Nagarjuna Construction Co. Ltd (NCC), the Hyderabad-based infrastructure major with interests in transportation, real estate, irrigation and power, will enter into an alliance with an international airport operator to bid for the development and modernization of the Chennai airport.
“We will participate in the privatization process once the tenders are called. We are talking to international investors for the airport and will implement the project through our subsidiary company NCC Infra Holdings. We are talking to two-three international airport operators and had a series of discussions. We will form a consortium with one of them and that consortium will then bid for the project,” said Y.D. Murthy, senior vice-president, finance, Nagarjuna. He declined to name the operators.
Most Indian companies interested in airport development are tying up with international firms with airport expertise to bid for upcoming projects including the new airport at Navi Mumbai cleared by the Union cabinet last week. For example, DLF Ltd has tied up with Germany’s Fraport, while the Tatas are already working with Singapore’s Changi Airport International.
Kuljit Singh, partner at accounting firm Ernst & Young, said: “It is a great opportunity for NCC. As a greenfield airport has a construction component, it will provide NCC with immediate revenue. It will also provide NCC with a steady revenue as airports are monopoly assets and with the terrific air traffic growth in India, this opportunity is an upside for the company.”
Others disagree. “Funding pattern for these new projects would have to be scrutinized, as NCC has recently announced plans for developing an SEZ (special economic zone) and a seaport involving a capex of Rs1,500 crore, of which Rs1,125 crore would be by way of debt. If NCC succeeds in its bid for the airport projects as well, its balance sheet size would further increase. Cost of debt may move up sharply, in line with the increase in the debt-equity ratio. Further dilution of equity (beyond what’s envisaged under the recent SEZ/seaport plans) would dilute earnings for shareholders. While, operationally, NCC may be in a position to execute the airport projects, the strain on finances may hurt investors,” says Nitin A. Khandkar, senior vice-president, research, at Keynote Capitals Ltd in Mumbai.
NCC also plans to bid for the 35 tier-II city airports across the country which are up for modernization.
NCC will add to the competition as GVK Power & Infrastructure Ltd, another Hyderabad-based company, has already made its intentions clear to bid for them, as reported by Mint on 29 May.
The detailed project report of the Chennai project is yet to be finalized. “The present Chennai airport will be made into a bigger airport by adding 1,000 acres. At Sriperumbudur, a greenfield airport of 4,000 acres is also being planned. Both the airports will be operated by the same successful bidder,” Murthy added.
The NCC stock on Monday lost 2.16% to close at Rs167.60 on the Bombay Stock Exchange, whose benchmark Sensex lost 0.51%.
Tarun Shukla contributed to this story.