Nhai Ncd Note_27122011

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NCDIssueNote NationalHighwayAuthorityofIndia

Detailsoftheissue

NCD

Options

I

II

Tenor(inyears) 10 15

Put/Calloption None None

Interestpayment Annual Annual

MinimumApplication Rs50,000 Rs50,000

InMultiplesof Rs10,000 Rs10,000

FaceValueofNCDs(Rs/NCD) Rs1,000 Rs1,000

IndividualsandHUFwithapplicationuptoRs5lakhs(30%ofissuesize)Coupon(Annual) 8.2% 8.3%

IndividualsandHUFwithapplicationaboveRs5lakhs(30%ofissuesize)Coupon

(Annual)

8.2%

8.3%

InstitutionalInvestorsandCorporatebodies(40%ofissuesize)Coupon(Annual) 8.2% 8.3%

Companydata,NirmalBangResearch

SilkyJainResearchAnalyst

Ph(022)39268178

EMail: [email protected]

Issuer NationalHighwayAuthorityofIndia

Issue

Public

Issue

of

tax

free

NCDs

aggregating

to

Rs.5000

crs

with

an

option

to

retain

oversubscriptionuptoRs.5000crsforissuanceofadditionalNCDs.Recommendation SUBSCRIBE

Acceptance ONFIRSTCOMEFIRSTSERVEBASISforHNI,InstitutionalInvestorsandPRORATA

basisforRetailInvestors

IssueDate 28th

December201111th

January2012

BookRunningLeadManager SBICapitalMarketsLtd,AKcapitalServicesLtd,ICICISecurities,KotakInvestBanking

Listingdate Within30daysofclosureoftheissue

Registrar MCSLimited

Trustee

SBICAPTrustee

Company

Ltd

Stockexchangeproposedforlisting NSEandBSE

Tradinglot 1NCD

InstrumentForm InDemataswellasinphysicalform

Depositories NSDLandCDSL

Rating AAA/StablebyCRISIL,FitchAAA(Ind)byFitchandCAREAAAbyCARE

Sector Infrastructure

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Background

NationalHighway

Authorities

of

India

(NHAI)

is

an

autonomous

authority

of

the

GoI.

It

got

operationalizedin1995andisgovernedbyNHAIActandRules.Itisanodalagencyfordevelopment

ofNationalHighway (NH)ProjectsunderNationalHighwayDevelopmentProject (NHDP)andallied

programmes approved by the GoI. NHAI is responsible for the development, maintenance and

management of the NH entrusted to it by the GoI. Its functions include survey, development,

maintenanceandmanagementoftheNHandtoconstructoffices,toestablishhotels,restaurantsand

restroomsatornearhighwaysvestedinorentrustedtoit,toregulateandcontrolplyingofvehicles,

to develop andprovide consultancy and construction services and to collect fees for services and

benefitsrenderedbythecompany.

Since its inception, themodeof implementationofprojectsunderNHDPhasundergone significant

change.

Initially

the

implementation

was

through

EPC

mode.

However,

since

2005

the

GoI

has

decided

to implement projects on Public Private Partnership (PPP)mode (BOT Toll/Annuity orOperation,

ManagementandTransfer(OMT).NHAIhasplayedasignificantroleindevelopingapproachesforPPP

andactual implementationona largenumberofprojects.Ason31stAug2011,NHAIhaveawarded

141BOTTollbasedcontractsvaluedatRs.104,984crsand49BOTAnnuitybasedcontractsvaluedat

Rs.29,081crthroughPPPmode.

Year Completion(kms) Award(kms)

FY200607 636 1,730

FY200708 1,684 1,234

FY200809 2,205 643

FY200910 2,693 3,359

FY201011 1,783 5,058

FY201112(uptoSept2011) 682 2,476

Source:NHAINHAI relies a lot on outsourcing a number of activities like design, construction, operation,

maintenanceetc.NHAIreceivesitsfundingfrom:

(i)Governmentsupport intheformofcapitalbase,cessfund,additionalbudgetarysupport,capital

grant,maintenancegrant,ploughingbackoftollrevenueandloanfromGoI:

(ii)loanfrommultilateralagenciesand

(iii)marketborrowings.

