Infrastructure India I Equities Sector Update

22 April 2021

Infrastructure Sector Sensex: 47706

Upbeat ending to FY21; FY22, second Covid’19-wave to set the course Nifty: 14296

Key & timely policy support and the continuing focus on tendering and awarding are well-appreciated efforts of the government. They not only helped industry participants better manage the uncertain times in FY21 but also ensued that infrastructure development remained the key focus. With execution efficiencies largely back from the initial Covid-wave and sturdy OBs awaiting execution, the sector seemed set for strong growth ahead. The recent surge in Covid cases, though, (and consequent restrictions to contain the spread) appear to have potential to, if not disrupt, then delay the scale- up. Nevertheless, the disruption, owing to efforts underway, is unlikely to be of the magnitude last time. Hence, we retain our long-term constructive view but still choose to be selective. With this, we present our Q4 FY21 preview and our take on tendering/awarding trends in Mar’21 and FY21. Q4 FY21 results preview. Q4, the key contributor to a company’s full-year figures even otherwise, was widely anticipated to mark a complete recovery in the pace of execution from the first round of the Covid-triggered disruption. And companies we cover are unlikely to disappoint as execution had mostly returned by the start of the quarter and order addition was brisk. Consequently, we see our coverage universe (excl. IRB Infra and two not-rated) to record ~16% y/y higher revenues and, further aided by better scale, an inspiring ~54% higher earnings.

New announcements, returns with a vengeance. This is amply evident from the Mar’21 new investment proposals of ~Rs1.7trn. This is not only the best monthly figure in FY21 but also the second highest in the past 48 months. The private sector taking the lead with announcements of ~Rs1trn was heartening. Roads, power & mining and manufacturing were key contributors. New announcements in FY21, though down ~5% y/y to ~Rs9.5trn, were no mean feat, considered on the backdrop of the Covid-led disruption early in the year. Mar’21 tendering, led by States. Tenders of ~Rs889bn floated in Mar’21 were the second highest in FY21, comparing favourably to FY21’s monthly average of ~Rs647bn. Roads (~42%), water & irrigation (~27%) and buildings & housing (~12%) were key contributors. Tenders of ~Rs7.8trn were floated in FY21, up ~50% y/y. More tenders, amid y/y lower project announcements in FY21, imply a greater share of announcements are making it to tendering stage.

Inspiring awarding. Strong Q4 FY21/FY21 awarding appears a function of the greater thrust on infrastructure creation owing to the sector’s inherent ability to create job opportunities, and contribute to economic growth. Consequently,

Mar’21 awarding of ~Rs993bn is not only higher y/y but also the best monthly figure in a good 48 months. Power & mining (~44%), roads (~34%) and Prem Khurana buildings & housing (~6%) were the key contributors. FY21 saw cumulative Research Analyst awards of ~Rs3.5trn, ahead of the ~Rs3trn five-year annual awarding average.

Top picks: KNR Constructions, PNC Infratech and Ahluwalia Contracts. Rachit R Kamath Strong balance sheets, ample assurance and execution abilities are key common Research Associate traits that push us to retaining our positive stance.

Anand Rathi Share and Stock Brokers Limited (hereinafter “ARSSBL”) is a full-service brokerage and equities-research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient. Disclosures and analyst certifications are present in the Appendix.

Anand Rathi Research India Equities

22 April 2021 Infrastructure Sector – Upbeat ending to FY21; FY22, second Covid’19-wave to set the course

Q4 FY21 performance preview

 Strong finish to the year. By the start of the quarter, execution efficiency had largely returned from the disruption brought on by the first wave of the Covid-19 pandemic. This, we believe, would have paved the way for the strong pace of execution in Q4 FY21. We expect performances to have been further aided by healthy awards during the year, and commencement of work at some of these new awards. Positive policy measures, too, (mostly under the Atmanirbhar Bharat scheme) appear to have provided the requisite fillip. With this, we present to you, our preview for Q4 FY21. . We expect the companies we cover (excl. IRB Infrastructure and the two not-rated) to report ~16% y/y blended revenue growth and aggregate absolute revenue from operations of ~Rs167bn. . Mid-double-digit y/y revenue growth would be the result also of the benign base, owing to the Covid-kicked-off disruption in Mar’20. . We anticipate aggregate absolute operating profitability for comparable names to have risen even better (~23% y/y), on sturdier blended EBITDA margins of ~12.3% (up ~67bps y/y).

