ROADS

For updated information, please visit www.ibef.org November 2017 Table of Content

Executive Summary……………….….…….3

Advantage India…………………..….……..4

Market Overview …………………….……..6

Strategies Adopted………….….…..……..19

Growth Drivers……………………...... 21

Opportunities…….………...... ……………31

Success Stories……………....……………34

Industry Associations……………....……...38

Useful Information………...... …………….40 EXECUTIVE SUMMARY

. In FY17, India had the 2nd largest road network in the world, spanning over a total of 5.21 million kms. Over 64.5 per Second largest road network cent of all goods in the country are transported through roads, while, 90 per cent of the total passenger traffic uses road network to commute

Rising budget allocation of . During FY17-18, Government of India allocated US$ 10.13 billion for development of national highways across the road sector country

. As on October 2016, 304 projects were recommended for development by the Public Private Partnership Appraisal Growing private sector Committee (PPPAC) involvement . Investment of US$ 31 billion is expected in PPP by 2020 for national highways

. The Government of India plans to increase the length of National Highways from 103,933 kms to 200,000 kms. Rapid growth in national . As of February 2017, national highways of 6604 kms in length were constructed, against a target of 15,000 kms, under highways various road transport and highway projects

. CPPIB (Canada Pension Plan Investment Board) plans to invest US$ 322 million for infrastructural development in India. . The Government has received public sector undertakings from countries like Malaysia and Japan for funding the upcoming highway projects in India – annuity model 60 per cent of the investment is borne by the private investors 40 Overseas Investment for per cent by NHAI in 5 equal instalments. infrastructure development . As of November 2016, Union Government and Asian Development Bank signed US$ 500 million loan agreement to build the longest bridge across river Ganga, in Bihar. . In April 2017, the Government of India agreed to build world-class road infrastructure in the Jaffna region in Sri Lanka. The 3 major stretches being built are Mannar-to-Vavuniya, Dambulla-to-Tricomalee and Jaffna-to-Mannar.

Source: MoRTH Annual Report 2015–16, NHAI, Make in India, Aranca Research

3 Roads For updated information, please visit www.ibef.org Roads

ADVANTAGE INDIA ADVANTAGE INDIA

. Greater connectivity between different cities, . The Central Government has fast tracked towns and villages has led to increased road at least 24 roads and highways projects traffic over the years . Government is planning to offer a bonus . Growth in automobiles and freight movement of 10 per cent of the total project cost to commands a better road network in India firms that construct and deliver highway projects before deadline . Rise in the number of 2 and 4 wheelers, increasing traffic supports the growth

ADVANTAGE INDIA . The government has given a massive . Road infrastructure has been key push to infrastructure by allocating US$ government priority; sector received 61.8 billion for infrastructure in the strong budgetary support over the Union Budget 2017-18 years

. Growing participation of the private . Financial institutions received sector through Public-Private government approval to raise money Partnership (PPP) through tax-free bonds

. 100 per cent FDI is allowed under automatic route subject to applicable laws and regulations

Notes: NHAI - National Highways Authority of India, MoRTH - Ministry of Road Transport and Highways, E- Estimated Source: NHAI, Make in India, MoRTH, Business Monitor International, Aranca Research

5 Roads For updated information, please visit www.ibef.org Roads

MARKET OVERVIEW ROAD NETWORK IN INDIA IS SUB-DIVIDED INTO THREE CATEGORIES

Roads1 (Total length: 5.47million Kms)

State highways National Highways District and Rural roads

. Total length: 1,61,487 kms . Total length: 1,03,933 kms . Total length: 52,07,044 kms . Share: 3 per cent of the total . Share: 2 per cent of the total . Share: 95 per cent of the total roads in India roads in India roads in India

Source: Ministry of Road Transport and Highways (MoRTH) Annual Report 2016-17, Aranca Research, Note: 1- Data as of FY17

7 Roads For updated information, please visit www.ibef.org STRONG MOMENTUM IN EXPANSION OF ROADWAYS

. Value of total roads and bridges infrastructure in India is expected to Roads/Visakhapatnam bridges infrastructure port traffic value (million in India tonnes) (US$ billion ) expand at a CAGR of 13.6 per cent over FY09–17 to US$ 19.2 billion . In April 2017, the National Highways and Infrastructure Development Corp. bagged a project to build 5 tunnels worth US$3.42 billion. 20 CAGR 13.6% These tunnels, namely, Zojila tunnel at Zojila Pass (14 kms), Vailoo 19.20 Tunnel at Sinthan Pass (8-10 kms), Z-Morah tunnel (6.5 kms), Pir-Ki- 18 Gali Tunnel on National Highway-244 (8.5 kms) and Daranga Tunnel 16 at Shudh Mahadev (4.5 kms), will help in avoiding road accidents 16.10 because of avalanches 14 . Increasing industrial activity, increasing number of 2 and 4 wheelers 13.4 would support the growth in the road transport infrastructure projects 12

