Coming Full Circle

MEP INFRA HAS MOVED FROM JUST OPERATING AND MAINTAINING TOLL PLAZAS TO BUILDING ROADS.

MEP Infra has moved from just operating and maintaining toll plazas to building roads

Jayant Mhaiskar is busy making last-minute preparations for a meeting in Delhi, which he proudly says is now his karma bhoomi. The reason is simple: his company, MEP Infrastructure Developers, has entered road construction, after years of being a toll operator, mostly in and around Mumbai. And Delhi, home to the Ministry of Road Transport and Highways, is where national-level road projects are bid out.

“We were into toll collection and road maintenance. We always aspired to become a developer. Our entry into road building has made us a complete infrastructure player,” says Mhaiskar, a movie buff. In the past 18 months, MEP has bagged six road projects worth ` 3,900 crore in Maharashtra and Gujarat; it has to complete these in the next 24-30 months. MEP is among the top four companies in Business Today’s list of Fastest Growing Emerging Companies among services companies in the revenue category of `500-1,000 crore.

The entry into road building is aimed at diversifying and reducing dependence on one business. Until last year, the toll business used to account for 75-80 per cent revenue. This year, 55 per cent is expected to come from toll and 45 per cent from construction. “Going ahead, the mix will be 50 per cent from each business. We will look to maintain a return on equity of 15-18 per cent.”

TOTAL INCOME(` cr): 810.0

NET PROFIT(` cr): 17.6

THREE-YEAR TOTAL INCOME CAGR (%): 17.5

THREE-YEAR AVERAGE TOTAL INCOME GROWTH (%): 25.2 Standalone data; Total income and net profi t exclude extraordinary and exceptional items Source: Ace Equity

Mhaiskar is not new to road building. He started his journey in 1995 with Ideal Road Builders — now a subsidiary of IRB Infrastructure — which was then run by his father Dattatraya and elder brother Virendra. “I was looking after road building when I joined Ideal Road Builders in 1995. Then, in 2002, when the government opened the toll collection business to private players by inviting bids for Mumbai’s five entry points, we set up MEP,” he says. The name MEP was coined after Mumbai Entry Points. In spite of spending so many years in the road business, he says, he is still learning the tricks of the trade. Recently, MEP lost two road bids by a meagre margin. “While our project cost was less than that of our peers, we lost due to our maintenance cost," he says.

The Start

MEP started its toll business in December 2002 by paying the government `427.5 crore for the right to collect toll at Mumbai’s five entry points till 2008. It continued till 2010 before the government re-invited the bids for 16 years. It won this by paying `2,100 crore to the Maharashtra government. MEP is also collecting toll at Bandra-Worli Sealink and Vidyasagar Setu in West Bengal. It has also won rights to collect toll at a couple of National Highways Authority of India, or NHAI, roads for one year.

“In the next 12-18 months, the NHAI will invite bids for toll plazas across the country which will help the government raise up to `66,000 crore,” says Mhaiskar. “Operational efficiency and revenue optimisation in the toll business and low risk in road building will lower our project cost and lead to a quicker payoff. Similarly, deleveraging the balance sheet will create sustainable growth,” he says.

MEP also plans to bid for toll operate and transfer projects likely to be floated in the next two- three months. Under this, toll plazas will be bundled and the bidders will offer upfront money. The other growth driver will be the hybrid annuity model ( HAM) where fixed payments are made for a certain period and variable payments for the remaining period. The company already has a significant market share in HAM projects. In the engineering project and construction segment, it is likely to bid for some large state and national highways.

Though MEP’s toll business is still throwing up opportunities, it also has its challenges. Toll pilferage at plazas, for instance, can be as high as 25 per cent. This, says the company, has been one of the triggers for entering road building. “Change in business mix, new technologies, government policies, geographical expansion and launch of InvITs ( Infrastructure Investment Trusts) can translate into healthy revenue and PAT growth,” says Mhaiskar. MEP in also re-sizing its balance sheet. It is making efforts to bring down the cost of borrowing too. It intends to list the InvIT for which it has already received an approval in principle from the Securities Exchange Board of India. “The offering will moderate debt, reduce borrowing cost and generate steady cash flows.”

While the journey to become a complete infrastructure player was smooth, this may not be the case in future due to rising competition in both road building and toll collection businesses. ~