Fig 1 – Q4 FY21 performance preview – Returned efficiencies, brisk order additions likely to lead to strong finish to FY21 Revenue from operations EBITDA margin (%) Adj. PAT Reported inflows (Rs m) Q4 FY21e % Y/Y % Q/Q Q4 FY21e Q4 FY20 Q3 FY21 Q4 FY21e % Y/Y % Q/Q Q4 FY21 Sound balance sheets Ahluwalia Contracts 6,159 12.1 14.9 7.5 4.2 5.9 232 280.3 57.6 1,280 Ashoka Buildcon 12,357 (1.5) 26.0 12.2 18.2 10.8 1,134 (31.0) 32.4 NA HG Infra 7,648 22.8 4.1 16.1 16.3 16.1 651 27.0 (0.7) 25,643 KNR Constructions 7,605 12.6 10.8 19.5 21.7 19.7 769 14.5 (0.8) 60,292 NBCC 19,338 21.6 28.2 3.9 1.2 2.8 1,091 124.9 33.3 3,277 PNC Infratech 14,703 27.0 11.2 13.5 13.5 13.5 1,090 43.3 5.7 23,513 Private-heavy / Urban-centric Capacit'e Infraprojects 4,176 35.9 36.6 16.9 15.5 17.9 262 584.6 72.2 NA ITD Cementation 8,793 18.9 11.1 9.6 11.4 9.0 283 (20.2) (5.6) NA J Kumar Infraprojects 9,318 6.2 14.2 14.5 10.5 14.1 581 87.2 29.4 9,415 JMC Projects 12,517 33.4 17.4 10.4 2.9 9.0 557 - 116.9 11,910 PSP Projects 5,059 10.9 29.7 12.6 11.1 12.0 416 21.3 35.6 22,506 Leveraged Dilip Buildcon 26,717 6.9 8.3 16.5 16.5 16.5 1,272 10.5 14.6 68,770 Gayatri Projects 10,949 20.3 1.9 13.8 5.9 13.6 411 - 2.3 17,291 NCC 24,732 13.3 28.9 12.0 12.9 12.5 1,108 6.8 57.6 17,300 Sadbhav Engineering 6,169 50.9 11.0 12.0 12.3 13.2 130 - (14.6) NA Pure play asset-ownership IRB Infrastructure 14,460 (8.7) (6.5) 48.3 41.3 46.5 686 (55.6) (1.3) 32,490 Total Only rated companies *^ 167,006 15.9 15.5 12.3 11.6 12.2 9,309 54.2 21.6 Incl. not rated companies * 176,241 16.2 16.3 12.4 11.7 12.3 9,987 55.7 23.0 Source: Anand Rathi Research, Companies * Excl. IRB Infra, as asset sales render financials non-comparable ^ Excl. not-rated companies, namely PSP and Capacit'e

. Better blended margins would be a function of the greater scale, changed project mix and Covid-triggered cost controls. The margin expansion would have been better were it not for input- cost pressure. . Greater operating profitability and financial leverage are expected to have taken blended adj. PAT ~54% y/y higher. The growth would also have been due to contained capex during the year.

Anand Rathi Research 2

22 April 2021 Infrastructure Sector – Upbeat ending to FY21; FY22, second Covid’19-wave to set the course

. The Q4 FY21 reported order additions have been inspiring, and are likely to far exceed the Q4 revenues. Resultantly, we see revenue assurance to turn better, on aggregate basis.  Input cost pressure, small impact. With operational efficiency largely back, operating profitability, too, was on course to recover from the initial shocks at the beginning of the pandemic. However, input- cost pressure is likely to contain margin expansion to a certain extent. . While the rise in raw material prices is real and likely to have an impact, discussions with industry participants indicate that the impact is unlikely to be significant. . Part of the input-cost pressure, most believe, would be compensated by inherent price-escalation clauses; and cost-control measures as a result of the Covid-caused disruption would also ease a certain amount of the input-cost pressure. . As such, barring a few names (for specific reasons), we see project- level margins to return to the past ranges for the larger coverage.  Year-end spurt in awarding = strong inflows. The greater thrust on infrastructure creation by the government as a means to revive economic growth (in the wake of the yet evolving Covid-19 pandemic), coupled with the generally seen year-end spurt in awarding translated to strong order inflows in Q4. This augurs well as it provided ample opportunities to most industry participants to further bolster revenue assurances. Major beneficiaries in Q4 FY21 include the likes of: . Dilip Buildcon. The company was among the key beneficiaries of the NHAI’s year-end spurt in road awarding, having bagged six hybrid annuity projects entailing a cumulative bid-project cost of ~Rs69bn. It was also awarded a ~Rs6.5bn railway order from IRCON International but this already reflects in the last reported order-book (in Feb’21). Also, it received LoA for the long-tenure Siarmal MDO project of ~Rs368bn (incl. GST, one-year revenue potential of ~Rs14.9bn already included in the last reported OB; as it was declared L1 in Nov’20). . KNR Constructions. The company was the beneficiary of four road projects, three from the NHAI, one from a state authority. Of these, two road EPC projects provide an executable opportunity of ~Rs15.2bn. The other two hybrid annuity projects entail a cumulative bid-project cost of ~Rs45bn. Of these four, the two hybrid annuity projects may not form part of the end-Q4 OB, as the company generally awaits appointed dates before including such projects. . JMC Projects. The company’s Q4 order inflows amounted to ~Rs11.9bn, incl. one international water-segment order in the Maldives, of ~Rs2bn. Besides further augmenting its revenue assurance, the international order is in line with management view of strengthening its international operations. The healthy additions continue in FY22, with already-received firm inflows of ~Rs8.3bn post-Q4. Also, the company has signed an MoU for another project in the Maldives, a ~Rs10bn building-segment order, likely to be firmed up later in FY22. . PSP Projects. Off to a slow start in FY21, the company bagged orders of ~Rs22.5bn in Q4 across states and segments. Of these,

Anand Rathi Research 3

22 April 2021 Infrastructure Sector – Upbeat ending to FY21; FY22, second Covid’19-wave to set the course

~Rs15bn pertains to hospital/healthcare projects in Uttar Pradesh. This augurs well as it not only helps strengthen the hospital/ healthcare segment (a focus area for the governments of the day) but also helps further dilute the Gujarat dominance in its OB. . HG Infra. While the company had no order inflows in 9M FY21, it made a strong finish to FY21 with three NHAI road hybrid annuity orders in south India (two in Telangana, one in Andhra Pradesh). These three entail a ~Rs24.7bn bid project cost. Besides these, the company was awarded a small ~Rs1bn transportation order.

