTDFY17 FY16 YTDFY17 FY16 YTDFY17

Larsen & Toubro 57,039 17,001 480 127 8 2

PNC Infratech 52,747 6,887 409 83 5 1

Dilip Buildcon 42,512 24,290 469 194 5 2

IL&FS Transportation 41,739 0 335 0 2 0

Gayatri Projects 39,653 25,100 279 153 5 1

Jaiprakash Associates 37,727 0 156 0 3 0

MBL Infra 31,110 7,260 104 24 2 1

Punj Lloyd 31,019 0 201 0 4 0

Sadbhav Engineering 27,202 0 133 0 4 0

GR Infra 22,497 11,696 325 81 4 1

Oriental Structural Engineers 22,483 10,090 162 78 2 1

KNR Constructions 22,324 16,642 142 143 2 1

HCC 21,687 0 32 0 1 0

Gammon India 21,370 11,674 40 95 1 1

Essel Infraprojects 21,287 0 70 0 1 0

ApCo Infratech 17,648 0 83 0 2 0

IRB Infra 16,572 24,839 125 239 1 2

Jai Kumar InfraProjects 16,294 0 40 0 3 0

Sadbhav Infra 16,190 27,120 88 260 2 3

Ashoka Buildcon 15,645 4,580 43 57 3 1

Corsan Corviam Construction 14,080 0 72 0 1 0

Uniquest Infra Ventures 13,775 0 109 0 1 0

BSCPL Infra 11,675 0 45 0 1 0

MEP Infra & Sanjose India 11,377 15,979 62 85 2 2

Backbone Enterprises 10,697 2,275 81 54 1 1

Welspun Enterprises 7,014 0 9 0 1 0

Others 40,618 133,828 277 835 12 19

Total 683,978 339,260 4,368 2,509 79 39


Competition for projects

Competitive intensity for EPC projects

remain similar to FY16 with more than 20

active bidders still in the fray; due to non

achievement of Financial Closure of HAM

projects, competition has significantly

reducedto <5 players at present for HAM

projects; competition for BOT projects is

comparatively lower at around 5 players

Players like Dilip Buildcon, Gayatri Projects,

MEP Infra and GR Infra continue to be

aggressive and show enough appetite to

win more projects

L&T and PNC Infratech who were the top

winners in FY16 have not won as many

projects in YTDFY!&

FY17 so far has also seen newer players

like Agroh Infratech, KMC Constructions,

Eagle Infra, H G Infra and Dineshchandra R

Agarwal Infracon winning several projects

In the companies under our coverage,

Sadbhav, KNR and Ashoka Buildcon all

continue to win projects in FY17 as well


Status of orders won recently for Companies under coverage

Progress of Road Projects won since FY16 Original Cost Remaining Work

Year Months Mode Awarder State Rs. mn Rs. mn

Ashoka Buildcon/ Ashoka Concessions

6 lane Eastern Peripheral Expressway PKG-IV Aug-15 FY16 17 EPC NHAI Uttar Pradesh 7,890 7,131

JNPT Port Road Phase-II PKG-IV Sep-15 FY16 16 EPC NHAI Maharashtra 4,140 3,834

Bagewadi-Bailhongal-Saundatti Sep-15 FY16 16 Annuity State Karnataka 2,350 2,543

Hungund-Muddebihal-Talikot Sep-15 FY16 16 Annuity State Karnataka 2,050 2,466

Islampur By pass Oct-15 FY16 15 EPC NHAI West Bengal 2,770 2,761

Road network of Hulhumale Oct-15 FY16 15 EPC Maldives Maldives 1,239 NA

2 laning Pasighat-Mariyang Nov-15 FY16 14 EPC NHIDCL Arunachal P. 917 NA

Govindpur-Tundi-Giridih & Dumka-Hannsidha Feb-16 FY16 11 EPC State Jharkhand 4,016 3,863

