NCDIssueNoteNationalHighwayAuthorityofIndia

Issuer Issue Recommendation Acceptance IssueDate BookRunningLeadManager Listingdate Registrar Trustee Stockexchangeproposedforlisting Tradinglot InstrumentForm Depositories Rating Sector Detailsoftheissue NCDOptions Tenor(inyears) Put/Calloption Interestpayment MinimumApplication InMultiplesof FaceValueofNCDs(Rs/NCD) IndividualsandHUFwithapplicationuptoRs5lakhs(30%ofissuesize) Coupon(Annual) IndividualsandHUFwithapplicationaboveRs5lakhs(30%ofissuesize) Coupon(Annual) InstitutionalInvestorsandCorporatebodies(40%ofissuesize) Coupon(Annual)
Companydata,NirmalBangResearch

NationalHighwayAuthorityofIndia PublicIssueoftaxfreeNCDsaggregatingtoRs.5000crswithanoptiontoretain oversubscriptionuptoRs.5000crsfor issuanceofadditionalNCDs. SUBSCRIBE ONFIRSTCOMEFIRSTSERVEBASISforHNI,InstitutionalInvestorsandPRORATA basisforRetailInvestors 28thDecember201111thJanuary2012 SBICapitalMarketsLtd,AKcapitalServicesLtd,ICICISecurities,KotakInvestBanking Within30daysofclosureoftheissue MCSLimited SBICAPTrusteeCompanyLtd NSEandBSE 1NCD InDemataswellasinphysicalform NSDLandCDSL AAA/StablebyCRISIL,FitchAAA(Ind)byFitchandCAREAAAbyCARE Infrastructure

I 10 None Annual Rs50,000 Rs10,000 Rs1,000 8.2% 8.2% 8.2%

II 15 None Annual Rs50,000 Rs10,000 Rs1,000 8.3% 8.3% 8.3%

SilkyJainResearchAnalyst Ph(022)39268178 EMail:silky.jain@nirmalbang.com

NCDIssueNoteNationalHighwayAuthorityofIndia
Background

National Highway Authorities of India (NHAI) is an autonomous authority of the GoI. It got operationalizedin1995andisgovernedbyNHAIActandRules.Itisanodalagencyfordevelopment of National Highway (NH) Projects under National Highway Development Project (NHDP) and allied 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 and provide consultancy and construction services and to collect fees for services and benefitsrenderedbythecompany. Since its inception, the mode of implementation of projects under NHDP has undergone significant change.InitiallytheimplementationwasthroughEPCmode.However,since2005theGoIhasdecided to implement projects on Public Private Partnership (PPP) mode (BOT Toll/Annuity or Operation, ManagementandTransfer(OMT).NHAIhasplayedasignificantroleindevelopingapproachesforPPP andactualimplementationonalargenumberofprojects.Ason31stAug2011,NHAIhaveawarded 141BOTTollbasedcontractsvaluedatRs.104,984crsand49BOTAnnuitybasedcontractsvaluedat Rs.29,081crthroughPPPmode. Year FY200607 FY200708 FY200809 FY200910 FY201011 FY201112(uptoSept2011)
Source:NHAI

Completion(kms) 636 1,684 2,205 2,693 1,783 682

Award(kms) 1,730 1,234 643 3,359 5,058 2,476

NHAI relies a lot on outsourcing a number of activities like design, construction, operation, maintenanceetc.NHAIreceivesitsfundingfrom: (i)Governmentsupportintheformofcapitalbase,cessfund,additionalbudgetarysupport,capital grant,maintenancegrant,ploughingbackoftollrevenueandloanfromGoI: (ii)loanfrommultilateralagenciesand (iii)marketborrowings. Duringtheyear201011,asumofRs.8,440crswasreceivedfromGoIasCessFunds.InadditionRs. 843crwerereceivedtowardsdevelopmentofNationalHighways.

NCDIssueNoteNationalHighwayAuthorityofIndia
ObjectsoftheIssue The funds raised will be used for financing of various projects being implemented by the NHAI undertheNHDPandotherNationalHighwaysasapprovedbytheGovernmentofIndia. CreditRating TheproposedNCDissueshavebeenratedAAA/StablebyCRISILwhichindicateshighsafetyfor timelypaymentofinterestandprincipalontheNCDs.CAREhasgivenratingofAAAandFitchhas assigned Fitch AAA (Ind) rating which indicates high safety for timely servicing of debt obligations. Debttoequityratio ThedebtequityratiopriortothisIssueis0.11timesbasedonatotaloutstandingconsolidated debtofRs6,636crsandconsolidatedshareholderfundsamountingtoRs5,817crsasonJune30, 2011. The debt equity ratio post the Issue, (assuming subscription of NCDs aggregating to Rs 10,000crs)wouldbe0.29times. Quasigovernmentbody As NHAI is a quasi government body, it gets budgetary support from the central government whichisanadditionalfactorindicatingsafetyfortheinvestors. Taxfree TheincomebywayofinterestontheseBondsisfullyexemptfromIncomeTaxandshallnot formpartofTotalIncomeundersection10(15)(iv)(h)ofIncomeTaxAct1961. There will be no deduction of tax at source (TDS) from the interest, which accrues to the bondholders in these bonds irrespective of the amount of interest or the status of the investors. Wealthtaxwillnotbeapplicableonthesebondsundersection2(ea)ofWealthtaxAct1957. InterestonApplicationmoney Outoftotalapplicationamount,applicantswillgetinterestatcouponrateforamountallotted and 4% foramount refunded for the period between 3 days after the receipt of application or realization of cheque/demand draft whichever is later upto 1 day prior to deemed date of allotment. Priorityofallotment If there is any under subscription in any Portion, priority in allotments will be given in the followingorder: CategoryIIIRetail CategoryIIHNI CategoryIQIBs