Fig 2 – Key monitorables Companies Key monitorables during Q4 FY21 earnings call . Further provisions / write-offs during the quarter Ahluwalia Contracts . Pending bad debts / potential bad receivables . BOT-toll / hybrid annuity asset monetisation (ACL portfolio exit) . Order inflow outlook for FY22 Ashoka Buildcon . Trade receivables composition – especially Power segment receivables . Update on CGD business . Update on the CIDCO project (especially the 7th and 8th sites) Capacit'e Infraprojects . Update on the BDD Chawl project . Outlook on execution ramp-up . Capital intensity in the near future, with multiple hybrid annuities added during the quarter Dilip Buildcon . Update on asset monetisation efforts for seven older hybrid annuity assets . De-levering plans Gayatri Projects . Updates on the Andhra Pradesh irrigation projects . Updates on other monies receivable (via arbitration or other routes) . Order inflows / segment diversification outlook HG Infra . Update on pending receivables from the private sector orders and the WorldBank-funded project in Rajasthan . Update on the recently-bagged hybrid annuity projects . Order inflows / opportunity landscape ITD Cementation . Updates on the Bengaluru elevated metro-rail and Kolkata underground metro-rail projects . Update on execution ramp-up on the recently-added projects . Progress on various metro-rail lines in Mumbai, especially Line-3 J Kumar Infraprojects . Project execution outlook for some of the newly-added orders (Dwarka and Sewri-Connector) . Updates on the BOT-toll portfolio restructuring JMC Projects . Outlook on future order accretion and execution . Update on the recently-bagged Maldives orders . Update on Telangana Irrigation orders KNR Constructions . Update on the recently-added hybrid annuity projects . Update on milestone receipts from the recently-monetised Kerala BOT-toll road project . Outlook on the owned real-estate inventory liquidation NBCC . Updates on the Jaypee Infratech acquisition . Outlook on inventory liquidation at colony-redevelopment projects . Update on the Andhra Pradesh OB and balance-sheet exposure NCC . Updates on the Sembcorp and Taqa arbitrations . Outlook on asset monetisation at subsidiaries / lowering related-party exposure . Update on the recently-added non-road orders (irrigation and water segments) PNC Infratech . Update on monetisation efforts, especially for Ghaziabad-Aligarh . Updates on the recently-bagged healthcare projects in Uttar Pradesh PSP Projects . Updates on the Surat Diamond Bourse project . Updates on the pre-cast plant capex Source: Anand Rathi Research

Anand Rathi Research 4

22 April 2021 Infrastructure Sector – Upbeat ending to FY21; FY22, second Covid’19-wave to set the course

Order tracker - Story through charts

Fig 3 – Mar’21 intentions at ~Rs1.7trn, up ~151% y/y, ~64% Fig 4 – Strong Mar’21 awards of ~Rs1trn take FY21 awards to m/m; tendering at ~Rs0.9trn, up ~91% y/y, ~72% m/m ~Rs3.5trn, against five year-annual average of ~Rs3trn (Rs trn) (Rs trn) 1.8 1.1 1.0 1.5 0.9 0.8 1.2 0.7 0.6 0.9 0.5 0.4 0.6 0.3 0.2 0.3 0.1 0.0 0.0 Jul-20 Apr-20 Oct-20 Jun-20 Jan-21 Mar-21 Mar-20 Feb-21 Feb-20 Jul-20 Aug-20 Sep-20 Nov-20 Dec-20 May-20 Apr-20 Oct-20 Jun-20 Jan-21 Feb-20 Mar-20 Feb-21 Mar-21 Aug-20 Sep-20 Nov-20 Dec-20 May-20 New announcements Tenders published Awards 12-Months Moving Average Source: Projects Today Source: Projects Today, Anand Rathi Research

Fig 5 – On 20th Apr’21, live tenders of ~Rs1.6trn Fig 6 – Top-3 states’ share: ~40%; top-7, ~63% Power & Others Mining 5 Others 191 0.3% 388 Uttar Pradesh 12.0% 24.2% 287 17.9%

Irrigation, Gujarat 66 Water & Roadways Maharashtra 4.1% Marine 777 214 372 48.5% 13.3% 23.2% Jharkhand 66 4.1% Madhya Railways & Odisha Pradesh aviation 67 Kerala 143 106 Buildings & 4.2% 68 Jammu & 8.9% 6.6% Housing 4.3% Delhi Punjab Kashmir 149 83 100 120 9.3% 5.2% 6.3% 7.5% Source: Projects Today, Anand Rathi Research Note: Values in billion rupees Source: Projects Today, Anand Rathi Research Note: Values in billion rupees

Fig 7 – Of ~Rs0.8trn road tenders, major issuing authorities Fig 8 – Road tenders skewed in favour of EPC with a ~41% NHAI and UPEIDA, have a ~52% and ~28% share, respectively share; BOT-toll commands a ~28% share, led by UPEIDA Others NHAI - BOT-toll 0.1 NHIDC 66 8.5% 0.0% L 44 BOT-Toll 5.7% 221 NHAI - Hybrid EPC 28.5% MoRTH Annuity 316 45 239 40.7% 5.8% 30.8%

