Executive Summary & Investment Argument DS Constructions Ltd., a part of the US$1bn DSC Group, is one of the fastest growing and most profitable construction companies, which has built up a high-margin EPC construction business complemented by an excellent portfolio of investments in flagship BOOT projects, which are arguably some of the best in the country. The company is evaluating the alternatives for a pre-ipo placement of upto US$75 mn which would enable benchmark the value of the company’s construction business and BOOT assets prior to going in for an IPO, possibly in Q1FY 2007. The company is part of the DSC Group which also has interests in UK (Elegant English Hotels), US, (Universal Granite & Marble), Libya and Middle East. The Group is headed by Shri H S Narula, a UK based NRI who has pioneered and built up the group across the globe. At a time when most of the other firms moved out of Libya during the tough phase of sanctions, the DSC Empire was initially built around Mr. Narula’s determination and their ability to survive and thrive in Libya and his entrepreneurial spirit has played a key role in the progress of the company. In D.S. Constructions, India he is supported by a team of professionals lead by Shri S.K. Dixit, who is a graduate from IIT Kanpur and has over 20 years experience in the construction sector including as the Managing Director, Jaiprakash Associates. The company’s strategy of focusing on BOOT projects at a time when the industry was focusing on cash contracts has paid off very well, in that it now has a very profitable, high margin construction business which is supported by a portfolio of high IRR BOOT investments. Few of the company’s pioneering efforts in Indian Infrastructure include: * Developed India’s first Railway Project on a BOT basis – the Viramgam Mahesana Project Ltd: completed and handed-over to Railways. * Developing India’s first fully access controlled 28 km urban expressway on a BOOT basis: the Delhi-Gurgaon Expressway. Also the first project in India to be won on a negative grant. * Awarded India’s longest/largest Toll Road Project on BOOT basis – a 135 km Access Control Expressway – also considered as the Western Peripheral Expressway for Delhi: The Kundli-Manesar-Palwal Expressway. * Selected for and awarded a 1000 MW, Mega Power Project of the first three Hydro Power Projects awarded in Arunachal Pradesh: Naying Hydropower Project * Amongst the only three consortiums which were technically pre-qualified for both the Mumbai as well as Delhi Airports in the elaborate Airport Privatisation exercise concluded recently, which laid significant emphasis on the technical and financial prequalification cut-off being quite stringent. The company has registered a CAGR of 81% in its revenues with best-in-class EBITDAs of 17% -19% in the industry in the four years since it started in India. It has built up a strong orderbook of US$ 2 bn on the back of its astute bidding strategies which enable winning of projects with good IRRs at healthy EPC margins. The company is now amongst the top five – seven firms in the industry. Project Client Project Cost (Rs Mn) EPC Cost (Estimated) (Rs. Mn) Nature of Project Completed BOOT Projects 1. Viramgam Mahesana Project Ltd Railways 1,022 930 BOT 2. Raipur Durg Project MoRT&H 1,190 974 BOOT On-going Projects 3. Delhi-Gurgaon Highway NHAI 9,971 7,970 BOOT 4. Kundli Manesar Palwal Expressway HSIDC 18,230 16,484 BOOT 5. Raipur-Aurang Highway NHAI 2,637 2,437 BOOT 6. Lucknow Sitapur Road Project NHAI 4,392 3,952 BOOT 7. Sandur Bypass, Karnataka PWD, Karnataka 359 335 BOOT 8. 1000 MW Naying Hydro-Electric Project Govt. of Arunachal Pradesh 50,000 35,000 IPP 9. Attur-Salem Gauge Conversion Rail Vikas Nigam Ltd. 615 615 Cash L1 Projects 10. Gangapur Rail Conversion Railways 740 651 11. Jhansi-Gwalior NHAI 6400 BOOT-Annuity The company’s orderbook provides visibility in terms of revenues and profits over the next few years. Three of the company’s projects are completed/close to completion and the equity investments made in these projects are expected to yield excellent returns taking into consideration the traffic volumes expected. VMPL is an annuity project which has been completed and its receivables are in the process of being securitized. The Delhi Gurgaon highway is India’s first urban toll road and is expecting significant surge in revenues taking into consideration growth of Gurgaon, location of domestic airports, development of Dwarka, etc. Raipur Durg is a road connecting to the capital city of Chhatisgarh which is a newly formed cash rich state and the gateway to the plants of ACC, SAIL and ISPAT. Based on traffic forecasts, first year EBITDA in these two SPVs is estimated at 135 crs. The Indian construction industry revenues