Covid-19 effect: Upcoming road projects may shift to PPP on weak govt funds

With the government finances getting adversely affected due to the Covid-19 pandemic, there will be a shift towards PPP-based road projects, a top IRB Infrastructure official said.

Addressing the company's 22nd annual meeting virtually, the company's Chairman and Managing Director Virendra Mhaiskar said the firm will focus on BOT (build-operate-transfer)-based projects.

"The (coronavirus) pandemic has impacted government finances for foreseeable future, and, hence, the upcoming awards will likely shift more in favour of public-private partnership (PPP) model such as BOT or toll-operate-transfer (TOT) projects that are funded by private players, and away from the current hybrid annuity and EPC (engineering-procurement-construction) models which put the onus of funding entirely on the government," Mhaiskar said.

He further said BOT will continue to be the company's preferred mode. Mhaiskar added, "Our sense is that the competition in this segment will remain reasonable allowing for meaningful internal rate of return."

While the company will focus on BOT, it will selectively bid for TOT and hybrid annuity model (HAM) projects as well.

On the impact of the coronavirus-induced lockdown on the business, Mhaiskar said the company is back to 70-80 per cent of pre-Covid-19 toll collections and all its construction sites are now operational.

A nationwide lockdown was imposed from March 25 to curb the spread of the coronavirus. While the construction activities were stalled completely, the government had allowed toll collection from April 20.

The company, which launched the country's first public infrastructure investment trust (InvIT) in 2017, launched its second Rs 4,400-crore private InvIT along with Singapore's Sovereign Wealth Fund GIC in February 2020.

"In the first key development for 2019-20, we closed this transaction in February 2020 and received first tranche of capital infusion amounting to Rs 3,753 crore, which was deployed for part deleveraging and balance as equity towards construction commitments. These InvIT units are now valued at Rs 13,000 crore as per third-party independent valuer where IRB owns 51 per cent stake," Mhaiskar added.

He noted that with this cashflow, the enhanced platform will allow the company to pursue accelerated growth in the months and years to come.

The capital, invested thus far, will continue to provide returns on continued long-term basis as the portfolio matures and grows further. We have accordingly proposed a 50 per cent dividend for 2019-20. We look forward to business getting back to normal soon and promising times ahead with meaningful awards going forward.

The company reported a 15 per cent decline in its profit after tax in 2019-20 to Rs 721 crore due to the lockdown. In 2018-19, it had reported a profit of Rs 850 crore.

The company's consolidated income was marginally up by 2 per cent in 2019-20 to Rs 7,047 crore from Rs 6,903 crore in 2018-19.