NCDIssueNoteNationalHighwayAuthorityofIndia
ClosingofIssue Issue can get closed if the aggregate amount of collection exceeds the prescribed issue size without considering individual category subscription. For example if retail portion has got collectionofRs2,000crsandinaggregatecollectionshaveexceededRs10,000crthenNHAIcan closetheissue. Recommendation: We believe that the NCD from NHAI is a good investment opportunity for investors for long term. As interestratesareexpectedtocomedowngraduallywebelievethatitistherighttimefortheinvestorsto lockintheircapitalatahigherinterestrate.Highercreditratingandgovernmentbackedsecurityalong withthecreditworthinessoftheissueandliquidityprovidedaresomeoftheadvantageswhichcomewith theissue. Posttaxyields TaxRate 10years 15years 8.2%coupon 8.3%coupon 10.3% 9.14% 9.25% 20.6% 10.33% 10.45% 30.9% 11.87% 12.01%
Companydata,NirmalBangResearch

KeyConcerns Changeininterestrates Increasingratesofinterest,resultingfromhigherinflationarelikelytohaveanegativeeffect onthepriceoftheNCDs. Lackofliquidity ThoughNCDsarelistedonthestockexchange,thereisaproblemofliquidityinthemarkets.

NCDIssueNoteNationalHighwayAuthorityofIndia
FinancialStatements
IncomeStatement(Rsincrs) INCOME a)ValueofWorkdone b)Otherincome c)Interest(Gross) d)GrantinaidformaintenanceofHighways e)NetIncrease/Decreaseinworkinprogress Total EXPENDITURE ConstructionStores/MaterialConsumed Personnel&AdministrativeExp FinanceCharges Depreciation AssetsofSmallValueChargedOff Total Profit(+)/Loss()fortheyear Add:PriorPeriodItemsnet(+/) Less:NetEstablishmentExpenses Less/Add:ProvisionforTaxation NetProfit
Companydata,NirmalBangResearch

FY2007

FY2008

FY2009

FY2010

FY2011

127 0

224 1

12 0

37 1

38 0

127

225

13

38

38

65 0 8 0 73 54 15 0 0 69

65 0 5 0 71 154 3 0 0 151

101 0 4 0 105 93 10 103 0 0

111 0 3 0 115 77 6 83 0 0

144 0 6 0 150 112 5 117 0 0

TheprofitandlossaccountofNHAIappearsdistortedmainlybecauseitincludesonlyincomefromsaleof tender documents. However, collection from cess on fuels is not included in the P&L statement and is capitalizedinthebalancesheetundertheheadCapital. Thehighercreditratingsfromtheratingagencyarebasedonthestrongfinancialpositionbecauseofthe supportfromGoIintheformofcessonfuels,budgetaryallocationsandflexibilitytoraisefundsfromthe capitalmarket. GoI levies cess of Rs 2 on every litre of petrol and diesel sold in the market. A portion of this cess is passedontheNHAI.ThesefundsarebeingusedbytheNHAIfortherepaymentofprincipalandinterest againstmarketborrowings.

NCDIssueNoteNationalHighwayAuthorityofIndia

BalanceSheet(Rsincrs) SOURCESOFFUNDS Shareholders'Fund a)Capital b)Reserves&Surplus Grants a)Capital Borrowings Total APPLICATIONOFFUNDS FixedAssets a)GrossBlock b)Less:Depreciation c)NetBlock d)Less:AssetscreatedoutofGrants e)(i)CapitalWorkinProgress (ii)Expenditureoncompletedproject TotalFixedAsset Investment CurrentAssets,Loans&Advances Deposits,Loans&Advances Interestaccruedondeposit Cash&BankBalance Less:CurrentLiabilitiesandProv a)Liabilities b)Provisions NetCurrentAssets Total
Companydata,NirmalBangResearch

FY2007

FY2008

FY2009

FY2010

FY2011

22,612 1,441 0 9,799 4,923 38,774

29,712 1,759 0 11,574 5,008 48,053

36,843 1,765 0 13,087 5,590 57,286

44,448 412 0 13,357 5,123 63,340

55,195 412 0 13,676 6,801 76,084

71 32 39 8 15,131 17,642 32,804 835

71 37 34 6 21,852 21,082 42,962 873

73 40 33 6 28,774 25,158 53,959 919

76 43 32 6 34,025 31,520 65,571 1,049

85 49 36 6 37,848 41,316 79,194 1,076

3,951 85 4,805 8,840 3,700 4 3,704 5,136 38,774

3,499 35 5,418 8,953 4,729 5 4,734 4,218 48,053

3,071 52 5,236 8,359 5,943 8 5,951 2,408 57,286

3,059 10 2,452 5,520 8,792 9 8,801 3,281 63,340

3,108 6 2,866 5,980 10,154 12 10,166 4,186 76,084

NCDIssueNoteNationalHighwayAuthorityofIndia

NOTE
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