Tolling contracts help MEP Infra double sales, post 28-fold rise in profit

The company has a three-year O&M contract worth Rs 3.25 bn for the Bandra-Worli Sea Link project

Mumbai-based MEP Infrastructure Developers enjoys a unique business mix among infrastructure players, as it has a presence in both in tolling and road construction contracts. This has now started to pay off for the company. Largely a road tolling player with two marquee projects in Delhi and Mumbai, the company branched out into the business of road construction less than two years ago by bagging a clutch of contracts.

Analysts are of the view that the entry into highway construction would prove to be the icing on the cake for the company in the future, with tolling being a low-hanging fruit. The company's net sales were up 90 per cent in the December quarter, at Rs 7.71 billion and the net profit went up a staggering 28 times to Rs 250 million from Rs 8.7 million, because of the tolling contracts it bagged.  “The Union government’s focus on infrastructure is good for the company. And initiatives such as Bharatmala provide a lot of opportunity in the HAM (hybrid-annuity model) and EPC (engineering, procurement and construction) space,” Jayant D Mhaiskar, vice-chairman and managing director, told Business Standard.

The company has a three-year operation-and-maintenance contract worth Rs 3.25 billiom for the Bandra-Worli Sea Link project. In September 2017, MEP Infrastructure won a five-year contract for toll collection from specified commercial vehicles at Delhi's border points. As the contractor for South Delhi Municipal Corporation (SDMC), it is responsible for toll and ECC collections for a period of five years, amounting to Rs 12.06 billion a year, payable to SDMC on a weekly basis.

According to a Mumbai-based research analyst, who did not wish to be quoted, winning and executing hybrid-annuity projects increases the company's EPC order-book, which in turn, generates equity for the HAM project. This is because the construction component of a highway contract comes with its own share of margins that can further be deployed as part of equity for HAM.

Mhaiskar added that the sector is evolving and a lot of traction has been achieved around issues affecting projects in the past. Earlier, infrastructure projects were impacted by delays in land acquisitions and environment and forest clearances. 

In October, the Union Cabinet cleared the Bharatmala project to construct 20,000 km of highways connecting the western and eastern parts of the country, at an estimated investment of Rs seven trillion.

Besides continuing to reap benefits from its tolling business, the company should focus on executing hybrid-annuity contracts as they would give them good returns in the future.

MEP Infra started the business in December 2002 with a collection of toll at the five Mumbai entry points and as on date, it has completed 116 projects with an aggregate of 218 toll plazas and 1,349 lanes.

It has a pan-India footprint in operation, maintenance, transfer and tolling operations in road infrastructure. The company entered the EPC (engineering, procurement and construction) space, a couple of years ago, winning six hybrid-annuity projects in Maharashtra and Gujarat.

MEP Infra has 10 operational projects — six toll collection projects in as many states, three OMT projects and one BOT (build-operate-transfer) project.