We have a healthy order book to execute and are witnessing healthy growth in toll collection

- Virendra D Mhaiskar

Chairman & Managing Director, IRB Infrastructure Developers

The government has put the country's infrastructure development on fast-track with the mega plans introduced under the National Infrastructure Pipeline programme. How do you view these developments in creating a strong nation?

Infrastructure development is a key for any development, especially when it comes to the economy of the region and the nation above all. The government had already announced various initiatives for the infrastructure development, with a focus on highways infrastructure development and has made adequate provisions in the Union Budget FY23 with extending strong support for the execution of the projects announced. This would definitely boost the economy through man, machine, and material movements; which in turn will help to become India a strong nation.

How is the roads & highways development progressing in the country?

The Covid 19 pandemic had some impact on the pace of highways development slowing down; however, since the pandemic is now almost over, the sector has again gained pace and is expected to meet the set targets, but with slight delays due to slowing down of activities during the pandemic. The Government of India has taken multiple initiatives to create state-of-the-art infrastructure and to support the vision, the government is working towards developing policies and initiatives to bolster activity in the roads and highways sector. The Budget 2022-23 provides construction of 25,000 km national highways and the fund allocation for the same is Rs 199,107 crores with the set target of constructing 38 km per day.

Road project execution had slowed down last year. How are you looking the revival of roads & highways sector this year?

As said above, the reason was known to all and it had not impacted only the Indian continent, but across the world and hence, it needs to be appreciated that even during the crucial period we completed and commissioned our projects.

How are you meeting the quality parameters in the Greenfield highways and expressways? What are the innovations happening in the use of construction materials and technology?

For years, we have been a technology-driven organization. We have always been a front runner in adopting and integrating newer technologies and innovations into our business operations. This has enabled streamlining of processes, achieving operational efficiencies and cost effectiveness. Technology-based systems have ensured smoother procurement processes, tracking, and resources optimization resulting into accelerated productivity and efficiency. In addition to this, the pan-organization information management system has facilitated quicker addressing of the critical issues in construction. Here, we can narrate some of our tech-driven initiatives that help us stay ahead of the curve; these are implementation of SAP across; IT backed functional cameras installed at work locations; integrated weighbridge; high grade polymer modified bitumen; etc. It needs to be appreciated that the National Highways Authority of India (NHAI) has accorded an 'Excellent' rating for 9 of the projects managed/developed by us (out of our 10 projects evaluated by them) and a very good rating for one project as per the evaluation methodology devised by the authority to evaluate the performance of highways with the objective of improvement in terms of efficiency, safety and user perspective.

What kind of revenue growth are you expecting in the coming years from highways and expressway projects?

We have a healthy order book to execute and we are witnessing healthy growth in toll collection. We are publishing the monthly toll data, which shows strong growth in toll collection. Further, we have prepaid debt of Rs 3,250 crores, as a result of which, full impact of interest savings of Rs 325-350 crores will be visible from FY23. Post prepayment of holding company debt and completion of construction for the assets of Projects SPVs of IRB Group, ratings of the Project SPVs and Holding company have improved, which has led to lower interest cost for these SPVs. So even in the inflationary macro environment, where the central bank has been increasing interest rates, we are seeing a decline in the interest cost as our projects enter the stabilization phase with improved credit ratings. Further, due to interest rate reduction in our project SPVs, there will be more savings. Thus, the profits for FY2023 will be much more than that of the FY22 on the backdrop of interest saving itself. Growth in revenue will lead to further improvement in profitability.

As far as the rising input costs are concerned, they will benefit operational projects as the O&M cost comprises only 10-12% of the revenue and we will benefit out of higher toll rate revision, for e.g., for FY23, toll rate revision is upwards of 10% w.e.f. April 1, 2022.

As far as the impact of rising input costs on under-construction projects under HAM and BOT model, it can be narrated as follows.

For HAM projects, during the construction phase, the escalation to the extent of 40% is provided by NHAI and the balance 60% by IRB Group as a developer or lenders as the case maybe. During the operations period, IRB Group would be receiving the annuities from NHAI for the balance 60% adjusted to escalation with interest; thus, making escalation a complete pass-through.

As far as BOT projects under construction are concerned, we have seen three major materials. These are bitumen, cement and steel, witnessing the price rise of 20-25% over the last 6 months on an average. This material constitutes approximately 20% of the total project cost. Hence, the impact of these materials on total project cost is around 4-4.5%. We have sufficient inbuilt escalation in our estimated cost of the BOT project to cover the rise in material price. Further, the toll rate revision is linked with WPI and higher inflation will lead to higher revenue.

How do you visualize the Indian roads & highways sector five years down the line? 

Various initiatives announced and being implemented by the Government of India, e.g., Bharatmala Pariyojana, NIP, PM Gati Shakti plan of Rs 111 lakh crores and out of which Rs 20 lakh crores to road sector, etc. are big push for infrastructure development; especially the highways infrastructure. With these projects coming in reality five years down the line from today, will be the biggest boost for the initiatives like Make in India, Vocal for Local, etc. in various sectors, which will create demand for good quality roads and highways network and connectivity with other modes of transport like airways, railways, ports, etc. to mobilise the produce from these initiatives. It will be a big boost to the economic growth of various regions across India; the highways infrastructure will facilitate man, machine, and materials movement with a good pace.

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