. In January 2017, the government proposed to lay down cycle tracks 10 11 on all highways and major roads pan India, to promote the use of electric cars and public transport. 8 8.3 8.6 8.6 . In April 2017, Chenani-Nashri tunnels that links Kashmir valley with 6 6.9 6.8 Jammu was inaugurated. It is the longest road tunnel in the country and US$371.86 million were invested in this project 4 . Targeted pace of road construction has been increased to 23 km a day. 2

0 2009 2010 2011 2012 2013 2014 2015E 2016F 2017F

Note: CAGR - Compounded Annual Growth Rate, FY - Indian Financial Year (April - March), F - Forecast, NHDP - National Highway Development Project, SARDP-NE: Special Accelerated Road Development Programme for the North Eastern Region and LWE - Left Wing Extremism Programme; Figures are as per latest data available Source: Business Monitor International (BMI), Ministry of External Affairs, Aranca Research

8 Roads For updated information, please visit www.ibef.org INDIAN CONSTRUCTION EQUIPMENT REVENUES ON AN UPTREND

. By FY20, construction equipment industry’s revenue is estimated to Growth inVisakhapatnam revenues from constructionport traffic (million equipment tonnes) (US$ billion) reach to USD5 billion. . In FY16, India construction equipment industry grew at a Y-o-Y of around 3.45 per cent over the previous year 7.5 CAGR 2.34%

6.5 6.5

5.5

5.1 5.0 4.5 4.6 4.3 4.2 3.9 3.9 3.5 3.7

3.0 2.5 2.9

1.5

0.5

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY20 -0.5 F

Note: CAGR - Compounded Annual Growth Rate, FY - Indian Financial Year (April-March), E – Estimate, YoY – Year on Year Source: The Boston Consulting Group, Mahindra Website

9 Roads For updated information, please visit www.ibef.org CONSTRUCTION EQUIPMENT SALE ON AN UPTREND

. With infrastructure investment set to go up, demand for construction TotalVisakhapatnam number of construction port traffic equipment (million tonnes) units sold equipment will rise further. . The number of construction equipment units sold increased 41.5 per cent year-on-year in 2016 backed an increase in road projects and a 60,000 low base. . Concrete Show India 2017 was held at Mumbai, Maharashtra, with 50,000 52,500 52,100 more than 100 Indian and global manufacturers & suppliers from 49,700 industries such as concrete, construction, construction equipment, etc., participating in the event. 40,000 42,600 42,710 . Between January-September 2017, about 42,710 units of construction equipment were sold in India, as against 37,346 units 35,900 36,800 between the same period in the previous year. 30,000

20,000

10,000

- 2011 2012 2013 2014 2015 2016 2017*

Note: CAGR - Compounded Annual Growth Rate, FY - Indian Financial Year (April-March), E – Estimate, YoY – Year on Year Source: NBM & CW, Mahindra Website, Indian Construction Manufacturers’ Association

10 Roads For updated information, please visit www.ibef.org RISING DEVELOPMENT OF NATIONAL HIGHWAYS

. Double-lane highways constitute the largest share of highways in India (40658 kms). Double-lane highways are followed by single/intermediate- lane (19330 kms) and 4/6/8-lane (19128 kms) highways . The Government has proposed to upgrade 2 lane national highways into 4 lane national highways for which US$ 65 billion has been allocated. This step is expected to reduce the passenger car units (PCU) to 10000 per day . In the state of Telangana, the total accumulated length of National Highways including those sanctioned after formation of the state and before bifurcation stands at 5,512-km as on April 2017. . In January 2017, Government of Assam announced investment of US$2.23 billion for developing 1253 kms of roads in the state, into national highways . In response form institutional investors from Canada, Middle East and the US, in February 2017 NHAI floated bids to monetise 10 national highway projects in the country. . The National Democratic Alliance (NDA) decided to bring all future road projects such as economic corridors and coastal roads under its aegis, with an aim to give a boost to its Bharatmala Plan. This flagship programme is estimated to cost around US$148.74 billion. . The government is planning to monetise 105 highway projects, worth US$21.57 billion as a part of new innovative models of financing. . Mr Narendra Modi, Prime Minister of India, inaugurated road and highway projects worth Rs 15,000 crore (US$ 2.34 billion) in Udaipur, Rajasthan on August 29, 2017. . Road projects worth Rs 34,000 crore (US$ 5.32 billion) are being undertaken by the central government to decongest the road network connecting the National Capital Territory of Delhi, according to Mr Harsh Vardhan, Minister of Environment, Forests and Climate Change, Government of India. . India’s national highway network is expected to cover 50,000 kilometres by 2019, with around 20,000 km of works scheduled for completion in the next couple of years, according to the Ministry of Road Transport and Highways. . As of October 2017, the land acquisition process and detailed project reports (DPR's) for the Bharatmala Pariyojana are underway and the first project is expected to be awarded before the end of 2018 . The state government of Kerala plans to raise Rs 10,000 crore (US$ 1.54 billion) from non-resident Keralites (NRKs) to finance the development of two highways in the state and support NRKs in the long-term.