2 laning of Pasighat to Bomjur Mar-16 FY16 10 EPC NHIDCL Arunachal P. 763 NA

4/2 laning of Govindpur-Chahs-WB border Jul-16 FY17 6 EPC NHAI Jharkhand 4,860 4,854

4/6 Laning of Kharar-Ludhiana Aug-16 FY17 5 HAM NHAI Punjab 12,737 12,737

Total 43,732 40,189

% of slow moving orders 47%

KNR Construction

Chittagong City Outer Ring Road Mar-15 FY15 22 EPC Bangladesh Bangladesh 2,577 2,577

4 laning Madurai – Ramanathapuram Apr-15 FY16 21 EPC NHAI Tamilnadu 9,371 6,526

Upgrading Kanchipuram - Vandavasi Apr-15 FY16 21 EPC State Tamilnadu 1,852 1,315

Upgrading Arcot Villupuram road Apr-15 FY16 21 EPC State Tamilnadu 3,213 2,787

Upgrading Malliyakarai-Erode road Apr-15 FY16 21 EPC State Tamilnadu 2,271 1,682

4 laning of Kazhakkottam to Mukkola May-15 FY16 20 EPC NHAI Kerala 6,691 4,985

Mohanpur Behat Mau & Behat Mau Jul-15 FY16 18 EPC State Madhya P. 2,556 2,018

2 tier flyover in Salem Feb-16 FY16 11 EPC State Tamilnadu 2,951 2,724

Dindigul-Bangalore Road (Pollachi to Coimbatore Section) May-16 FY17 8 EPC MoRTH Tamilnadu 4,149 4,149

4 laning of Hubli - Hospet section of NH-63 Aug-16 FY17 5 EPC NHAI Karnataka 6,680 6,674

Total 42,311 35,437


Source: Company, Spark Capital Research

Remaining works is as at Sept 2016

Progress of Road Projects won since FY16 Original Cost Remaining Work

Year Months Mode Awarder State Rs. mn Rs. mn

PNC Infratech

4 laning Bhojpur to Buxar Aug-15 FY16 17 EPC NHAI Bihar 4,770 4,770

4 laning Koilwar to Bhojpur Aug-15 FY16 17 EPC NHAI Bihar 4,540 4,540

2 laning Aligarh - Moradabad Mar-16 FY16 10 EPC NHAI U.P. 6,450 6,450

4 laning of Varanasi - Gorakpur PKG-II Mar-16 FY16 10 EPC NHAI U.P. 8,690 8,690

4 laning of Nagina - Kashipur Mar-16 FY16 10 EPC NHAI U.P. 11,560 11,560

Sharda Sahayak Feeder Canal Roads Mar-16 FY16 10 EPC State U.P. 2,057 NA

4/2 laning Dausa-Lalsot-Kauthun Jul-16 FY17 6 HAM NHAI Rajasthan 8,810 8,810

Total 46,877 44,820


Sadbhav Engineering/ Sadbhav Infrastructure Project

UP/Haryana border-Yamuna Nagar- Panchkula PKG II May-15 FY16 20 EPC NHAI Haryana 4,680 3,770

UP/Haryana border-Yamuna Nagar- Panchkula PKG I May-15 FY16 20 EPC NHAI Haryana 4,360 3,180

4 Laning Tapa to Bathinda Jun-15 FY16 19 EPC MoRTH Punjab 2,314 1,890

6 lane Eastern Peripheral Expressway PKG-I Aug-15 FY16 17 EPC NHAI Haryana /U.P. 7,920 6,050

6 lane Eastern Peripheral Expressway PKG-II Aug-15 FY16 17 EPC NHAI Haryana/ U.P. 7,560 6,230

