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Competition in road projects moderates

Competition in road projects moderates
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First Published: Tue, Dec 06 2011. 12 56 AM IST

A file photo of a highway being constructed
A file photo of a highway being constructed
Updated: Tue, Dec 06 2011. 12 56 AM IST
The Indian roads sector has seen aggressive bidding from companies in the past couple of quarters, primarily due to lack of orders and projects in other sectors; so much so that IL&FS Transportation Networks Ltd (ITNL), a leading road developer in India, has not secured any order from the National Highways Authority of India (NHAI) in the last few quarters.
That does not appear to be a concern for ITNL so far, given that the firm had a robust order book of Rs 8,900 crore when the September quarter results were announced.
A file photo of a highway being constructed
So far in the current fiscal year, NHAI has awarded projects to the tune of 4,500km, while it has a target of about 7,300km for the year. Considering the projects already awarded, NHAI is likely to meet its target.
Brokerages point out that an analysis of recent bids indicates that competitive intensity has moderated. “This is evident in the lesser number of bidders (10-15 in most cases, and in single digits for some projects opposed to 18-20 firms earlier),” wrote analysts from Edelweiss Securities Ltd in a note to clients last week. This augurs well for the sector.
One reason for the moderation in competition is that once a company has got the orders it wants, it may not want to bid aggressively for further projects. Secondly, firms would be finding it challenging to raise funds in the current environment to meet equity needs of the projects.
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However, some analysts say competition is still keen and the improvement has not been all that much. According to Sharekhan Ltd, though the number of bidders has reduced and the difference between the two lowest bidders is coming down, the bids are still aggressive compared with what NHAI expects.
Of course, the aggressive bidding scenario could improve further if some companies find it tough to achieve financial closure. Also, if other sectors (irrigation, power, etc.) start awarding more projects, it will offer some relief for those who are bidding in the roads sector.
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It’s known that infrastructure stocks have not performed well of late. Since the beginning of this fiscal, stocks of two key companies in the roads space, IRB Infrastructure Developers Ltd and ITNL, have underperformed the BSE benchmark Sensex. That may change if the competitive intensity in road bids reduces even more.
Graphics by Sandeep Bhatnagar/Mint.
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First Published: Tue, Dec 06 2011. 12 56 AM IST