Source: Media sources, Aranca Research

11 Roads For updated information, please visit www.ibef.org NHAI’S SUCCESSFUL IMPLEMENTATION OF PROJECTS

NHDP phase/Year of Approval Project description Total length (Kms) Cost Development model

Development of Golden Quadrilateral, North Engineering- Phase I / December 2000 South and East West (NS-EW) corridor, port 13,390 US$ 5.6 billion Procurement and connectivity and other National Highways Construction (EPC)

Development of North South and East West Phase II / December 2003 (NS-EW) corridor and other National 7,142 US$ 6.3 billion EPC Highways

Phase III / PPP Development of 4-lane National Highways 12,109 US$ 18.5 billion April 2007 (Build-Operate-Transfer)

Phase IV / February 2012 Upgradation of single lane to 2-lane 20,000 US$ 12 billion PPP

Phase V / Upgradation of 4-lane highways to 6,500 US$ 9.3 billion PPP October 2006 6-lane and port connectivity

Development of expressway Phase VI / PPP-(Design-Build- The project is targeted to be completed by 1,000 US$ 3.8 billion November 2006 Finance-Operate) December 2015

Phase VII / Development of ring roads, bypasses and PPP (Build-Operate- 700 US$ 4.2 billion December 2007 flyovers Transfer)

Source: NHAI, Aranca Research

12 Roads For updated information, please visit www.ibef.org SPECIAL ACCELERATED ROAD DEVELOPMENT PROGRAMME FOR THE NORTH EAST REGION

. The Special Accelerated Road Development Programme for the North Eastern region (SARDP-NE) is aimed at developing road connectivity between remote areas in the North East with state capitals and district headquarters

. SARDP-NE is vested with the development of double-/four-lane national highways of about 7,530 kms and double-laning improving about 2,611 kms of state roads, as on FY16

. Implementation of the road development programme would facilitate connectivity of 88 district headquarters in North Eastern states to the nearest National Highways

. The project would be undertaken in following 3 phases:

Phase Project description Total length (Kms) Date of completion

Improvement of National Highways 3,014

A March 2017

Improvement of state roads 1,085

Development of double-lane of National 2,392 Highways Investment decision is yet to be taken B by government Double-laning and improvement of state roads 1,331

Arunachal Pradesh package Development of roads 2,319 March 2017 of roads and highways

Source: NHAI, MoRTH Annual Report 2015-16, PPP in India, Aranca Research

13 Roads For updated information, please visit www.ibef.org LEFT WING EXTREMISM (LWE) PROGRAMME

. The government approved a Road Requirement Plan (RRP) for the development of 1,126 kms of National Highways and 4,351 kms of state roads in Left Wing Extremism (LWE) affected districts

. The project would be vested with the Ministry of Road Transport and Highways (MoRTH).

. The project has been implemented in Andhra Pradesh, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Maharashtra, Odisha and Uttar Pradesh.

. In December 2016, the Cabinet Committee on Economic Affairs had given its go ahead for a US$ 1.72 billion road project across all 35 LWE affected districts.

. As of June 2017, 1391-kms of roads had been constructed under the Road Requirement Plan Phase-I (RRP) in the most difficult areas. At the same time, 5,412 kms of roads had been approved under RRP-II.

. The mobile tower project was started in 2014 to improve coverage in LWE areas. As of June 2017, 2,187 mobile towers have been set up and 2,882 towers are being set-up.

. As of November 2017, the Government of India has planned an expenditure of Rs 11,000 crore (US$ 1.71 billion) on a programme for connecting LWE districts by March 2020.

Note: LWE – Left wing extremism Source: NHAI, MoRTH, PPP in India, Aranca Research, Media Sorces

14 Roads For updated information, please visit www.ibef.org DECREASE IN PUBLIC PARTICIPATION IN THE SECTOR … (1/2)

. As of 15th May, 2017, there were 1,582 PPP projects in India, of VisakhapatnamTotal PPP projects port traffic in India (million (May 2017)tonnes) which 783 were related to roads and bridges accounting for a value of US$ 74.63 billion . Project awarded under BOT is 7.15 per cent of the total awarded projects as of May 2017

51% 50% Roads and Bridges

Others

Source: MoRTH, Aranca Research

15 Roads For updated information, please visit www.ibef.org DECREASE IN PUBLIC PARTICIPATION IN THE SECTOR … (2/2)

. Both NHAI and Ministry of Road Transport and Highways awarded ProjectsVisakhapatnam awarded to port BOT traffic private (million players tonnes) (in Kms ) projects of around 6,397 kms in FY16. . In 2015-16, 7 projects (20 per cent) of the total 4,368 kms of NHAI 7000 projects awarded were allocated to BOT mode