4 laning of Rampur-Kathgodam PKG-I Mar-16 FY16 10 HAM NHAI U.P. 6,030 6,030

4 laning of Rampur-Kathgodam PKG-II Mar-16 FY16 10 HAM NHAI U.P. 5,250 5,250

4 laning of Bhavnagar - Talaja May-16 FY17 8 HAM NHAI Gujarat 6,500 6,500

4 laning of Una - Kodinar May-16 FY17 8 HAM NHAI Gujarat 4,950 4,950

2/4 laning of Tiger Reserve to Bangalore Sep-16 FY17 4 HAM NHAI Karnataka 8,550 8,550

Total 58,114 52,400



Status of orders won recently for Companies under coverage

Source: Company, Spark Capital Research

Remaining works is as at Sept 2016

PNC infratech’s NHAI projects that it won in FY16 is facing severe land acquisition issues with land availability of only ~60% at the Varanasi Gorakhpur, Nagina

Kashipur, Bhojpur Buxar and Koilwar Bhojpur projects

Though financial closure exists for the HAM projects, Appointed Date is pending

for these projects as Company is waiting for 80% of land to be made available


Construction Business – Orderbook, P&L

Construction Business

Rs. mn FY16 FY17E FY18E

Ashoka Buildcon

Order Inflow 27,016 47,390 32,000

Roads 27,016 37,604 26,000

Others 0 9,786 6,000

Order Book 28,328 56,871 63,072

EPC Revenues 17,819 18,847 25,799

growth, % -2% 6% 37%

EBITDA 2,652 2,804 3,441

margin, % 14% 14% 13%

PAT 1,594 1,481 1,772

growth, % 12% -7% 20%

EPS, Rs./ share 8.5 7.9 9.5

EPC biz value @15x FY18 EPS 142



KNR Construction

Order Inflow 28,905 23,587 24,000

Roads 28,905 16,829 20,000

Others 0 6,758 4,000

Order Book 34,634 44,308 51,473

EPC Revenues 9,025 13,913 16,835

growth, % 3% 54% 21%

EBITDA 1,553 2,027 2,436

margin, % 17% 15% 14%

PAT 1,611 1,388 1,421

growth, % 18% 10% 8%

EPS, Rs./ share 11.5 9.9 10.1




PNC Infratech

Order Inflow 39,740 30,000 30,000

Roads 38,067 28,600 28,500

Others 1,673 1,400 1,500

Order Book 55,370 65,938 71,752

EPC Revenues 20,142 19,432 24,186

growth, % 29% -4% 24%

EBITDA 2,660 2,970 3,234

margin, % 13% 15% 13%

PAT 2,427 2,506 2,018

growth, % 142% 3% -19%

EPS, Rs./ share 9.5 9.8 7.9




Sadbhav Engineering

Order Inflow 38,114 55,000 48,200

Roads 38,114 40,000 35,000

Others 0 15,000 13,200

Order Book 74,871 95,616 98,486

EPC Revenues 31,862 34,255 45,330

growth, % 7% 8% 32%

EBITDA 3,254 3,702 4,961

margin, % 10% 11% 11%

PAT 1,338 1,559 2,117

growth, % 18% 17% 36%

EPS 7.8 9.1 12.3



Cash flow comfort in the Companies under coverage

Ashoka Buiidcon

Rs. mn FY16P FY17E FY18E

Standalone Cash Flow:

OCF 3,366 3,158 3,803

Less: Interest 557 406 416

Less: Tax 696 665 853

Less: Working Capital 5,787 (2,168) 1,848

Less: CAPEX 277 350 350

Less: Dividend 413 337 337

Cash Flow Before Equity & Debt (4,363) 3,568 (1)

Add: Equity 4,916 0 0

Add: Debt 0 0 1

Net Cash available 553 3,568 0

Road Assets CashFlow (Stake adjusted)