are envisaged to grow comfortably at a CAGR of over 30% for the next three – five years, if even a fraction of the US$150 bn investments in the construction sector planned in the XIth five year plan through 2010 happen. The investments planned are 10 x the size of the industry revenues over the next five years. The government has already announced of spate of projects for bidding on a BOOT basis in the roads, railways, airports and hydropower sectors. The company has targeted and initiated planning for specific projects which are expected to come up for bidding in the next twelve months. The company’s performance is projected as follows: Rs. Mn. 2006E 2007E 2008E 2009E Operating Income (Revenues) 3,800 10,296 16,232 23,422 of which Existing Contracts 3,800 10,296 13,982 13,972 of which New Contracts - - 2,250 9,450 Operating Expenses 3,112 8,424 13,281 19,164 EBITDA 688 1,872 2,951 4,258 % margins 18.1 18.2 18.2 18.2 of which Existing Contracts 688 1,872 2,542 2,540 of which New Contracts - - 409 1,718 Depreciation & Amortisation 114 210 320 361 Gross Interest 150 116 49 123 Other Income 45 47 49 52 Recurring EPC PBT 469 1,592 2,631 3,826 Recurring Income from Sale of Investments - 1,800 2,060 2,248 Add: Share in Associate Cos. 22 (44) 127 162 - Provision for Tax 39 381 526 681 - Deferred tax - - - - - Tax on Associates 0 0 13 19           Net Recurring Income 451 2,968 4,279 5,535 of which Existing Projects 429 1,411 2,013 2,026 of which New Projects - - 324 1,370 Sale and Income of Investments 22 1,556 1,942 2,139 Recurring Net Income 451 2,968 4,279 5,535 The transaction structure and the drivers for the same have been detailed later on in the CIM. The pre-IPO is by way of issue of equity shares of the company. Stakes in the SPVs are expected to be acquired from DSC, through a newly formed company DSIDL. The acquisition of these stakes by the promoter entities would be at the market value of these BOOT assets as assessed jointly in conjunction with the pre-IPO investor. This is expected to create a win-win structure as the value of the BOOT investments would get benchmarked from two set of investors – institutional investors, and promoters, who would make investments at this value and this can be expected to give significant comfort to the IPO investors. The pre-ipo investor can draw comfort from the fact that these assets are not transferred at book value, and that the promoters are also acquiring these assets in cash at the value that is assessed in conjunction with them. The transaction would also enable the promoters to hedge against any undervaluation in these assets given that the BOOT assets are not fully mature for unlocking value at the time of going to the capital market, but listing is considered imperative taking into consideration that requirement for equity funds cannot be deferred for another year, and that listing is a key objective given the experience during bidding for mega transactions and that the construction business is ripe for accessing the markets. The drivers for having two separate vehicles to pursue independently EPC business (and linked investment in infrastructure assets) and Infrastructure Development business (developing of land banks, SEZs, hydropower projects, airports, etc.) is now well established in the industry and draws from the need to pursue business with separate gestation periods, separate risks and maturity profiles, and separate stream of returns in different entities. Investors benefit by way of greater choice of investing in one or both of such companies rather than being forced into accepting both as a take it or leave it package deal. Also, whereas the industry has hitherto seen a vertical segregation of the two businesses with typically the infrastructure holding company being a subsidiary of the EPC company, it is proposed that in the case of DSC and DSIDL the segregation be horizontal, from the perspective of tax efficiency, consolidation and avoiding undervaluation of BOOT investments at the time of going public. It is proposed that DSIDL shall not pursue construction business and DSC shall bid and acquire projects, invest equity only to the extent necessary for its EPC business and invite DSIDL to take equity in these projects. The transaction structure is not entirely frozen and the company is open to entering into appropriate MOUs to allay any apprehensions of conflict of interest related to these two companies or be flexible to consider modifications which have an in-built win-win structure. Potential Benchmarks for valuations of the company have been provided in the CIM based on the industry benchmarks of the company’s consolidated financials in terms of P/E or EBITDA multiples as well as on the basis of a sum of parts approaching comprising