The Metro Rail sector (MRS) has seen strong traction in the last couple of years and is expected to provide sizeable opportunities for construction companies over the next three to five years due to a strong pipeline of projects which are in the approval/planning stage. Development of the Metro Rail is being planned in over 30 Indian cities, most of which have a population of over 1 million. Currently, the metro rail network (MRN) is operational/partly operational in nine cities and another five cities have under-implementation metro projects.
In addition to the extension of the MRN in these cities, a new Metro Rail is to be developed in another 15-20 cities. The overall cost of expansion of operational/ under implementation approved metro projects is over Rs 2.5 lakh crore, thus supporting the order books of construction contractors. Further, Metro Rail projects (MRP) worth another Rs. 2 lakh crore are in various stages of approvals and are likely to come up for bidding within the next five years. This is expected to boost the order book of construction companies by Rs. 75,000-90,000 crore over the next three to five years.
MRPs are capital intensive and both the Central and the State Governments provide financial support in the form of equity and grants. The remaining funds are raised in the form of senior / subordinate debt from the scheduled banks or multilateral agencies like Japan International Cooperation Agency (JICA), Agence Française de Développement (AFD), European Investment Bank (EIB), Germany’s KfW (KfW), etc. JICA alone has sanctioned most funds for various metro projects in India, generally in the form of Pass Through Assistance, which in effect has a sovereign guarantee and hence carry very low interest rates, moratorium period (generally 5-10 years), and long maturity profile (~30 years).
The public private partnership (PPP) in the MRS is limited and only five such projects have been taken up on a PPP mode. Of this, one project (Mumbai Metro Ph-2) was terminated before the start while another one (Delhi Airport Line) was terminated after becoming operational. Currently, there are three operational PPP-based metro projects (one in Mumbai, and two in Gurugram) while one project is under implementation (Hyderabad Metro).
According to Shubham Jain, Vice-President and Sector-Head, Corporate Ratings, ICRA: “The PPP participation in metro rail projects has been limited thus far, to encourage PPP would require adequate risk allocation in the concession agreements, availability of the low cost debt funding, and the presence of a robust dispute resolution mechanism.”
Many large Indian construction companies have taken up projects in the MRS, while ITD Cementation has bagged highest number of EPC projects, L&T has exposure to both EPC and PPP contracts and is developing the largest metro rail PPP project (Hyderabad Metro). Other companies like Afcons, NCC, and IL&FS Group also have sizeable metro contracts.
Commenting on this opportunity, Mr. K. Ravichandran, Senior Vice-President and Group-Head, Corporate Ratings, ICRA, said: “Roads and urban infrastructure, including Metro Rails are two key segments which have witnessed robust order inflows for the construction companies. Further, with sizeable pipeline of projects in these segments, the construction sector is expected to have sufficient order inflows and companies with strong track record and healthy balance sheet are expected to exhibit strong growth going forward.”
Your email address will not be published. Required fields are marked *
Save my name, email, and website in this browser for the next time I comment.
Sign me up for the newsletter!
Notify me of follow-up comments by email.
Notify me of new posts by email.
The Ministry of Civil Aviation & DGCA & AAI in joi9nt operation with Airlines deliver essential medications and medical equipment
Magic of Unseen: TECNO Mobile Brings Wizkid and Guinness World Record™ Title to Africa’s first online launch
Neighbourhood Supply: An app that helps locate essentials supplies with your locality
EBRD appoints first Chief Accountability Officer
KEI Industries Ltd. extends support to ISKCON Delhi to feed more than 2 lakh homeless daily
2014 The Global Indian New Network (TGINN)