Revenues 8,453 10,342 11,302

EBITDA 6,647 8,326 9,220

Less: Interest 4,810 5,508 5,627

Less: Tax 394 451 509

Less: Repayment 527 588 957

Net Cash 916 1,780 2,127

Starting Cash 1,679 4,676

Cash from EPC 3,568 0

Cash from BOT 1,780 2,127

Less: Equity for BOT/ HAM projects 2,350 3,000

Ending Cash - Consolidated 1,679 4,676 3,803

Debt

Standalone 2,883

Consolidated 41,277

KNR Construction

FY16P FY17E FY18E


2,964 2,414 2,587

123 191 247

(22) 249 251

369 220 607

641 800 600

68 33 33

1,786 922 848

0 0 0

204 931 0

1,990 1,853 848

Road Assets CashFlow

141 708 799

(7) 553 636

206 677 614

0 0 0

1,838 955 139

(2,052) (1,078) (116)

450 1,225

1,853 848

(1,078) (116)

0 0

450 1,225 1,957

70

7,369

PNC Infratech

FY16P FY17E FY18E


2,861 2,799 3,376

332 106 206

(423) 588 627

(396) (798) 1,760

2,173 2,100 350

772 772 772

403 31 (339)

4,347 0 0

0 0 0

4,750 31 (339)

Road Assets CashFlow

4,386 6,733 6,625

1,743 3,545 3,332

1,341 2,312 2,327

0 0 0

428 767 1,333

(25) 466 (328)

1,066 770

31 (339)

466 (328)

793 793

1,066 770 (689)

60

17,250

Sadbhav Engineering

FY16P FY17E FY18E


3,060 3,702 4,961

862 953 953

263 275 1,043

710 (493) (385)

1,042 800 300

141 141 141

41 2,025 2,909

4,250 0 0

0 0 0

4,291 2,025 2,909

SIPL Cash flow

7,422 11,367 13,452

4,773 8,577 10,447

6,398 6,769 6,665

(95) 206 257

5,930 4,341 2,640

(7,460) (2,738) 885

1,263 89

2,025 2,909

(2,738) 885

460 2,760

1,263 89 1,123

10,588

79,522

Apart from KNR all

the other 3

Companies

resorted to raising

funds in the Equity

markets to meet

their funding

requirements

KNR funded the

loss of the

Walayar

Vadakkancherry

project through

promoters’

infusion and

internal accruals

KNR and PNC

Infratech are the

most comfortable

in meeting their

cash requirements

of the Road Asset

portfolio as they

have fewer assets

and fewer/ no BOT

or HAM project yet

to put-in equity

Debt at KNR and

PNC Infratech is

low when

compared to

Ashoka Buildcon

and Sadbhav Engg


Valuation Summary

SoTP Valuation – Ashoka Buildcon Stake Valuation Method Total Equity

Value ACL's Value ASBL's Value

per

share %

Projects ACL's

Stake

ASBL's

Stake Rs. mn Rs. mn Rs. mn Rs.

Nashirabad Railway-Over Bridge 100% FCFE using 14% CoE 130 130 1 0%

KSHIP WAP-2 - Modhul Nipani 100% FCFE using 14% CoE 557 557 3 1%

Total Value for ABL's Road Assets (a) 687 687 4 2%

NH-6 Bhandara Road 51% 31% FCFE using 14% CoE 1,939 989 603 3 2%

NH-6 Durg Bypass 51% 31% FCFE using 14% CoE 3,365 1,716 1,047 6 3%

Jaora – Nayagaon Road 73% 45% FCFE using 14% CoE 8,027 3,026 4,736 25 13%

NH-4 Belgaum-Dharwad Road 100% 61% FCFE using 14% CoE 3,392 3,392 2,069 11 6%

NH-6 Sambalpur-Baragarh Road 100% 61% FCFE using 14% CoE 1,839 1,839 1,122 6 3%

NH-6 Dhankuni to Kharagpur Section 100% 61% FCFE using 14% CoE 4,873 4,873 2,973 16 8%

Chennai ORR 50% 31% FCFE using 14% CoE 4,552 2,276 1,388 7 4%

Total Value for ACL's Road Assets (b) 27,987 18,112 13,938 74 37%

Construction & RMC Business 100% 15x FY18E EPS 22,847 22,847 122 61%

Total Value for Construction Business (c ) 22,847 22,847 122 61%

Ashoka Buildcon (a) + (b) + (c ) 51,521 18,112 37,472 200 100%


Valuation Summary

SoTP Valuation - IRB Infra Developers IRB's Stake Valuation Method Equity Value Value to IRB per share %

Projects % Rs. mn Rs. mn Rs.