. During FY171, projects of about 422.17 kms were awarded to BOT

players by NHAI. 6000

6144 6067

5000

4000

3000

2000 2677

1000

422

369

1116

877

873

742 470 0 464 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY15 FY16 FY17

Note: FY13 - Projects awarded by NHAI; 1 - Data as of May 31, 2017 Source: NHAI, Crisil, ITNL Company Annual Reports, Aranca Research

16 Roads For updated information, please visit www.ibef.org PRIVATE PLAYERS GAINING TRACTION IN THE ROADS SECTOR

. Until 2005, the road construction market was dominated by public sector companies . With the emergence of private players over the last decade, the road construction market has become fragmented and competitive; players bidding for projects also vary in terms of size

Major projects: Mumbai–Pune BOT Project, Pune–Nashik BOT Project, Bharuch–Surat BOT Project, Thane–Bhiwandi by-pass 4 Lane Project, Thane Ghodbunder BOT Project, Ahmedabad–Baroda NH- 8, 6 laning of Agra - Etawah bypass

Major projects: North Karnataka Expressway, West Gujarat Expressway, Noida Toll Bridge, Ahmedabad - Mehsana Toll Road, East Coast Road, Kotakatta Kurnool Road Project, East Coast Road, Hazaribagh Ranchi Expressway Ltd, Karnataka Toll Bridges

Major Major projects: NH6 Dhankuni to Kharagpur, Sambalpur Baragarh, NH4 Belgaum Dharwad, NH-3 private Pimpalgaon – Nashik – Gonde Road (JV with L&T), Jaora – Nayagaon Road, Chennai Outer Ring sector Road, Modhul – Nippani Road, Indore Edalabad Road, Wainganga Bridge, Ahmednagar Aurangabad players Road

Major projects: Bandra–Worli Sea Link, Badarpur Elevated Highway Project, Delhi Faridabad Elevated Expressway, Breakwater construction for new port at Ennore, Chennai, New Railway Line Project from Jiribam - Tupul

Major projects: Tuni–Ankapalli Highway, Tambaram–Tindivanam Highway, Ambala–Chandigarh Highway

Notes: NH – National Highway Source: Aranca Research

17 Roads For updated information, please visit www.ibef.org NOTABLE TRENDS IN THE ROAD SECTOR

. The government’s policy to increase private sector participation has proved to be a boon for the infrastructure industry with a large number of private players entering the business through the Public Private Partnership (PPP) model Demand for urban transport . The type of PPP models used in road projects are Build Operate Transfer (BOT) toll and BOT annuity . During the next 5 years, investment through PPP is expected to be US$ 31 billion

. NHAI is taking revolutionary steps, like facilitating Online sale of FASTags and offline sale through Common Services Electronic toll collection Centre (CSC) near toll plazas, to ensure availability of FASTags for Electronic Toll Collection.

. Infrastructure is the key to supporting double-digit GDP growth in India during the medium to long term International Investment . Cumulative FDI inflows into the construction development sector, including roads and highways, stood at US$ 24.54 billion till June 2017.

. The total length of national highways is expected to reach 100,000 kilometres by the end of the12th Five-Year Plan Success of India’s Five- Year . In September 2015, government set a target of building national highways of 30 km per day Plans . By February 2017, government constructed 6,604 kms of national highways . A total of 50,000 kms of state highways is to be taken up for up-gradation as National Highways.

. Programmes like “Bharat Nirman”, JNNURM are designed to pursue nation wide rural connectivity, linking all the Infrastructure initiatives unconnected villages with fair weather roads

Notes: FDI - Foreign Direct Investment Source: NHAI, MoRTH, Aranca Research

18 Roads For updated information, please visit www.ibef.org Porter’s Five Forces Framework Analysis

Threat of Substitutes

. Threat of substitutes is low . Even if government wants to renovate rather than going for reconstruction, it is highly likely to go to the same players

Bargaining Power of Suppliers Competitive Rivalry Bargaining Power of Buyers

. Bargaining power of suppliers is very . Competitive rivalry between big . Bargaining power is strong due to low players is quite intense as far as robust price sensitivity and low costs . Several small players exist in the winning projects is concerned due to . Buyers are government organisations suppliers section that weaken their high price sensitivity or major agencies that enhance their power . Few large players have the expertise buying power for undertaking bigger projects; hence, competition is higher in case of large infrastructural projects

Threat of New Entrants

. With liberalisation, rules have been eased for the entry Positive Impact . Big players block the entry of new Neutral Impact players in the roads segment, especially in large projects Negative Impact

19 Roads For updated information, please visit www.ibef.org Roads

STRATEGIES ADOPTED STRATEGIES ADOPTED

. Most players are now opting for inorganic growth routes and are diversifying into other businesses (IIML, a subsidiary of Diversification IL&FS is into private equity business with over US$ 3.2 billion under management) . Many players are entering into technical partnerships with foreign players to match their R&D levels with MNCs