valuations of the construction business, completed BOOT projects and the basket of projects awarded/won. The company’s BOOT assets can be valued on a DCF or EV/EBITDA basis taking into consideration traffic forecasts. The company’s construction business appears to be assured of sustained growth given its current orderbook, huge growth potential of the industry in general, and the spate of specific projects expected to come up for bidding over the next twelve months. The BOOT assets have significant further upsides once the traffics get established and demonstrated in the first year, as equity discounting rates can be expected to go down. Also, clarity on claims being preferred by the company and approval of the tolling strategy proposed by the company is also expected to provide strong upsides to the BOOT investments in the near future. It is expected that on a trailing basis on reported consolidated profits, the transaction would be one of the more conservatively priced transactions in the Indian Industry which provides significant comfort related to the upsides for the pre-IPO and IPO investors or a safety net in case of any overall fall in Indian equity markets in the short run. Typically, Red Herring Prospectuses have to be filed with SEBI in India with the pre-issue capital specified and the price for the IPO frozen in a band of 20% at the time of filing the Red Herring Prospectus (“RHP”), and the actual price frozen based on a book-building basis at the time of the IPO, with an intention to provide investors in the IPO a 10% return on listing. Pre-IPO investors would be required to lock-in their investments for a period of one year. Going forward, the advisors have arranged for an independent diligence of the contractual issues, tax and account issues from a reputed big four accounting firm, as well as a traffic diligence from an internationally reputed traffic consultant. Any further analysis which is significant can also be explored. It is planned that a draft RHP shall be ready just before closure and filed with SEBI within two – three weeks of pre-IPO closure. Appetite from interested investors would be invited in terms of a soft book building exercise on parameters related to (i) Ceiling Value Determined (ii) % Discount to IPO price and (iii) terms and conditions or rights, desired by investors, if any. GROUP OVERVIEW The DSC Group commenced operations as a local construction company in India 70 years ago and has now grown to a US$1 bn conglomerate with interests in diverse fields including hotels, retailing, trading, real estate, engineering and construction, with over 10,000 people manning its operations across 11 business locations worldwide. Indian Companies: D S Constructions Limited, a major BOT/BOOT player in the Indian construction industry, is the flagship company of the DSC Group. Its expertise spans across all infrastructure sectors viz. Urban Infrastructure, Industrial Projects, Oil & Gas pipeline projects, Highways and Bridges, waste water treatment and environmental projects, airports, marine infrastructure and multistoried buildings. The group does not have any other arm engaged in the construction or related businesses in India. The company, which hitherto was also carrying out construction activities in Libya, is now focused on concentrating on the construction business in India, and the Libyan part of the construction business is being housed since in another group company DSC FZE. The group does not have any other arm engaged in the construction or related businesses in India. Ebony is the group’s lead into the retailing business with departmental stores spread over 7 cities viz. Delhi, Noida, Chandigarh, Ludhiana, Amritsar, Faridabad and Chennai. The in-house brand ETC and a special books and music venture called Wordsworth have gained recognition. Ebony, with revenues exceeding the Rs.1 bn mark is today among the key emerging players in the retail sector in India. Having gradually expanded its coverage in Northern India, Ebony is now poised for a major expansion plan riding the wave of policy changes and initiatives of the government of India in the booming retail sector. DS Infra Developers Limited (“DSIDL”) has been incorporated with the objective of being an infrastructure development company and holding majority stakes in complex infrastructure projects such as land banks, real estate, SEZ, hydropower projects and airports. The company does not have any activities at present and objective of forming the same is elaborated in the transaction structure section in this memorandum. DSC Infrastructure Pvt. Ltd. and DS Exports Pvt. Ltd. are investment companies and do not have any operational activities. The group intends to change the name of DSC Infrastructure Pvt. Ltd. to