Beyond an in-line quarter for execution and traffic growth, we note positives in good order pipeline for 2HFY17, limited support needed from SBI-Macquarie to capture such opportunity and limited impact of demonetisation on EPC execution/tolling. The key risk remains the inability to swap for SBI-Macquarie investment by end-FY2018. CMP provides enough comfort to back an integrated roads player, poised to increase in relevance. Revise SoTP to R210 .
The revised 5-8% growth guidance for FY2017E builds in delay in start of Eastern Peripheral and JNPT projects (recently commenced) , Kharar-Ludhiana (recently achieved financial closure) and the two Jharkhand projects (15% of backlog), where work orders are pending. Execution should recover in FY2018E based on strength of backlog excluding yet-to-start orders (2+ years of visibility) and strong R600 billion ordering pipeline from NHAI for 2HFY17. The key risk remains the inability to find a swap for SBI-Macquarie’s investment by end-FY2018 (R13 billion liability versus current R39 billion of consolidated debt and 2X D/E).
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The overall traffic volume growth was steady at 5-6% for 2QFY17. Key outliers were Dhankuni-Kharagpur (up 14% y-o-y) and Sambalpur-Baragarh (up 8% y-o-y), benefitting from an uptick in port traffic and higher inter-state movement. The key Jaora-Nayagaon and Indore-Edlabad projects reported a yoy decline on high base.