Market gets more fragmented in EPC category which has bagged most orders
Road project awards have gathered momentum in FY16, with $5.7bn of contracts awarded by NHAI till Sep-15. The ordering intensity is likely to sustain at least through next fiscal with mix skewed towards EPC (engineering, procurement and construction) vs. BOT (build-operate-transfer). EPC ordering thus far in FY16 has been more fragmented as compared to last year. Six players have market share between 8%-11% and Gayatri Projects has the highest share (16%). L&T (Neutral) has ceded market share of EPC contract wins so far this fiscal (9% share in first half of FY16 vs. 24% in FY15).
EPC road project awards pick up meaningfully in August and September: The ministry of road transport and highways (MoRTH) is targeting 10,000kms to be awarded in FY16 vs. 8,000km in FY15. ~50% are to be awarded via NHAI which has already contracted 2,600kms in first half of FY16 worth $5.7bn vs. only $1.8bn in FY15. The mix between EPC and BOT contracts is ~65:35 both by value and kms, with balance sheet risk appetite of concessionaires still remaining relatively low. So far only seven BOT projects have been awarded in the year.
Ordering momentum to continue in FY17 as well: As per The Economic Times, MoRTH is targeting to award 15,000kms in FY17 i.e. 50% more than the target for FY16, performance against which is so far is on track. The mix between EPC and PPP is expected to be 70:30. As of Sep 2015, NHAI was yet to award 14,000kms under the NHDP programme which at the current pace of ordering would take two to three years to complete.
FY16 ordering split across multiple parties; L&T appears to have lost its pole position: Amongst listed players, ITNL (IL&FS Transportation Networks Ltd) and IRB (IRB Infrastructure Developers Ltd) continue to bid for and win BOT projects. Other construction companies including L&T are predominantly bidding in the EPC space; L&T has not added any BOT road project to its portfolio in the past 2.5 years. In the first half of FY16, Gayatri Projects leads in EPC contract awards with R40bn of new projects i.e. 16% market share, L&T and five other players have won contracts worth R21-27 bn each (6 players with 8%-11% share) while ~30% of the balance contract awards are further fragmented. In FY15, EPC ordering was more concentrated with L&T leading the pack with 24% market share (Rs 40 bn of projects) by project value. L&T may still win subcontracts from EPC contractors or BOT concessionaires.
No takers yet for the hybrid annuity model rolled out in 2015: The hybrid annuity model which transferred the revenue risk of the project to the government was launched in 2015. However thus far there have been no projects awarded under the same. As per ITNL, only one hybrid project had been put up for bidding which did not receive any bids and the government is planning to launch three projects under this model in the near term.