avoid confusion with the newly incorporated DSIDL. DS Global Pvt. Ltd. is engaged primarily in the export of granite & marble and import activities for the Ebony chain of stores. DS Developers & Promoters Pvt. Ltd. is in the business of operating a restaurant in the name and style of “Gourmet Gallery” in the elite locality of South Extension in New Delhi. Companies in the Middle East Apollo Enterprises leads the group’s interests in the Middle East and is a leading sourcing and trading company with a turnover of over US$700 million. Apollo began twelve years ago as a sourcing specialist of quality construction equipment and components for the building industry specifically catering to the African and Middle East markets. Now, Apollo has over 200 trained professionals and also provides specialist services in handling, quality control and even installing & assembly of heavy equipments, both electrical and mechanical in addition to money market operations, portfolio investments and business in real estate under its wholly owned subsidiary Alpamatics Ltd. Key industries / sectors catered to include: Construction Plant & equipment, Building Industry, Heavy Industries, Hospitals & Medicare, Hospitality & Services Industry, FMCG & Lifestyle Products, Agro Products, Processed Foods and Textiles.. DSC FZE, incorporated in Dubai in 1999, as discussed earlier, since April 2005 houses the group’s thriving construction business in Libya to enable the company to address the specific business and governance requirements of the region. The company is one of the largest construction companies in Libya with a presence since the last 25 years and over 350 trained professionals and a workforce of over 3000. Companies in UK & US Elegant English Hotels, the DSC Group hospitality company, has interests in UK since the last fifteen years and owns three specialty hotels viz., “The Gallery”, “The Gainsborough” and “The Willett”, which are heritage special hotels in South Kensington, London. Elegant is engaged in the development and management of these boutique hotels in UK, with capacity aggregating over 250 rooms. The UK group operations, with about 35 professionals, also focus on equipment procurement, real estate and investments in shares and securities, which are carried out through a company called Alphamatic Investments Ltd., which is incorporated in the Isle of Man, U.K. Universal Granite and Marble: DSC has a presence in the granite & marble business through Universal, which has clocked annual sales of over US$ 125 Million. It has an excellent network of stone distribution throughout the region. It has an established presence in Midwest US. The US business portfolio includes trading, financial investments and real estate development and marketing of construction projects. Promoter Group The DSC Group derives its name from its founding father, Late Darshan Singhji Narula. The group is promoted by the Narula family and is headed by Mr. H.S.Narula. Mr. H.S.Narula, the Group Head, is a prominent NRI businessman based in UK and has been actively involved in a number of charitable projects that have an Indian link, such as Memorial Gates Trust and By the Five Rivers. He was member of the University of Cambridge Library Development Committee. Mr. Narula has also been awarded the National Citizens award. Mr Narula, the youngest scion of the family, joined the business since 1975 and has pioneered the growth of the group and its expansion forays across the globe. He has been instrumental in giving shape to the Group’s ambitions and driving its successes across the globe and across businesses. At a time when most of the other firms moved out of Libya during the tough phase of sanctions, the DSC Empire was initially built around Mr. Narula’s determination and their ability to survive and thrive in Libya. Mr. Narula’s entrepreneurial spirit has led the group to its current stage of development and has been visible in a not so high profile D.S.C. being willing to take on global goliaths in the Airport Privatization Bid and being not only able to hold on to its own stead but also reach the absolute final round of this hard fought battle. The family has organized themselves in a manner so as to pursue the business interests in a non-conflicting manner under the aegis of Mr H S Narula, with his three brothers taking a semi-retired role in the business but their three sons overseeing the business in different countries. The family tree has been detailed in Annexure I. The promoters are assisted by a dynamic team of professionals in different business, chosen based on their expertise in their fields of activity. The group has been increasingly emphasizing on induction of professionals in the business with a view to enabling expansion