. Companies are hiring and training staff to reduce the shortage of skilled manpower and focusing on policies to retain labour . Firms plan to increase minimum wages in the construction sector as well as women participation Training of labour . Companies are partnering with technical institutes and colleges such as CSTI (L&T and Govt. of Odisha) . Roads Ministry will give grant of US$ 152,765 to private companies and state road transport corporations willing to set up or upgrade driver training schools

. Companies are ramping up investment for better and cost effective ways of road construction . Stepping up R&D to develop better roads in areas which suffer from congestion, delays and accidents, according to world standards Promotion of R&D . As of November 2016, three memorandum of understanding (MOUs) were signed between National Green Highways Mission (NGHM) and ITC Ltd, Yes Bank Ltd and Teri for setting up a Centre for Innovations in Green Pathways in order to enhance research and innovations in the field.

. Indian companies are increasing their footprints abroad, thus tapping outside market Geographical expansion . IL&FS won a road contract worth US$ 216.7 million in Botswana, through its subsidiary Elsamex SA . By February 2017, 6604 km of National Highway was constructed by Ministry of Road Transport and Highways

21 Roads For updated information, please visit www.ibef.org Roads

GROWTH DRIVERS STRONG DEMAND AND POLICY SUPPORT DRIVING INVESTMENTS

Growing demand Policy support Increasing investments

Greater government focus on NHAI implementing one of the Rise in 2 and 4 wheeler vehicles

infrastructure largest road projects

Resulting Resulting in Inviting

Standardised processes for

Increasing freight traffic bidding and tolling; clear policy Rising private sector participation

framework

Strong trade and tourist flows Tax sops, FDI, FII Strong projected demand making between states encouragement returns attractive

Source: Make in India, Aranca Research

23 Roads For updated information, please visit www.ibef.org KEY CATALYSTS BEHIND INCREASING DEMAND FOR ROADWAYS

. Higher individual discretionary spending has led to increased spending on cars, motorbikes and scooters

. Growing domestic trade flows have led to a rise in commercial vehicles and freight movement

. Increasing financing on vehicle loans

. Road’s traffic share of the total traffic1 in India has grown from 13.8 per cent to 65 per cent in freight traffic and from 32 per cent to 90 per cent in passenger traffic over 1951–2017

Rising income leading to increasing number of vehicle owners

Growing movement of goods within the country due to economic integration

Higher

road

traffic Better quality roads makes road travel cheaper and safer

Increasing roadways leading to greater accessibility between different cities/towns/villages

Growth in small and medium enterprises in India

Notes: 1Including rail and road transport Source: MoRTH, World Bank, Make in India, Aranca Research

24 Roads For updated information, please visit www.ibef.org RISING VEHICULAR TRAFFIC KEY FACTOR FOR EXPANSION OF ROADWAYS

. Sales of passenger vehicles increased at a CAGR of 10.24 per cent TrendsVisakhapatnam in passenger port vehicle traffic Production (million tonnes) (in million) during FY06-17 and reached 3.8 million in FY17

. Sales of commercial vehicles in the country increased at a CAGR of CAGR 10.24% 4.0 5.21 per cent in FY10-17, with the number reaching 810,286 during 3.80 FY17 3.0 3.40 3.20 6.9 3 3.1 7.1 . Rising per capita income and growing middle class coupled with 2.0 2.4 easier access to finance and a wider price range of vehicles have 1.8 boosted car sales. 1.6 1.0 1.3 1.3 . Production of passenger vehicles increased at a CAGR of 10.24 per cent to reach 3.8 million in FY17 from 1.3 million in FY06. 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 . Production of commercial vehicles increased at a CAGR of 5.21 per cent to reach 810,280 in FY17 from 567,000 in FY10. TrendsVisakhapatnam in commercial port vehicle traffic Production(million tonnes) (in ’000)

CAGR 5.21%

1000

800

600 929.1

832.6

782.8

699

760.7 810.28

400 698.3 567.7 200

0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

Source: SIAM, Aranca Research

25 Roads For updated information, please visit www.ibef.org PRIVATE FUNDING BEING ENCOURAGED TO REDUCE FINANCE CONSTRAINTS … (1/2)

. Cumulative FDI inflows into the construction development sector, VisakhapatnamCumulative FDI port Inflows traffic (million(US$ billion) tonnes) including roads and highways, has increased at a CAGR of 17.07 per cent from US$ 8.06 billion in FY10 to US$ 24.29 billion till March 30 2017. Cumulative FDI stood at US$ 24.54 billion as on June 2017.

. A Memorandum of Understanding (MoU) has been approved by the Union Cabinet between India and the UAE on bilateral cooperation in 25 road, transport and highways sector. The MoU includes collaboration 24.07 24.18 24.29 24.54 23.31 in planning administration and management of road infrastructure, 22.08 technology and standards for roads/highways construction and 20 maintenance.

