First bundle of TOT highways sees 13% equity IRR

Profitability or the return on equity for the highway monetisation contracts that the National Highways Authority of India (NHAI) offers to the concessionaires is 12-13 per cent of the equity, according to a ratings agency report.

“The equity IRR (internal rate of return) of the first bundle of highways being auctioned under the toll-operate-transfer (TOT) model would range between 12 per cent and 13 per cent, based on the NHAI’s initial estimated concession value. The level of bidding intensity will drive the final returns earned by the concessionaire,” a CRISIL Research report said.

The bundle comprises nine highway stretches in Andhra Pradesh, Odisha and Gujarat.

The report said a cluster of manufacturing industries and ports in Visakhapatnam, Kakinada, Kandla and Mundra were expected to be the drivers of transportation demand. The economic corridor in the east coast is also expected to improve traffic potential in Andhra Pradesh.

“But, the highway stretches in Gujarat are more attractive than those in Andhra Pradesh because of the presence of industrial clusters and consumption centres in the periphery. Importantly, there are no major alternate routes either, which could have upended the revenue calculus,” Prasad Koparkar, senior director, CRISIL Research, said.