Duringthe

year

2010

11,

asum

of

Rs.

8,440

crs

was

received

from

GoI

as

Cess

Funds.

In

addition

Rs.

843crwerereceivedtowardsdevelopmentofNationalHighways.

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ObjectsoftheIssueThe funds raisedwillbeused for financingofvariousprojectsbeing implementedby theNHAI

underthe

NHDP

and

other

National

Highways

as

approved

by

the

Government

of

India.

CreditRatingTheproposedNCD issueshavebeenratedAAA/StablebyCRISILwhich indicateshighsafetyfor

timelypaymentofinterestandprincipalontheNCDs.CAREhasgivenratingofAAAandFitchhas

assigned Fitch AAA (Ind) rating which indicates high safety for timely servicing of debt

obligations.

DebttoequityratioThedebtequityratiopriortothisIssue is0.11timesbasedonatotaloutstandingconsolidated

debtofRs6,636crsandconsolidatedshareholderfundsamountingtoRs5,817crsasonJune30,

2011.The

debt

equity

ratio

post

the

Issue,

(assuming

subscription

of

NCDs

aggregating

to

Rs

10,000crs)wouldbe0.29times.

QuasigovernmentbodyAsNHAI isaquasi governmentbody, it getsbudgetary support from the central government

whichisanadditionalfactorindicatingsafetyfortheinvestors.

Taxfree TheincomebywayofinterestontheseBondsisfullyexemptfromIncomeTaxandshallnotformpartofTotalIncomeundersection10(15)(iv)(h)ofIncomeTaxAct1961.

Therewillbenodeductionof taxat source (TDS) from the interest,whichaccrues to thebondholders

in

these

bonds

irrespective

of

the

amount

of

interest

or

the

status

of

the

investors.

Wealthtaxwillnotbeapplicableonthesebondsundersection2(ea)ofWealthtaxAct1957. InterestonApplicationmoney

Outoftotalapplicationamount,applicantswillget interestatcouponrateforamountallotted

and4% foramountrefunded for theperiodbetween3daysafterthereceiptofapplicationor

realization of cheque/demand draft whichever is later upto 1 day prior to deemed date of

allotment.

PriorityofallotmentIf there is any under subscription in any Portion, priority in allotments will be given in the

followingorder:

CategoryIII Retail

CategoryII HNI

CategoryI QIBs

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ClosingofIssueIssue can get closed if the aggregate amount of collection exceeds the prescribed issue size

withoutconsidering

individual

category

subscription.

For

example

if

retail

portion

has

got

collectionofRs2,000crsandinaggregatecollectionshaveexceededRs10,000crthenNHAIcan

closetheissue.

Recommendation:

Webelieve that theNCD fromNHAI is a good investmentopportunity for investors for long term.As

interestratesareexpectedtocomedowngraduallywebelievethatitistherighttimefortheinvestorsto

lock intheircapitalatahigher interestrate.Highercreditratingandgovernmentbackedsecurityalong

withthecreditworthinessoftheissueandliquidityprovidedaresomeoftheadvantageswhichcomewith

theissue.

Posttax

yields

TaxRate 10years 15years

8.2%coupon 8.3%coupon10.3% 9.14% 9.25%

20.6% 10.33% 10.45%

30.9% 11.87% 12.01%Companydata,NirmalBangResearch

KeyConcerns

ChangeininterestratesIncreasingratesofinterest,resultingfromhigherinflationarelikelytohaveanegativeeffect

onthepriceoftheNCDs.

LackofliquidityThoughNCDsarelistedonthestockexchange,thereisaproblemofliquidityinthemarkets.

