Highway developer Ashoka Buildcon, in which SBI Macquarie has an investment, is considering opening an infrastructure investment trust.

In an interaction with BusinessLine , Paresh Mehta, Chief Financial Officer of Ashoka Buildcon, which is involved in 28 public-private partnership (PPP) projects in nine States, said traffic growth in the road stretches they operate in ranged from 6.5 per cent to over 15 per cent in the past three quarters. Excerpts:

What is the range of traffic growth that you see in your highway stretches?

The growth is an average of 7-8 per cent and ranges from 6.5 per cent in West Bengal to over 15 per cent in some stretches in Madhya Pradesh.

Highway developers seek to link toll charges with consumer price index on the back of continuous negative wholesale price index. What is your view?

We can’t always have it our way. There is a scope to link toll rates with a mix of consumer price index and wholesale price index in a 30:70 weightage, respectively. This is how payments are structured in the hybrid annuity model. It is likely to be done with prospective effect. Not sure if it can be done with retrospective effect.

What is the level of automation in road building today?

Earlier, a lot of labour was used for crushing stones. This has been replaced by stone crushers.

Then, there is vertical shaft impact equipment, which is a machine to shape stones in such a way that they get inter-locked.

Moreover, the standard size of ready mix concrete (RMC) units has increased almost ten-fold – so, instead of standard half a cubic metre RMC units, we see five cubic metre units. All this helps achieve economies of scale and faster project implementation.

How have raw material costs changed in the past one year?

There is some relief in diesel costs, which we use for transporting some material, though not all.

Bitumen prices, which are not governed, fell by over 50 per cent last year. Bitumen accounts for about 4-5 per cent of project cost, which is huge, given the project sizes. Prices of steel, which we use for our structures, have gone down. Contractors do not get benefits of these price variations in engineering procurement contracts, as these are pass-through costs. But, in PPP projects, we get these benefits.

However, firms should also be careful while bidding for PPP projects, as these prices may firm up as well.

What is the status of the Eastern Peripheral Expressway and its impact on your firm?

We have still not started work, as requisite land is still not in possession. NHAI is trying to get the land. We will start work in the first quarter of next fiscal. So, our top line will be somewhat delayed.

What are the biggest challenges in the road sector?

Some people continue to bid aggressively. Sometime, down the line, we are likely to see many projects being cancelled. Land continues to be a challenge.

A subsidiary of ABL is Ashoka Concessions Ltd (ACL), in which SBI Macquarie has invested. Will ACL be acquiring more projects from ABL?

The projects in ABL portfolio are smaller concessions that will get over in next two years. ABL will continue to be the construction arm. We will also do joint ventures. For instance, in Chennai, we are doing the outer ring road project with GVR Infra.

Are you looking to float infrastructure investment trusts?

Definitely yes, after this budget (this budget proposes exemption of InVITs from levy of dividend distribution tax). But we will have to run it through our investors first.

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