New routes for development

From increased allocations to new funding routes to ambitious targets, the infrastructure sector has quite a bit to cheer in this Budget. Infrastructure stocks gained between 1 and 6 per cent, for a good reason.

The Budget allocates ₹37,880 crore for roads. But more ambitious is the target of constructing 8,500 km of national highways by the end of the current fiscal as the highest-ever annual total the NHAI has reached is 2,844 km in 2012-13.

Achievement of even half of this target is good news for listed infrastructure companies. The funds allocated will also allow awarding of a larger number of projects on an engineering-procurement-construction basis; this route has more takers now than those on a build-operate-transfer model and bidding could thus be more successful.

Direct gainers are KNR Construction, Ashoka Buildcon, MBL Infra, Unity Infra, NCC and PBA Infrastructures. Should the NHAI move along the set path of completing 8,500 km beneficiaries would also include IRB Infra, IL&FS Transportation and Sadbhav Engineering.

Sixteen port projects are set to be awarded this fiscal, bumping up order books. Those who gain will be Adani Ports, Gujarat Pipavav, Simplex Infra (from port construction orders) and so on. The Budget also focuses on urban infrastructure that includes development of smart cities and provision of better drinking water. This segment has driven infrastructure companies such as Pratibha Industries and Supreme Infra, and this will continue.

The biggest gainer in the infrastructure space is Larsen & Toubro with its wide-ranging expertise. It will also gain from the construction of the potential 15,000 km of new gas pipelines and power transmission targets.

The bugbear of funding, of course, continues to stalled many a project and turned developers pessimistic. The Budget has two proposals that can change the game. First, and the more realistic one, allowing banks to raise long-term funding without the need to set aside statutory requirements. This can bring down interest rates for infrastructure companies, in turn freeing cash flows, reducing project costs, and therefore revive bidding for new projects.

The second, Infrastructure Investment Trusts (Invit), akin to Real Estate Investment Trusts (REIT), is more ambitious. A REIT pools money from various investors and makes equity investments in commercial projects, which generate rent. These incomes are then paid out as dividends to investors.

If Invits are similarly built, it may allow developers to sell equity stake in projects where they are generating revenues — tolls on roads, incomes from ports and airports, rentals from multi-level car parks and so on. Developers may also find it easier to sell stake to a trust which diffuses its risk by investing in multiple projects than a single private-equity investor.

Developers who can be the initial gainers include GMR Infra, NCC, IRB Infra, Sadbhav Engineering, Ashoka Buildcon, L&T, IL&FS Transportation, Adani Ports, and Gammon India.