Mumbai – Pune BOT, MPEW & NH4 100% FCFE using 14% CoE 7,664 7,664 22 11%

Surat – Dahisar Road, NH 8 90% FCFE using 14% CoE 4,779 4,301 12 6%

Bharuch – Surat BOT, NH 4 100% FCFE using 14% CoE 1,181 1,181 3 2%

Thane Ghodbunder Toll Road BOT 100% FCFE using 14% CoE (841) (841) (2) -1%

Tumkur Chitradurg, NH 4 100% FCFE using 14% CoE 1,501 1,501 4 2%

Talegaon Amravati, NH 6 100% FCFE using 14% CoE 2,082 2,082 6 3%

Thane Bhiwandi Bypass BOT 100% FCFE using 14% CoE 0 0 0 0%

Pune – Nashik BOT, NH 50 100% FCFE using 14% CoE 1,779 1,779 5 3%

Pune – Sholapur BOT 100% FCFE using 14% CoE 1,096 1,096 3 2%

Pathankot Amritsar, NH 15 100% FCFE using 14% CoE (1,563) (1,563) (4) -2%

Jaipur Deoli, NH 12 100% FCFE using 14% CoE 5,651 5,651 16 8%

Ahmedabad Vadodara -NH 8 & Ahmedabad Vadodara

Expressway 100% FCFE using 14% CoE

6,300 6,300 18 9%

Goa/ Karnataka Border to Kundapur, NH- 17 100% FCFE using 14% CoE 6,695 6,695 19 10%

Omallur -Salem – Namakkal Section of NH-7 74% at investment value 1,300 962 3 1%

Solapur -Yedeshi section of NH-211 100% FCFE using 14% CoE 5,764 5,764 16 9%

Yedeshi Aurangabad section of NH-211 100% FCFE using 14% CoE 6,514 6,514 19 10%

Kaithal–Rajasthan Border section of NH 152/65 100% FCFE using 14% CoE 8,489 8,489 24 13%

Agra - Etawah 100% FCFE using 14% CoE 8,527 8,527 24 13%

Total Value Road Assets

66,918 66,102 188 99%

Other investments - Airports, Real Estate 100% at investment value

586 586 2 1%

IRB Infrastructure Developers


Valuation Summary

SoTP Valuation - KNR Constructions -

Stake Method Project Equity Value Value for KNR per share %

BoT Projects

KNR Walayar Tollways Private Ltd 100% FCFE with 14% CoE 1,545 1,545 11 6%

KNR Muzaffarpur Barauni Tollway Private Ltd 51% FCFE with 14% CoE (510) (260) (2) -1%