15

10 11.43 9.18 8.06 5

0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18*

Note: * - Data till June 2017 Source: DIPP, Aranca Research;

26 Roads For updated information, please visit www.ibef.org PRIVATE FUNDING BEING ENCOURAGED TO REDUCE FINANCE CONSTRAINTS … (2/2)

. NHDP’s Phase I and Phase II were mostly developed by public funds %Visakhapatnam of BOT share inport different traffic (millionphases oftonnes) NHDP with BOT’s share at 14.8 per cent and 29.6 per cent, respectively

. The PPP model will be the favoured route for executing the 120.00% remaining phases of NHDP

. In May 2017, the Road Ministry signed 34 MoUs with investment

100.00%

potential of around US$ 29.74 billion with private and public

companies such Adani Logistics, Ascendas, Chennai Port Trust, etc.,

100% 100% 100%

to improve multi-modal logistics.

80.00% 95.90% 83.10%

60.00%

40.00%

20.00%

29.60%

0.00% 14.80% Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Phase 6 Phase 7

Note: NHDP - National Highway Development Phase, BOT - Build Operate Transfer, Year of Approvals for Phase I: December 2000, Phase II: December 2003, Phase III: April 2007, Phase IV: February 2012, Phase V: October 2006, Phase VI: November 2006, Phase Vii: December 2007 Source: NHAI, MoRTH, Aranca Research

27 Roads For updated information, please visit www.ibef.org POLICY INITIATIVES IN THE RIGHT DIRECTION … (1/2)

. Infrastructure investment is a major focus area for the government Infrastructure – a key government priority . The government has given a massive push to infrastructure by allocating US$ 61.8 billion for infrastructure in the Union Budget 2017-18

. The planned outlay under the Union Budget 2017 -18 for development of road transport and highways is Support from the Union US$14.67billion Budget . Moreover, as per Union Budget 2017-18, the government has set targets to develop almost 2,000 kilometres of coastal connectivity roads.

. The Prime Minister’s Gram Sadak Yojana (PMGSY) is a scheme for development of rural roads in India

. Under the Union Budget 2017-18, Government of India allocated an investment of US$ 4.21 billion for the Rural development Pradhan Mantri Gram Sadak Yojana (PMGSY)

. The Government of India will spend around Rs 1 lakh crore (US$ 15.26 billion) during FY18-20 to build roads in the country under Pradhan Mantri Gram Sadak Yojana (PMGSY).

. Companies enjoy 100 per cent tax exemption in road projects for 5 years and 30 per cent relief over the next Taxes and other sops 5 years . Companies have been granted a capital of up to 40 per cent of the total project cost to enhance viability

. The Ministry of Road Transport and Highways, Government of India plans to implement 'Value Engineering Value Engineering Programme' in order to promote use of new technologies and material in highway projects being executed in Programme India.

Notes: FDI - Foreign Direct Investment, FII - Foreign Institutional Investors Source: Make in India, Union Budget 2016-17, Union Budget 2017-18, Aranca Research

28 Roads For updated information, please visit www.ibef.org POLICY INITIATIVES IN THE RIGHT DIRECTION … (2/2)

. Infrastructure finance companies, such as India Infrastructure Finance Corporation (IIFCL), National Highways Authority Issue of tax-free infrastructure of India (NHAI), Housing and Urban Development Corp (HUDCO), Power Finance Corporation (PFC) and India Railway bonds Finance Corporation (IRFC), have been permitted to issue tax-free bonds for a total value of US$ 3.27 billion for FY15; promotion of infrastructure debt funds is the top agenda

. Government of India has set up the India Infrastructure Finance Company (IIFCL) to provide long-term funding for Encouragement of infrastructure projects Infrastructure Debt Funds . Interest payments on External Commercial Borrowings for infrastructure are now subject to a lower withholding tax of 5 (IDFs) per cent vis-à-vis 20 per cent earlier . IDF income is exempt from income tax

. The Central Road Fund (CRF) assists the state government and union territories in the development of state roads Central Road Fund (CRF) . For FY18, US$ 10.13 billion has been allocated specifically for the development for the national highways in the country.

Goods and Services Tax . The GST on construction equipment has been reduced to 18 per cent from 28 per cent, which is expected to give a (GST) boost to infrastructure development in the country.

. Existing excise duty on petrol and diesel has been changed to road cess to the extent of INR 4 per litre to fund investment in roads and other infrastructure. Investment in roads and other infrastructure . Out of US$ 33 billion, allocated for the progress of infrastructure, US$ 14.5 billion has been assigned for the construction sector, including construction of roads and highways in India, as per Union Budget 2016-17. In Union Budget 2017–18, the government provided an outlay of US$ 14.67 billion for the road sector.

29 Roads For updated information, please visit www.ibef.org RECENT BOT PROJECTS AWARDED BY NHAI

Project Length (Km) Cost (US$ million) Year Company

C and C Constructions NA 447.87 2017 NA

4 laning of Buxar-Patna 25 NA 2017 NA

Patna Gaya Dhobi 126 167.95 2017 NA

Chardham Highway NA 1780 2017 NA

Jaipur - Ring Road 47 52.06 2017 NA

Kundli Manesar Paliwal 83 NA 2017 Easel Construction Ltd and HLS Ltd.

