Unlisted companies are now executing a majority of National Highways Authority of India (NHAI)’s projects, compared to their listed counterparts. These unlisted companies, however, are a mixed bag and include companies with good execution records and those with stretched working capital requirements.
While some of these unlisted companies are expected to look for a public listing in the future, some others may prove to be a cause for concern for NHAI.
In FY2019, unlisted companies implemented 63 per cent of NHAI’s hybrid annuity model (HAM) projects, according to a report by Equirus Capital. This share is higher at 88 per cent for NHAI’s engineering, procurement and construction (EPC) projects, the report stated.
The last one year has seen rapid growth of new unlisted companies like Adani Transport, which was incorporated in March last year. According to the Equirus report, Adani Enterprises is one of the four unlisted companies which together have 40-45 per cent share in the unlisted space for HAM projects. GR Infrastructure and Gawar Construction are amongst the other unlisted companies which dominated both, the HAM and EPC segment, for NHAI projects.
“The unlisted companies executing road projects at present are a mixed bag. The list includes companies which have show good execution record and timely financial closures,” said Shubham Jain, Senior Vice-President and Group-Head, Corporate Ratings, ICRA. “There are a few with issues in liquidity and working capital. We do expect some of the stronger ones to tap the primary market in future,” he added.
A closer look at rating reports for some of these unlisted companies reveals serious issues. Outlook for DRN Infrastructure, for instance, was revised to stable from positive in March this year. “The outlook revision also reflects higher than expected capital withdrawal by the partners of the firm. The partners withdrew Rs 72 crore in fiscal 2018 as against the expectations of around Rs 30 crore,” said a Crisil note on the company.
While officials from listed companies see the trend as a healthy sign, there is a word of caution. ”The industry is seeing churn which is a healthy sign from the competition perspective. However, it also poses some risks for the stake holders,” said Sandeep Garg, managing director and chief executive officer for Welspun Enterprises. ”It would thus be best for clients and lenders to put in safeguards to ensure growth desire of new entrants is balanced along with the ability to fund and execute projects. This will ensure longterm sustainable growth,” he said.
Amongst other points highlighted in rating reports for these unlisted entities are non-recourse debt taken to fund road projects and special purpose vehicles executing road projects without any corporate guarantee from parent companies.
Few others like Gawar Construction Brij Gopal Construction Company, where financials are healthy, further additions to their order-book are seen as a concern. In its most recent rating report on the company issued in February, ICRA said, “GCL’s liquidity position remains healthy with strong accruals,” and further added, “However, addition of HAM projects in the short term can further increase the equity requirement and impact the liquidity position of the company.”
In the case of unlisted Brij Gopal Construction Company, ICRA said in an April 2019 note, “Going forward, any new HAM/BOT project undertaken by the company or an increase in funding requirement for its ongoing HAM/BOT projects can adversely impact BGCC’s liquidity and credit profile.” According to the Equirus report, Brij Gopal is one of the four main companies dominating 40 to 45 per cent share of HAM projects in the unlisted space.
