Your Company has completed its 19th year of successful operation. With construction of each kilometre, we are creating new milestones. Rapidly growing in scale with our portfolio increasing from a little over 38 lane kms in FY 1998-99 to 11,828 lane kms in FY 2016-17, we have redefined the space.

Your Company has completed its 19th year of successful operations. With construction of each kilometre, we are creating new milestones. Rapidly growing in scale with our portfolio increasing from a little over 38 lane kms in FY 1998-99 to 11,828 lane kms in FY 2016-17, we have redefined the space. With our continued efforts towards strengthening project team, enhancing construction equipment infrastructure and operational efficiency, and leveraging IT, we have emerged as a holistic integrated surface transport developer. We believe that our untiring efforts and unwavering focus on these areas along with our ‘B.E.S.T. (Bid. Execute. Stabilise. Transfer)’ philosophy shall enable us to grow stronger as an organisation. While we keep transferring our stabilised assets to these trusts, the unlocking of capital from these assets shall enable us to bid for new projects. Our commitment towards creating value for all stakeholders has earned us the respect in the industry.

Years of innovative and pioneering initiatives which include undertaking the country’s first BOT project, developing the first mega and ultra-mega highway project, and launching the first infrastructure trust, has enabled us to grow our BOT assets portfolio from a mere ₹2,674 Crs in FY 2007-08 to ₹21,955 Crs in FY 2016-17.

Review of the year, FY 2016-17

Though our revenues during the year increased by 13.59% to ₹5,969 Crs, the growth could have been more robust had it not been for the demonetisation and specific issues across certain projects that impacted our tolling revenues. During the demonetisation period, the toll suspension initiative undertaken by the government for 24 days across all the highways in the country impacted toll collections. Though we have been compensated by the NHAI for the same, partly through cash payment and partly through extension of concession agreement, we believe the actual tolling revenues would have been much higher.

The EBITDA and PAT growth were similar to these lines, as they grew 13.78% and 11.87% respectively to ₹3,172 Crs and ₹715 Crs respectively. BOT assets portfolio during the year increased by nearly 28%.

Post balance sheet developments

The successful launch and listing of the IRB InvIT Fund enabled us to transfer six of our stabilised operational project assets along with its liabilities to this trust for a consideration of ₹1,681 Crs in cash and ₹889 Crs as units in the trust. A part of this cash consideration was used to pay-off debts and the other part would be used for bidding and funding new projects With this, the health of our balance sheet significantly improved as net debt equity ratio improved from 3:1 as on March 31, 2017 to 1.81:1 as on May 30, 2017 and cash on books increased from ₹1,549 Crs to ₹3,230 Crs. Besides, with improved balance sheet, our credit rating is likely to improve which in turn shall result in decline in cost of debt.

Out of the three new projects awarded during the year, we achieved financial closure for Udaipur-Gujarat project, in July 2017. For the remaining two projects, the financial are in progress.

The InvIT would also act as an important value creation tool. It shall enable us to strengthen our business model, whereby we can utilise funds availed from monetising assets to develop more income generating assets at a faster pace and then remonetise it by transferring it to the trust. This virtuous cycle shall enable us to maintain a strong balance sheet while enhancing the rate of growth and profitability which shall be critical in maximising shareholders’ value. On the other hand, it shall facilitate us in contributing towards the government’s objective of expediting the road development programme necessary for addressing the country’s infrastructure-gap which is critical for sustaining its economic growth momentum.

Macro-economy and industry

The Indian economy post going through a phase of high inflation and interest rates has significantly stabilised. At the end of the current fiscal, the country’s fundamentals have significantly strengthened with inflation being contained at 3.81%, fiscal deficit estimated at 3.5% of GDP, forex reserves surging to over USD 367 billion and repo rates declining to its lowest level of 6.25% since 2011. Driven by this, the country achieved a robust growth of 7.1% in FY 2016-17, as economies across the globe struggled. Though the GDP growth could have been more robust had it not been for demonetisation that led to temporary sluggishness. On the positive side it channelised vast amounts of idle funds back to the economy which can be effectively utilised in funding the country’s ailing infrastructure scenario. Besides, the implementation of Goods and Services Tax in July 2017 is likely to further enhance the country’s productivity and efficiency driven by faster logistics movement and simplification of taxation structure. This shall be crucial in fast-tracking infrastructure projects.

Driven by these initiatives and the pressing need for quality infrastructure, the sector is likely to witness robust growth in the coming years. The government has also showed its concerns by making its highest ever budgetary allocation of ₹3.96 lakh Crs (including ₹1.31 lakh Crs for railways) to the sector. Speaking particularly of the roads, transport and highways, a sum of ₹64,900 Crs has been allocated for it, 63% of which is for roads and bridges and 37% for NHAI. The ratio between revenue and capital expenditure for 2017-18 is pegged at 17:83 compared to 41:59 and 22:78 for the year FY 2015-16 and FY 2016-17 respectively indicating the rising focus towards capital expenditure (new construction projects).

OUTLOOK

Going forward, we shall continue to focus on strengthening internal competencies to expedite our execution pace to reduce project turnaround time and free-up resources to take on new projects. Besides, the close understanding between the IRB parent and the InvIT shall ensure the perpetuity of this model. We intend to keep building a robust pipeline of assets and transfer stabilised ones periodically to unlock tied-up capital and reduce leverage while providing value growth to the trust’s unit holders as well. This business model shall enable us to graduate to the next phase of growth while maximising returns to the shareholders.

To conclude, the prospects of the roads, transport and highways space continues to remain positive. However, the government’s and industry players’ increasing focus on EPC (Engineering, Procurement and Commissioning) and HAM (Hybrid Annuity Model) highway projects may throw up some challenges in the future. Though we are confident that there will be enough projects coming up in the BOT (Toll) space; with less competition, our strong bidding strategy, and high competencies required to handle these projects, we would be in a favourable position to bag a sizeable chunk of opportunity. Besides, as the government focusses on constructing more roads, financing is likely to be a major challenge. In FY 2015-16 itself, NHAI’s land acquisition costs significantly increased from ₹1.35 Crs/hectare in FY 2014-15 to ₹2.13 Crs/hectare; accounting for nearly 40-45% of the total project cost. With nearly 9,285 hectares of land possessed by NHAI in FY 2015-16, the total compensation stood at ₹19,020 Crs significantly higher than ₹9,098 Crs in the previous year, which is a huge strain on its balance sheet. Moreover, of the ₹59,279 Crs allowed to the NHAI to be raised through Internal and Extra Budgetary Resources during FY 2016-17, only a sum of ₹27,831 Crs could be raised. Thus, there is a huge funding gap to meet the construction targets. Additionally, with the government consistently facing finance constraints (fiscal deficit), Public Private Partnerships especially the BOT mode is likely to be the most ideal solution in the coming years.

With significant balance sheet revitalisation and launch of InvITs, we remain excited about the future with expectations of growing faster than ever. I, on behalf of the Board, would like to appreciate the faith reposed in us by the stakeholders. Your continued support has been of great value to us and going forward we hope to be always inundated with it.

Regards,

VIRENDRA D. MHAISKAR

Chairman and Managing Director