The Hindu Business Line : Six-lanes to power growth

The approval of six-laning of four sections of the existing four-lane National Highways is likely to convert into more order inflows for select infrastructure companies. The Government recently approved an investment of Rs 5,611 crore for conversion of 838 km of select four-lane National Highways into six-lane highways. What is interesting is that it has announced the design-build-finance-operate (DBFO) mechanism for implementing these projects.

The DBFO system is an offshoot of the BOT (Toll) strategy; the primary difference being that under DBFO, the developer has more freedom to design, higher responsibility and hence higher risks. For instance, unlike BOT projects, in DBFO , the developer is free to design the project and use suitable technologies as long as the final outcome is within the parameters specified by NHAI. Another difference is that in BOT projects, developers are normally allowed to extend the concession period, if the total toll collection is insufficient to recover the costs incurred. The same may not be possible in DBFO. This increases the risk undertaken by the developer, who has to ensure that the project lies in high traffic stretches. Nevertheless, flexibility given in terms on inputs used may help players reduce their construction cost.

The National Highways Development Project (NHDP-V) has a massive-6,500 km of highways for six-laning. However, under DBFO, the complexity of the projects may allow only bigger players, who are technically well-equipped to design and im plement projects on their own, to enjoy the benefit of these order flows. Companies such as Larsen & Toubro, Gammon India, Hindustan Construction and Nagarjuna Construction appear well placed to handle such projects. .

Spectrum woes

The reported delay in spectrum (the ‘raw material’ for wireless communication) allocation may have adverse implications for players in the telecom sector, including Bharti Airtel, Reliance Communications and Hutch as well as Idea Cellular. The mobile-telephony industry as a whole faces spectrum crunch that a rapidly expanding subscriber base imposes. A delay by the Department of Telecom (DoT) in releasing additional spectrum for 2G operations tends to slow down expansion plans of players

This represents a temporary setback for Idea Cellular, which adds a healthy 7 lakh subscribers a month from its existing 11 circles of operation, and was looking to commence operations in Mumbai and Bihar by the end of this year. The e xpansion of Idea into Mumbai is of specific strategic importance for the company on two counts. One, Mumbai has one of the highest ARPU (average revenue per user) levels in the country and, two, the company is the top operator in Maharashtra and an expansion to Mumbai may have been an easier and synergistic move in terms of costs and service offerings. However, while this may lead to a delay in potential earnings from a high ARPU circle, the company’s growth prospects continue to be bright even for existing operations as there is still sufficient market to be tapped in three of its 11 circles .

. In the June quarter, Idea reported a 12 percent growth in revenues and a 60 percent profit growth on a sequential basis. In contrast to the industry trend of flat or declining ARPUs, Idea has seen an increase in its ARPU levels (Rs 320) this quarter.

BL RESEARCH BUREAU

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