UPEIDA - BOT-toll 221 28.5% NHAI - EPC Hybrid Annuity 161 239 20.7% 30.8%

Source: Projects Today, Anand Rathi Research Note: Values in billion rupees Source: Projects Today, Anand Rathi Research Note: Values in billion rupees

Anand Rathi Research 5

22 April 2021 Infrastructure Sector – Upbeat ending to FY21; FY22, second Covid’19-wave to set the course

Fig 9 – Road orders, by state; top-3 ~55%; top-7 ~83% Fig 10 – Of ~Rs0.4trn NHAI tenders, top-3 ~56%; top-7 ~84% Manipur Others Others Karnataka Karnataka Odisha 15 73 15 21 18 13 1.9% 9.4% Uttar Pradesh 3.7% 2.7% 4.4% 3.1% Chhattisgarh 19 Punjab 25 4.6% 93 3.2% 23.2% Uttar Pradesh Chhattisgarh Gujarat 259 22 29 33.3% 5.4% 3.7% Gujarat Jammu & 22 Kashmir 5.6% 53 Jammu & Delhi 6.8% Kashmir 67 Kerala 30 16.7% 65 7.4% Delhi Punjab 8.3% Maharashtra 67 97 40 Maharashtra Kerala 8.6% 12.5% 10.1% 74 63 9.6% 15.8% Source: Projects Today, Anand Rathi Research Note: Values in billion rupees Source: Projects Today, Anand Rathi Research Note: Values in billion rupees

Fig 11 – Cement price index – highest in the past nine Fig 12 – Steel price index – though down for the second months, up ~3% y/y straight month, yet y/y ~17% higher (Index) (%) (Index) (%) 126 4.0 140 25.0

124 3.0 120 20.0

2.0 100 15.0 122 1.0 80 10.0 120 0.0 60 5.0 118 -1.0 40 0.0 116 -2.0 20 -5.0

114 -3.0 0 -10.0 Jul-20 Jul-20 Apr-20 Oct-20 Jun-20 Jan-21 Oct-20 Apr-20 Feb-20 Mar-20 Feb-21 Mar-21 Jun-20 Jan-21 Nov-20 Dec-20 Aug-20 Sep-20 Feb-21 Mar-21 Feb-20 Mar-20 May-20 Aug-20 Sep-20 Nov-20 Dec-20 May-20 Cement y/y growth (RHS) Steel y/y growth (RHS) Source: Ministry of Commerce and Industry Note: Base year: FY12 Source: Ministry of Commerce and Industry Note: Base year: FY12

Fig 13 – Feb wages; off Jun’20 peak but ~5% higher y/y Fig 14 – WPI and CPI (Rs) (%) (Index) 380 12.0 170

370 160 10.0 360 150 8.0 350 140 340 6.0 130 330 4.0 320 120 2.0 310 110

300 0.0 100 Jul-20 Oct-20 Jan-20 Jun-20 Jan-21 Jul-20 Feb-20 Mar-20 Feb-21 Aug-20 Sep-20 Nov-20 Dec-20 May-20 Oct-20 Apr-20 Jun-20 Jan-21 Feb-21 Mar-21 Feb-20 Mar-20 Aug-20 Sep-20 Nov-20 Dec-20 Apr-20 * Apr-20 May-20 Labour y/y growth (RHS) WPI CPI Source: Labour Bureau, Government of India Note: Average daily wages * Data not available Source: Ministry of Commerce and Industry, Central Statistics Office Note: Base year: FY12

Anand Rathi Research 6

22 April 2021 Infrastructure Sector – Upbeat ending to FY21; FY22, second Covid’19-wave to set the course

Mar’21 order tracker . . .

Project announcements – Mar’21, highest in FY21 Realising the potential that the sector holds when it comes to ability to create job opportunities, and contribute to economic growth, there was greater thrust on infrastructure creation. This was further supported by positive policy measures. Consequently, the Mar’21 announcements, at ~Rs1.7trn (719 projects), were up ~151% y/y. While a part of this is explained by the low-base effect (the pandemic’s paralysing effects commenced from Mar’20), even adjusted for this, Mar’21 announcements were sturdy, as this is not only the best monthly figure in FY21 but the second-highest in the past 48 months.  Manufacturing, roads and power & mining were the top-three, with respective shares of ~35%, ~21% and ~16%.  Sturdy investment proposals of ~Rs611bn in manufacturing were largely driven by strong proposals in metals (~Rs512bn; ~84% of all manufacturing proposals). This was largely accounted for by one integrated steel project of ArcelorMittal-Nippon Steel in Odisha (of ~Rs500bn).  The roads sector, with healthy Mar’21 investments proposals of ~Rs355bn, were largely driven by 11 large projects aggregating ~Rs301bn (~85% of road proposals announced). Of these, four pertained to the development of the Ganga Expressway project from UPEIDA (cumulatively ~Rs221bn), the balance large-tenders were mostly from the NHAI.  Mar’21 project announcements were driven by private efforts, aggregating ~Rs1trn. Of the government investment proposals, the state governments led with announcements of ~Rs578bn, followed by Central government proposals (the balance).  Odisha was the key contributor to Mar’21 investment-proposal announcements with ~Rs533bn (~31% of the total), followed by Uttar Pradesh (~14%) and Maharashtra (~10%).