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FinancialStatements

IncomeStatement

(Rs

in

crs) FY2007 FY2008 FY2009 FY2010 FY2011

INCOME

a)ValueofWorkdone

b)Otherincome 127 224 12 37 38

c)Interest(Gross) 0 1 0 1 0

d)GrantinaidformaintenanceofHighways

e)NetIncrease/Decreaseinworkinprogress

Total 127 225 13 38 38

EXPENDITURE

ConstructionStores/MaterialConsumed

Personnel

&

Administrative

Exp 65 65 101 111 144FinanceCharges 0 0 0 0 0

Depreciation 8 5 4 3 6

AssetsofSmallValueChargedOff 0 0 0 0 0

Total 73 71 105 115 150

Profit(+)/Loss()fortheyear 54 154 93 77 112

Add:PriorPeriodItemsnet(+/) 15 3 10 6 5

Less:NetEstablishmentExpenses 0 0 103 83 117

Less/Add:ProvisionforTaxation 0 0 0 0 0

NetProfit 69 151 0 0 0


TheprofitandlossaccountofNHAIappearsdistortedmainlybecauseitincludesonlyincomefromsaleof

tenderdocuments.However,collection fromcesson fuels isnot included in theP&Lstatementand is

capitalizedinthebalancesheetundertheheadCapital.

Thehighercreditratingsfromtheratingagencyarebasedonthestrongfinancialpositionbecauseofthe

supportfromGoIintheformofcessonfuels,budgetaryallocationsandflexibilitytoraisefundsfromthe

capitalmarket.

GoI levies cessofRs2onevery litreofpetrolanddiesel sold in themarket.Aportionof this cess is

passedontheNHAI.ThesefundsarebeingusedbytheNHAIfortherepaymentofprincipalandinterest

againstmarketborrowings.

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BalanceSheet

(Rs

in

crs) FY2007 FY2008 FY2009 FY2010 FY2011

SOURCESOFFUNDS

Shareholders'Funda)Capital 22,612 29,712 36,843 44,448 55,195

b)Reserves&Surplus 1,441 1,759 1,765 412 412

Grants 0 0 0 0 0

a)Capital 9,799 11,574 13,087 13,357 13,676

Borrowings 4,923 5,008 5,590 5,123 6,801

Total 38,774 48,053 57,286 63,340 76,084

APPLICATIONOFFUNDS

FixedAssetsa)

Gross

Block 71 71 73 76 85

b)Less:Depreciation 32 37 40 43 49

c)NetBlock 39 34 33 32 36

d)Less:AssetscreatedoutofGrants 8 6 6 6 6

e)(i)CapitalWork in Progress 15,131 21,852 28,774 34,025 37,848

(ii)Expenditureoncompletedprojec 17,642 21,082 25,158 31,520 41,316

TotalFixedAsset 32,804 42,962 53,959 65,571 79,194

Investment 835 873 919 1,049 1,076CurrentAssets,Loans&AdvancesDeposits,Loans&Advances 3,951 3,499 3,071 3,059 3,108

Interestaccruedondeposit 85 35 52 10 6

Cash&BankBalance 4,805 5,418 5,236 2,452 2,866

8,840 8,953 8,359 5,520 5,980

Less:CurrentLiabilitiesandProva)Liabilities 3,700 4,729 5,943 8,792 10,154

b)Provisions 4 5 8 9 12

3,704 4,734 5,951 8,801 10,166

NetCurrentAssets 5,136 4,218 2,408 3,281 4,186Total 38,774 48,053 57,286 63,340 76,084


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NOTE

Disclaimer

ThisDocumenthasbeenpreparedbyNirmalBangResearch (ADivisionofNirmalBangSecuritiesPVTLTD).The information,analysisandestimatescontainedhereinarebasedonNirmalBangResearchassessmentandhavebeenobtainedfromsourcesbelievedtobereliable.Thisdocument ismeantfortheuseofthe intendedrecipientonly.Thisdocument,atbest,representsNirmal Bang Research opinion and is meantfor general information only. Nirmal Bang Research, its directors, officers oremployeesshallnotinanywayberesponsibleforthecontentsstatedherein.NirmalBangResearchexpresslydisclaimsanyandallliabilitiesthatmayarisefrominformation,errorsoromissionsinthisconnection.Thisdocumentisnottobeconsideredasanoffertosellorasolicitationtobuyanysecurities.NirmalBangResearch,itsaffiliatesandtheiremployeesmayfromtimetotimeholdpositions in securities referred to herein.NirmalBang Research or its affiliatesmayfrom time to time solicitfrom orperforminvestmentbankingorotherservicesforanycompanymentionedinthisdocument

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Nhai Ncd Note_27122011