Total for BOT Projects 1,036 1,285 9 5%

Standalone/ EPC Business 100% 15x FY18E EPS 24,426 24,426 174 95%

Total Value for KNR Constructions 25,712 183 100%


Valuation Summary

SoTP Valuation – PNC Infratech

PNC's Stake Valuation Methodology Equity Value PNC's Share per share value %

Standalone EPC Business (a) 100.0% 15x FY18E EPS 30,275 30,275 118 90%

Road Assets

Gwalior Bhind Road 100.0% FCFE using 14% CoE 790 790 3 2%

Kanpur Kabrai Road 100.0% FCFE using 14% CoE 881 881 3 3%

Ghaziabad Aligarh Road 35.0% FCFE using 15% CoE 3,136 1,098 4 3%

Rae Bareli Jaunpur Road 100.0% FCFE using 14% CoE (21) (21) (0) 0%

Bareilly Almora Road 100.0% FCFE using 14% CoE 245 245 1 1%

Industrial Estate Asset

PNC Delhi Industrialinfra Pvt Ltd 100.0% FCFE using 14% CoE 426 426 2 1%

Road Toll Collection Concession

PNC Kanpur Ayodhya Tollways Pvt Ltd 100.0% FCFE using 14% CoE 76 76 0 0%

Total Value for Assets (b) 5,534 3,496 14 10%

Total PNC Infratech (a) + (b) 35,808 33,770 132 100%


Valuation Summary

SoTP Valuation - Sadbhav Engineering Stake Valuation Method

Total Equity

Value SIPL Value

Value to Sadbhav

Engineering

per

share %

Projects SIPL's stakeSEL's stake Rs. mn Rs. mn Rs. mn Rs.

EPC Business

Sadbhav Engineering Standalone 100% 15x FY18E EPS 31,762 31,762 185 64%

Sadbhav Infrastructure Project Ltd (SIPL)

Aurangabad Jalna 100% 68% FCFE using 13% CoE 2,409 2,409 1,647 10 3%

Ahmedabad Ring Road 100% 68% FCFE using 13% CoE 2,497 2,497 1,707 10 3%

NH-7 Nagpur - Seoni 100% 68% FCFE using 13% CoE 127 127 87 1 0%

Maharashtra Border Checkpost 78% 53% FCFE using 13% CoE 12,058 9,405 6,429 37 10%

NH-13 Bijapur - Hungund 77% 53% FCFE using 13% CoE 8,234 6,340 4,334 25 7%

NH-202 Hyderabad Yadgiri 100% 68% FCFE using 13% CoE 3,900 3,900 2,666 16 4%

NH-3 Dhule - Palesnar 100% 68% FCFE using 13% CoE 4,515 4,515 3,086 18 5%

NH-71A Rohtak Panipat 100% 68% FCFE using 13% CoE 833 833 569 3 1%

NH-8 Shreenathji - Udaipur 100% 68% FCFE using 13% CoE 6,036 6,036 4,126 24 7%

Total Value for Operational Road Assets 40,611 36,064 24,650 144 40%

NH-758 Bhilwara - Rajsamand 100% 68% FCFE using 14% CoE 2,249 2,249 1,537 9 2%

NH-7 Rohtak - Hissar 100% 68% FCFE using 14% CoE 908 908 620 4 1%

SH-3 Mysore Bellary 74% 51% FCFE using 14% CoE 4,428 3,277 2,240 13 4%

Total Value for Under Construction Road Assets 7,585 6,433 4,397 26 7%

Less: Net Debt at SIPL standalone in FY17E 68% 7,516 7,516 5,137 30 8%

Total Value for SIPL 40,679 34,981 23,910 139 48%

Value of SIPL after giving holdco discount 25% holdco discount 30,509 26,236 17,932 105 36%

Total Value for Sadbhav Engineering 62,271 49,694 290 100%

Disclaimer

Spark Disclaimer

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Spark Capital has a subsidiary Spark Investment Advisors (India) Private Limited which is engaged in the services of providing investment advisory services and is registered

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Absolute

Rating

Interpretation

BUY Stock expected to provide positive returns of >15% over a 1-year horizon REDUCE Stock expected to provide returns of <5% – -10% over a 1-year

horizon

ADD Stock expected to provide positive returns of >5% – <15% over a 1-year

horizon SELL Stock expected to fall >10% over a 1-year horizon


Disclaimer (Cont’d)

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Spark Capital has incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report:

Disclosure of interest statement Yes/No

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Group/directors ownership of the subject company covered No

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Managing/co-managing public offering of securities

Investment banking/merchant banking/brokerage services

products or services other than those above

in connection with research report

No

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