Fig 15 – Mar’21 announcements of ~Rs1.7trn; FY21 announcements of ~Rs9.5trn (Rs trn) 2.1

1.8

1.5

1.2

0.9

0.6

0.3

0.0 Jul-20 Apr-20 Oct-20 Jan-21 Jun-20 Feb-21 Mar-21 Feb-20 Mar-20 Aug-20 Sep-20 Nov-20 Dec-20 May-20 Roads Buildings & Housing Water & Irrigation Power & Mining Railways Others Source: Projects Today, Anand Rathi Research

 Overall in FY21, fresh project investment proposals of ~Rs9.5trn were announced. Though down ~5% y/y, the intentions hold good as they come against the backdrop of Covid-led significant disruption in the early part of FY21.

Anand Rathi Research 7

22 April 2021 Infrastructure Sector – Upbeat ending to FY21; FY22, second Covid’19-wave to set the course

Tenders floated – up y/y, and the second highest in FY21 Like new project announcements, Mar’21 tenders (3,890) floated were also considerably higher y/y (at ~Rs889bn, up ~91% y/y). The Mar’21 tendering was the second best monthly figure in FY21, and comfortably exceeded the ~Rs647bn FY21 monthly average.  Roads (~42%), water & irrigation (~27%) and buildings & housing (~12%) projects were the three key contributors to the Mar’21 tenders floated.  Of ~Rs373bn road tenders floated in Mar’21, four issued by UPEIDA pertaining to the development of the Ganga Expressway project aggregated ~Rs221bn (~59% of the road tenders floated). The balance largely comprised tenders floated by the NHAI.  The ~Rs236bn water and irrigation tenders floated in Mar’21 were largely skewed in favour of irrigation (~Rs162bn). The rest comprised water-segment tenders (~Rs74bn).  Though the share of building & housing tenders (~12%) was down almost eleven percentage points y/y, the absolute figure of ~Rs106bn was down only ~1% y/y. Major tenders floated included two packages pertaining to the Central Vista project, totalling ~Rs13bn.  Uttar Pradesh, with ~31% of tenders floated in Mar’21, topped the chart. Among other states, Maharashtra accounted for ~5%.

Fig 16 – Mar’21 tenders floated: ~Rs889bn, FY21 tenders floated: ~Rs7.8trn (Rs trn) 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 Jul-20 Apr-20 Oct-20 Jun-20 Jan-21 Feb-20 Mar-20 Feb-21 Mar-21 Aug-20 Sep-20 Nov-20 Dec-20 May-20 Roads Buildings & Housing Water & Irrigation Power & Mining Railways Others Source: Projects Today, Anand Rathi Research

 Cumulatively, tenders for projects of ~Rs7.8trn were floated in FY21 (up ~50% y/y). The uptick in FY21 tendering, despite new project announcements being down over the same period, throws ample light on the infrastructure focus of the governments as a means to revive economic growth and boost employment opportunities.

Project awarding – FY21 awarding, comfortably ahead of the last five-year annual average To attain its twin target of job creation and revival of economic growth, the government has been making efforts through an infrastructure thrust. Besides this, the generally seen year-end spurt in awarding was at play, evident in the Mar’21 awards of ~Rs993bn. These were not only up y/y, but also the highest in the past 48 months (exceeding the previous best monthly awards of ~Rs808bn in Mar’18).  Power & mining, with a ~44% share, was the single-largest contributor

Anand Rathi Research 8

22 April 2021 Infrastructure Sector – Upbeat ending to FY21; FY22, second Covid’19-wave to set the course

to Mar’21 awarding, and the roads segment followed with ~34%. Buildings & housing (~6% share) was the third key contributing segment in Mar’21.  Power & mining awards, of ~Rs440bn, were largely led by the Siarmal Coal MDO project, of ~Rs364bn, to Dilip Buildcon (L1 declared in Nov’20, but LoA issued in Mar’21) and a ~Rs19bn overburden- removal order in Uttar Pradesh to DNC Infra. These two together accounted for ~87% of the Mar’21 awards in the segment. The segment’s balance awards largely comprised power-sector-related works of ~Rs42bn among other mining-related works.  Road awards, of ~Rs333bn, were largely driven by the NHAI, with the nodal road authority awarding as many as 29 projects aggregating ~Rs318bn (~95% of Mar’21 road awards). Of the NHAI awards, ~62% was attributable to the southern states as the authority focused on awarding packages along the Bengaluru-Chennai stretch besides other stretches in Andhra Pradesh, Telangana and Tamil Nadu.  Buildings & housing awards amounted to ~Rs62bn in Mar’21. Major projects awarded comprised 14 hospital/healthcare projects of ~Rs34bn; all predominantly awarded by the Uttar Pradesh PWD. PSP Projects (which won projects of ~Rs15bn) was one of the key beneficiaries of these. NBCC too awarded a package from the Netaji Nagar Colony redevelopment project (of ~Rs13.6bn). These awards cumulatively accounted for ~76% of the segment’s Mar’21 awards.  Railways and water & irrigation were the two key laggards in Mar’21 awarding, with a share of ~5% each.