Gujarat – 8 highways 1200 1780 2017 NA

New Delhi – Bharat Mala Programme NA 5206 2017 Easel Construction Ltd and HLS Ltd.

4 Laning of Fagne - Mah-Guj Border ( PKG-3) 140.79 308.83 2015 M/s ILand FS Transportation Networks Ltd

8 Laning of Mukarba Chowk to Panipat 69.84 348.63 2015 M/s Essel Infraprojects Ltd

6 laning of Agra - Etawah bypass 124.5 NA 2015 M/s IRB Infrastructure Developers Ltd

4 Laning of Solapur - Bijapur 109.8 228.5 2015 Uniquest Infra Ventures Pvt Ltd

4 Laning of Guna to Biaora 93.5 168.03 2015 M/s Dilip Buildcon Ltd

4 laning of Biaora - Dewas 141.26 262.73 2015 M/s Oriental Structural Engineers Pvt Ltd

Notes: BOT - Build Operate Transfer, UB - Union Budget, Km – Kilometre Source: NHAI, MoRTH, Aranca Research

30 Roads For updated information, please visit www.ibef.org BUDGETARY OUTLAY FOR ROADS

. Roadways has been the key focus area for budget allocations over Outlay for roads under the respective Union Budgets Visakhapatnam port traffic (million tonnes) the years (US$ billion)

. As per Union Budget 2017–18, the government provided an outlay of 16

US$ 14.67 billion for the road sector CAGR 20.20%

. Between FY09 and FY18, budget outlay for road transport and 14 14.5

highways increased at a robust CAGR of 20.20 per cent 14.67

. Under Union Budget 2017-18, GOI is planning to develop 2,000 12 kilometres of coastal connectivity roads in India.

10

8

8

7.8

6 7.1

6.6 6.5

4

3.5

2 3.2 2.8

0 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

Note: CAGR - Cumulative Annual Growth Rate, GOI – Government of India, NHAI – National Highway Authority of India Source: Respective Union Budgets, Aranca Research

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OPPORTUNITIES FUTURE PROSPECTS REMAIN BRIGHT FOR THE ROAD SECTOR … (1/2)

. National Highway Development Project (NHDP) is a 7 phase project VisakhapatnamProjects awarded port traffic (in kilometres) (million tonnes) amounting to US$ 60 billion. The projects aims to widening, up- gradation and rehabilitation of 47,054 kilometres of national 7000 highways 6000 6491 6397 . NHAI awarded 77 road projects covering 4,275 kilometres in FY17 1 5000 5000 4000 . The Government of India has decided to invest Rs 7 trillion (US$ 4175 107.82 billion) for construction of new roads and highways over the 3000 next five years. 2000 1000 1165 1435 0 1 2012 2013 2014 2015 2016 2017

Projects awarded (in kilometres) by NHDP as of Visakhapatnam port traffic (million tonnes) 31st May 2017

14000 12000 13203 10000 11809 8000 6000 7142 6500 4000 1000 2000 700 0 NS &EW NHDP III NHDP IV NHDP V NHDP VI NHDP VII Ph I & II

Notes: NHDP stands for National Highways Development Project, 1 – As of May 31, 2017. Source: NHAI, MoRTH, Aranca Research

33 Roads For updated information, please visit www.ibef.org FUTURE PROSPECTS REMAIN BRIGHT FOR THE ROAD SECTOR … (2/2)

. In India, roads remain the most important means of transport, VisakhapatnamTotal vehicle’s port growth traffic (million (million units) tonnes) accounting for around 80 per cent of the passenger traffic and 65 per cent of the freight traffic CAGR 9% . Number of total vehicles in India increased at a CAGR of 9 per cent 30 during the period of FY06-17, from 9.7 million to 25.3 million 25 25 20 6.9 24 . As of FY17, 2 wheelers accounted for 78.73 per cent of the total 21 21 7.1 number of vehicles in India 15 18 10 14 11 10 11 11 5 0 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

VisakhapatnamBifurcation of vehicles port traffic by category:(million tonnes) FY17

3.20% 3.90%

Two wheelers

14.98% Passenger vehicles

Commercial vehicles

78.73% Three wheelers

Notes: SIAM - Society of Indian Automobile Manufacturers Source: SIAM Report, Aranca Research

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SUCCESS STORIES IRB INFRASTRUCTURE LIMITED … (1/2)

. IRB Infrastructure is one of the leading BOT operators in India, with a Revenue Trend: IRB Infrastructure Limited Visakhapatnam port traffic (million tonnes) built-length of around 9,846 lane kilometres (US$ million)

