Larsen and Toubro Infrastructure Development Projects may cancel two Maharashtra road projects with a combined cost of about ₹4,500 crore as they have turned financially unviable.
The L&T arm has already discussed this with the National Highways Authority of India (NHAI), multiple sources confirmed to Business Line.
However, NHAI is asking the company to wait until the elections are over and a new government steps in before taking a final call.
The two projects involved widening of 485 km of carriageway on two highways: Amravati-Jalgaon and Jalgaon-Gujarat/Maharashtra border. They were valued at ₹2,538 crore and ₹1,968 crore, respectively, three years ago. Now, the costs have shot up further.Slowdown bites
To develop these projects, L&T was to raise money, design and build the highway and collect tolls from those using the stretches for over 20 years. The company had tied up finance for these projects in 2012.
According to the sources, the project financials have gone awry, with key inputs such as bitumen, diesel and aggregates turning costlier, and the company fearing that the actual toll revenues would be lower than projected because of the economic slowdown setting in.
Even the recent Government sop — allowing road developers to postpone payment of premium — would not be enough to make the projects profitable. Premium is the amount that a developer is required to pay NHAI for the right to widen a highway.
The company collects tolls from users over 20-30 years. For instance, for each of these projects, L&T would have had to pay a premium of over ₹4,000 crore over the entire concession period, starting with ₹130-140 crore in the initial years.Long-term benefits
From a stock market perspective, the project cancellation may be good for the company in the long run but bad in the short run.
“This forms a part of the outstanding order book of the construction arm of L&T and could allow margin bookings in first three years of the construction period. The losses would have set in after three years,” explained an analyst.Sangareddy project worries
Another project on which the company is having second thoughts is the ₹1,267-crore Karnataka/Maharashtra border-Sangareddy project. L&T declined to comment.
NHAI officials have been asking developers to hold on to their projects. But many have been cancelled.
The projects that have been cancelled include Kota-Jhalawar (Keti Constructions), Hospet-Chitradurga (Ramky Infrastructure), Solapur-Maharashtra-Karnataka border (Coastal-Srei), Agra-Etawah Bypass (Ramky Infrastructure) and Rajahmundry-Gundugolanu (IVRCL).