Fig 17 – Mar’21 awards: ~Rs993bn; FY21 awards: ~Rs3.5trn (Rs trn) (%) 1.1 250 1.0 0.9 192.1 200 0.8 0.7 150 0.6 0.5 100 0.4 69.8 0.3 59.1 53.6 44.9 39.3 0.2 31.6 38.6 31.3 50 27.2 20.9 20.1 21.9 0.1 11.9 0.0 0 Jul-20 Apr-20 Oct-20 Jun-20 Jan-21 Feb-20 Mar-20 Feb-21 Mar-21 Aug-20 Sep-20 Nov-20 Dec-20 May-20 Roads Buildings & Housing Water & Irrigation Power & Mining Railways Others Tenders to awards (RHS) Source: Projects Today, Anand Rathi Research Note: Tenders to awards – current month awards / preceding month tenders

 At ~Rs3.5trn, awarding was sturdy during FY21, contrary to initial expectations of subdued awarding due to the Covid-impelled disruptions. Awards were up ~73% y/y and ahead of the ~Rs3trn five- year annual awarding average. This was largely in line with the government’s focus on infrastructure development and offered some reassurance regarding the economy despite the uncertain times. It provided ample opportunities to the companies we cover and even otherwise bolstered revenue assurance and, thus, ensure growth in coming years.

Anand Rathi Research 9

22 April 2021 Infrastructure Sector – Upbeat ending to FY21; FY22, second Covid’19-wave to set the course

Infra sector in the news

 The NHAI in figures (FY21). The National Highway Authority of Source: Media reports, industry reports and Anand Rathi Research India awarded ~4,818km of national highways in FY21 and constructed ~4,175km. . The FY21 awarding of ~4,818km spans 141 projects and entails ~Rs1.7trn capital cost. Moreover, it compares favourably with ~3,211km awarded in FY20, and ~2,222km in FY19. . The award model-mix of the projects awarded by the NHAI was only slightly skewed in favour of the EPC model (at 50%). Of the balance, 49% was attributable to the hybrid annuity model and 1% to the BOT-toll model (two projects awarded toward the close of FY21). . The pace of construction, too, was healthy at ~4,175km and compares favourably with the ~3,979km constructed in FY20, and ~3,380km in FY19. . At end-FY21, the authority had cumulatively awarded ~14,679km of the ~34,800km planned to be developed under the Bharatmala Pariyojana Phase-1. . For FY22, the NHAI aims to award ~5,000km, skewed in favour of the hybrid annuity model. Moreover, it plans to raise the share of projects awarded on the BOT-toll model, to ~5-10%.  Update on MoRTH’s FY21. Over FY21, MoRTH (excl. NHAI) awarded projects of ~5,649km and constructed ~9,123km of roads. Incl. NHAI, it awarded and constructed ~10,467km and ~13,298km respectively. . While the FY21 MoRTH (excl. NHAI) awards of ~5,649km were down ~2% y/y (compared to ~5,737km), considering the Covid- 19 context this is still commendable. . It appears project execution was better focused, reflected in the ~9,123km of roads (excl. NHAI) constructed (~1.5x the comparable FY20 figure). . Overall, MoRTH indicated that at end-FY21, including the NHAI, NHIDCL and other state agencies, road works of ~Rs9.2trn are ongoing across 2,108 projects (of ~64,010km). This compares to ~Rs6trn of ongoing works at end-FY20 (at 1,452 projects, ~50,191km).  Parliamentary panel prioritises delayed projects. A 31-member committee chaired by T G Venkatesh (the Parliamentary Panel) asked MoRTH to prioritise completing delayed highway projects of ~Rs3.15trn before announcing new projects. . The delayed 888 highway projects pertain to the development of ~27,665km of national highways. Moreover, the committee asked the NHAI to prioritise projects already delayed. . Such delays cause greater fuel consumption besides increased completion costs that have to be borne by the Ministry. . Keeping in view the delays in projects in various states, the Ministry has been asked by the Panel to evolve a delay-resolution mechanism.

Anand Rathi Research 10

22 April 2021 Infrastructure Sector – Upbeat ending to FY21; FY22, second Covid’19-wave to set the course

. If the trend continues, the Ministry would be unable to meet the targeted timeline for completion of Phase-1 of the Bharatmala Pariyojna by FY26, which is already four years behind the originally targeted completion of FY22, the Panel said. . Moreover, expressing its displeasure over the ~Rs971bn debt- servicing liability of the NHAI, the Committee asked the highway Authority to explore restructuring its existing debt as well as looking at more options to raise long-term funds.  Delhi-Mumbai Expressway project update. The NHAI will fund the ~1,250km Delhi-Mumbai Expressway project through a mix of debt and equity in the ratio of 9:1. It expects to incur ~Rs538bn (excl. land-acquisition costs of ~Rs206bn). This translates to ~Rs484bn debt and ~Rs54bn equity, to be funded by the NHAI. . The Authority has already set up an AAA-rated, fully-owned SPV to execute the expressway project . Moreover, the NHAI has already secured ~Rs97bn from a consortium of The State Bank of India, The Punjab National Bank, The Bank of Maharashtra and Axis Bank and expects to soon tie up with other institutions for the balance ~Rs387bn debt required. . The larger project is to be executed under 48 packages. Of these, 17 are on the hybrid annuity model (along the Vadodara-Mumbai stretch) and the balance 31 are under the EPC model. . Of these 48 packages, 27 are now being executed, 17 have been awarded but work has yet to commence and the balance have yet to be awarded. . Scheduled for Mar’23 completion, Crisil estimates the overall project to have monetisation potential of ~Rs500bn-800bn.