. IRB has 20 BOT projects, of which 14 are operational, as on March 1000 2017 CAGR 14.11% 900 931.5 . As of 31 March 2017, IRB Infrastructure’s order book aggregated US$ 1.55 billion 800 . The company has an 18.79 per cent share in the Golden 783.7 Quadrilateral project as of March 2017. 700 695 702.9 657.0 . During FY10-17, company’s revenue increased at a CAGR of 14.11 600 619.1 per cent 500 548.6

400

369.8 300

200

100

0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

Notes: CAGR - Compounded Annual Growth Rate, BOT – Build Operate Transfer Source: Company Annual Report and Corporate Presentation, Aranca Research

36 Roads For updated information, please visit www.ibef.org IRB INFRASTRUCTURE LIMITED … (2/2)

. Was awarded an order for 1,129 . Won a US$ 312 million contract for lane kilometres for a total value of the 6 laning Barwa-Adda-Panagarh US$ 1.5 billion sector of National Highway 2

2015-17 2011 2012 2013 2014

. Was awarded a . 4 laning of Beawer- . Won a road contract worth US$ 216.7 million in contract for 1,086 lane Gomti Road Project Botswana, through its subsidiary Elsamex SA kilometres for a total . Commercial operation of Warora Chandrapur consideration of US$ Ballarpur Bamni Road Project has been started 1.5 billion . Won a project to widen roads of 127 km long Patna-Gaya-Dobhi section of NH 83 in Bihar for a consideration of US$ 205 million . In FY17, company’s revenues stood at US$ 931.5 million

Source: Company Annual Report, News articles, Aranca Research

37 Roads For updated information, please visit www.ibef.org NOIDA TOLL BRIDGE COMPANY LIMITED (NTBCL)

. Infrastructure Leasing and Financial Services Ltd (IL&FS) promoted Revenue trends: Noida Toll Bridge Visakhapatnam port traffic (million tonnes) National Toll Bridge Company Ltd (NTBCL) as a special purpose (US$ million) vehicle (SPV) for the development of the 22-km Delhi-Noida Direct (DND) flyway on a Build Own Operate Transfer (BOOT) basis 25

. Incorporated in Uttar Pradesh, India, in 1996, NTBCL is a publicly listed company and operates only in the country 20 20.4 . Salient features 19.9 19.8 19.4 19.7 • Eight-lane dual carriageway connecting Noida and Delhi 18.9 17.9 17.2 • One major and 3 minor bridges over Yamuna river 15 • Eight-lane approach road on embankment 13.4 • 31-lane, 200m-wide, fully computerised toll plaza

• Extensive tree planting and landscaping 10

• Noise barriers and river training works

5

0 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY 17

Source: Company Annual Report, Aranca Research; 1Data for April 2016 – September 2016

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KEY INDUSTRY ASSOCIATIONS INDUSTRY ASSOCIATIONS

Ministry of Roads Transport and Highways National Highway Authority of India

Transport Bhavan G 5 and 6, Sector 10, Dwarka 1, Parliament Street New Delhi – 110 075 New Delhi –110001 Phone: 91-11-25074100, 25074200 Phone: 91-11-23719097, 23719955 Fax: 91-11-25093507, 25093514 E-mail: [email protected]

Indian Roads Congress

Sector 6, (Near RBI Quarters), RK Puram, New Delhi – 110022 Phone: 91-11-26185303 Secretariat: 91-11-26716778, 26183669, 26185273, 26185315, 26185319 Fax: 91-11-26183669 E-mail: [email protected]

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USEFUL INFORMATION GLOSSARY

. BOT: Build Operate Transfer

. CAGR: Compound Annual Growth Rate

. EPC: Engineering, Procurement and Construction

. FDI: Foreign Direct Investment

. FY: Indian Financial Year (April to March) – So FY10 implies April 2009 to March 2010

. GOI: Government of India

. INR: Indian Rupee

. LCV: Light Commercial Vehicles

. MoRTH: Ministry of Roads Transport and Highways

. NH: National Highway

. NHAI: National Highway Authority of India

. NHDP: National Highway Development Project

. US$ : US Dollar – Conversion rate used: US$ 1= INR54.43

42 Roads For updated information, please visit www.ibef.org EXCHANGE RATES

Exchange Rates (Fiscal Year) Exchange Rates (Calendar Year)

Year INR Equivalent of one US$ Year INR Equivalent of one US$

2004–05 44.81 2005 43.98 2005–06 44.14 2006 45.18 2006–07 45.14 2007 41.34 2007–08 40.27 2008 43.62 2008–09 46.14 2009 48.42 2009–10 47.42

2010–11 45.62 2010 45.72

2011–12 46.88 2011 46.85

2012–13 54.31 2012 53.46 2013–14 60.28 2013 58.44 2014-15 61.06 2014 61.03 2015-16 65.46 2015 64.15 2016-17 67.09 2016 67.21 Q1 2017-18 64.46

Q2 2017-18 64.29 H1 2017 65.73

Source: Reserve bank of India, Average for the year

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