Anand Rathi Research 11

22 April 2021 Infrastructure Sector – Upbeat ending to FY21; FY22, second Covid’19-wave to set the course

Fig 18 – Valuation snapshot Price to Earnings (x)* Price to BV (x) EV / EBITDA (x)* RoE (%) RoCE (%) M Cap CMP Target Companies Rating (Rs bn) (Rs) (Rs) FY22e FY23e FY22e FY23e FY22e FY23e FY22e FY23e FY22e FY23e Dilip Buildcon Hold 81 595 590 13.5 10.1 1.9 1.6 5.6 4.9 11.6 13.7 17.5 18.6 NBCC (India) Hold 72 40 38 18.0 14.3 3.9 3.4 10.3 7.8 18.0 20.0 30.4 32.9 PNC Infratech Buy 61 236 311 10.6 9.1 1.8 1.6 6.1 5.2 15.3 15.4 22.0 22.0 KNR Construction Hold 57 202 250 16.6 14.6 2.6 2.3 8.6 7.3 15.6 15.3 23.6 23.0 NCC Limited Hold 46 75 96 8.4 7.5 0.8 0.7 4.8 4.2 8.8 9.1 16.0 16.6 IRB Infrastructure Buy 37 104 144 3.5 2.9 0.6 0.6 5.3 4.9 -1.1 -3.7 10.2 11.2 Ashoka Buildcon Buy 24 84 147 3.5 3.1 0.7 0.6 3.3 2.7 12.4 12.2 17.3 17.1 Ahluwalia Contracts Hold 19 286 340 14.4 11.8 1.9 1.7 7.1 5.7 13.8 14.7 22.5 23.5 HG Infra Buy 17 266 382 6.1 5.6 1.4 1.2 3.7 3.8 20.9 18.9 25.4 23.3 J Kumar Infraprojects Buy 14 179 239 6.1 5.2 0.6 0.6 2.9 2.6 11.1 11.6 15.2 15.7 JMC Projects Buy 13 76 101 9.5 7.5 1.1 1.0 4.7 4.1 11.8 13.2 16.0 17.3 ITD Cementation Hold 13 74 76 11.9 11.7 1.1 1.0 5.0 4.2 9.8 9.2 15.2 16.4 Sadbhav Engineering Hold 10 60 90 7.9 4.6 0.5 0.4 5.1 4.1 4.3 7.0 9.8 11.8 Gayatri Projects Hold 5 27 70 3.0 2.3 0.4 0.4 3.3 3.0 15.5 16.9 18.4 19.4 PSP Projects NR 15 413 NR 11.5 9.6 2.4 2.0 6.9 5.6 22.6 22.4 28.7 29.2 Capacit'e Infra NR 13 187 NR 11.4 7.9 1.2 1.1 4.1 4.1 11.4 14.7 16.5 20.0 Source: Company, Anand Rathi Research Price on 20th Apr’21 *excl. investments NR – not rated

Fig 19 – Stock performance Absolute price performance (%) Relative price performance (%) – vs. the Nifty Companies 1-month 3-month 6-month 12-month Companies 1-month 3-month 6-month 12-month Ahluwalia Contracts (5.9) 4.3 28.2 52.2 Ahluwalia Contracts (2.9) 6.3 8.4 (7.0) Ashoka Buildcon (18.6) (10.4) 35.8 21.9 Ashoka Buildcon (15.6) (8.3) 16.1 (37.2) Dilip Buildcon (1.2) 40.1 83.1 118.6 Dilip Buildcon 1.8 42.1 63.4 59.5 Gayatri Projects (13.8) (36.2) 32.3 183.0 Gayatri Projects (10.8) (34.2) 12.5 123.8 HG Infra Engineering (1.7) 18.7 48.3 42.1 HG Infra Engineering 1.3 20.7 28.5 (17.1) IRB Infrastructure (5.8) (11.8) (6.2) 27.6 IRB Infrastructure (2.8) (9.7) (26.0) (31.6) ITD Cementation (6.6) 6.0 46.5 75.8 ITD Cementation (3.6) 8.0 26.7 16.6 J Kumar Infraprojects (5.1) 22.9 66.6 100.7 J Kumar Infraprojects (2.1) 24.9 46.8 41.5 JMC Projects (2.5) 10.4 55.9 70.3 JMC Projects 0.5 12.4 36.1 11.1 KNR Construction (1.8) 10.6 64.1 78.6 KNR Construction 1.2 12.6 44.4 19.4 NBCC (11.8) 22.5 71.7 67.7 NBCC (8.7) 24.5 51.9 8.5 NCC (11.2) 24.5 126.4162.5 NCC (8.2) 26.5 106.7103.3 PNC Infratech (3.9) 25.8 40.1 73.9 PNC Infratech (0.9) 27.8 20.3 14.7 Sadbhav Engineering (9.6) (0.2) 23.0 89.0 Sadbhav Engineering (6.6) 1.8 3.2 29.8 Sadbhav Infrastructure (10.6) 0.3 16.9 46.0 Sadbhav Infrastructure (7.5) 2.3 (2.9) (13.2) Not Rated Capacit’e Infraprojects (4.7) 8.8 39.7 106.3 Capacit’e Infraprojects (1.6) 10.8 20.0 47.2 MEP Infrastructure (12.8) (14.7) 8.1 13.3 MEP Infrastructure (9.7) (12.7) (11.7) (45.9) PSP Projects (12.1) 1.9 4.7 13.8 PSP Projects (9.1) 3.9 (15.0) (45.4) Simplex Infrastructure (14.8) (30.9) (11.4) 5.4 Simplex Infrastructure (11.7) (28.9) (31.2) (53.8) Welspun Enterprises (14.7) 19.7 25.7 77.9 Welspun Enterprises (11.7) 21.7 5.9 18.7 Nifty (3.0) (2.0) 19.8 59.2 Nifty 0.0 0.0 0.0 0.0 Source: Bloomberg

Anand Rathi Research 12

22 April 2021 Infrastructure Sector – Upbeat ending to FY21; FY22, second Covid’19-wave to set the course

Fig 20 – Top tenders floated in Mar’21, amounting to ~Rs465bn Value Issuing authority Project details Industry State (Rs bn) Ganga Expressway (Group-III) - Access-controlled six-lane greenfield expressway from UPEIDA 58.1 Roadways Uttar Pradesh Meerut-Prayagraj (length - 155.7km) Central Coalfields Development and operationalisation of Sanghamitra OCP (North Karanpura Coalfields) 57.5 Mining Jharkhand Ganga Expressway (Group-II) - Access-controlled six-lane greenfield expressway from UPEIDA 56.5 Roadways Uttar Pradesh Meerut-Prayagraj (length - 151.7km) Ganga Expressway (Group-IV) - Access-controlled six-lane greenfield expressway from UPEIDA 56.3 Roadways Uttar Pradesh Meerut-Prayagraj (length - 156.8km) Narmada Valley Devp. Construction, O&M of Chinki and Boras barrages, power house with all ancillary works, piped Water & Madhya 54.3 Authority irrigation system Marine Pradesh Ganga Expressway (Group-I) - Access-controlled six-lane greenfield expressway from UPEIDA 50.4 Roadways Uttar Pradesh Meerut to Prayagraj (length - 129.7km) Narmada Valley Devp. Water & Madhya Execution of Sanwer micro lift-irrigation scheme in Indore 29.6 Authority Marine Pradesh Jammu & NHAI Four-laning of Ramban to Banihal Section of NH-1A, (Package-I, length - 4.4km) 12.5 Roadways Kashmir Water & HWSSB* Construction of intake well and pumping station at Sunkishala 11.7 Telangana Marine Jammu & NHAI Four-laning of Ramban to Banihal Section of NH-1A, (Package-II, length - 6km) 10.3 Roadways Kashmir Design & construction of elevated viaduct for Indore metro-rail project yellow line (length - Madhya MP Metro Rail Corporation 10.0 Railways 10.9km) Pradesh Narmada Valley Devp. Construction of upper Narmada project on the Narmada river – micro-irrigation system in Water & Madhya 9.8 Authority Dindori district Marine Pradesh Narmada Valley Devp. Construction of Upper Narmada project on the Narmada river – micro-irrigation system in Water & Madhya 9.0 Authority Dindori and Anuppur Marine Pradesh Construction of captive POL/ LPG marine jetty and associated facilities at Kamarajar Port, Water & Indian Oil Corporation 7.9 Tamil Nadu Ennore Marine Jammu & NHAI Four-laning of Ramban to Banihal Section of NH-1A, (Package-III, length - 6.8km) 6.7 Roadways Kashmir Supply of an E&M system, including GIS substations for some tunnels on the Dharam-Katra Jammu & Ircon International 6.1 Railways Section Kashmir Execution of three individual mega-PWS to Kalahandi district incl. a five-year O&M Water & RWSSD^ 4.8 Odisha (Package-I) Marine Design and construction of flat-type high-rise residential buildings for MIG at Chandkheda, Buildings & Gujarat Housing Board 4.7 Gujarat Ahmedabad Housing Buildings & Delhi Development Authority Slum rehab / redevelopment of the JJ cluster at District Centre, Dilshad Garden, Delhi 4.7 Delhi Housing Land acquisition, design, engineering & construction of 100MW solar photovoltaic grid- Coal India 4.5 Power Gujarat connected power plant Total 465.3 Source: Projects Today HWSSB* - Hyderabad Metro. Water Supply & Sewerage Board; RWSSD^ - Rural Water Supply & Sanitation Department

Fig 21 – Top-15 orders, of ~Rs606bn, awarded during Mar’21 Awarding authority Awardee Value (Rs bn) Industry State Mahanadi Coalfields Dilip Buildcon 364.2 Mining Odisha Uttar Pradesh State Water & Sanitation Mission Kaveri Infra Project 25.0 Water & Marine Uttar Pradesh NHAI KNR Constructions 23.7 Roadways Kerala NHAI Oriental Structural Engineers 21.2 Roadways Tamil Nadu NHAI KNR Constructions 19.1 Roadways Kerala NHAI Apco Infratech Pvt. Ltd. 19.1 Roadways Andhra Pradesh Northern Coalfields DNC Infrastructure 18.6 Mining Uttar Pradesh MMRDA Bombardier Transportation India 18.5 Railways Maharashtra NHAI Uralungal Labour Contract Co-op Soc 17.0 Roadways Kerala Undisclosed Kalpataru Power Transmission 15.5 Power Various states MMRDA J Kumar Infraprojects 13.9 Railways Maharashtra NBCC (India) NKG Infrastructure 13.6 Buildings & Housing Delhi NHAI Dilip Buildcon 12.8 Roadways Karnataka NHAI Dilip Buildcon 12.3 Roadways Various states Ministry of Defence, GoI Bharat Dynamics 11.9 Others Unallocated Total 606.4 Source: Projects Today

Anand Rathi Research 13

Appendix

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Anand Rathi Ratings Definitions Analysts’ ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (US$1bn) >15% 5-15% <5% Mid/Small Caps (25% 5-25% <5%

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