of the scale of business and gearing up to face competition. Company Overview DS Constructions Limited (“DSC” or “DS”) is the construction arm of the DSC Group of Companies. DSC is one of the fastest growing construction companies in India setting a scorching growth of revenues since focusing on India in 2002. The company has been accredited with ISO 9001:2000 by DNV, Netherlands for Construction of Highway Bridges, Runways, Railway Tracks and other Infrastructure Development. A. History and Background DSC was incorporated in 1978 and has been active in the construction business in India and abroad for the past 25 years. It started its construction operations in India with Military Hospitals at Siliguri and Srinagar. However, in early eighties DSC shifted focus overseas to take advantage of the construction opportunities and executed a number of prestigious projects. DSC undertook projects in Libya in a whole range of infrastructure sectors including highways, railways, sea ports and airports, urban infrastructure, industrial estates and parks, high-rise buildings, waste water treatment etc. DSC offers turnkey solutions for large and complex infrastructure projects with capabilities that range from design and construction to financing & operations. The projects in Libya were undertaken through a chain of companies given the complex structure of taxation and regulatory framework in Libya and hence the financials do not adequately reflect the size of operations of the group in that region. Key financials for the five years ended FY 2002 are summarized in Annexure II. The company shifted its focus back to India in 2002 taking into consideration the boom in the Indian Infrastructure and the vast opportunities in infrastructure development in the country. Utilizing the experience it has gained, the company has rapidly grown its construction business in India and in a short time span has become one of the largest and most competitive players in the Indian Construction space. B. Capital Structure The share capital currently stands at Rs. 494.56 million. The capital history along with the key events is as detailed in the table below. Table 1: Capital History Event No. of Shares Total No. of Shares Share Capital Shares of Face value Rs 100/- 5,45,645 545,645 54,564,500 Fresh Issuance of face value Rs 100/- 1,50,000 695,645 69,564,500 Convertible Preference Shares Converted to Equity Shares 65,216 760,861 76,086,100 Bonus at 11:2 4,184,735 4,945,596 494,559,600 Split to face Value 10 49,455,960 494,559,600 C. Project Experience The company has had a sustained presence of over 25 years and has completed a host of projects in building works, Oil & Gas Sector, Power Generation & Transmission, Highways & Bridges, Urban Infrastructure, Waste Water Management, Airport and Seaport Infrastructure apart from buildings including hospitals, hotels and industrial complexes. Key Projects handled by DSC include the Al-Fateh tower project, the tallest building in Libya and a 250 km highway from Multan to Quetta. The key projects are detailed in Annexure III. Notable clients for DSC include Government of Libya, ABB, Alshom, Siemens, Smelt International, Arab Union Contracting Co. etc. The company after refocusing on India has already completed the Meerut-Bijnore-Nazibabad State Highway, two World Bank aided road projects (strengthening/widening) in Uttar Pradesh (118 km) and the 70 km conversion of the Viramgam Mahesana line from meter gauge to broad gauge for the Indian Railways. The company is currently executing the 8 lane express controlled Delhi-Gurgaon Expressway and the Raipur Durg Highway on a BOOT basis for NHAI and has been awarded four other projects by NHAI & MoRT&H. It has also been selected for a Hydropower Project in Arunachal Pradesh. D. Corporate Structure & Board of Directors D.S. Constructions Limited (DSC) is a Company incorporated in Delhi under the Companies Act, 1956. The Company is managed under the control, direction and superintendence of the Board of Directors. The Company has appointed a Managing Director, Mr. M.S. Narula who has been entrusted with substantial powers of management. He is also assisted by other whole time Directors who are experts in the respective functional domain. The Board of Directors of DS Constructions is as follows: Table 2: Board of Directors Name of Director Designation Mr H. S. Narula Chairman Mr. M.S.Narula Managing Director Mr. N.S.Narula Director Mr. B.S.Narula Director Mr. V.S.Narula Director Mr. A. Narula Director Mr. N.D.Mehra Director – Commercial & Legal Mr. H.S. Kohli Director Mr. M.S. Narula, the Managing Director, is a Civil Engineer and has been instrumental in execution of all the overseas and Indian assignments of the DSC Group. He joined the company in 1985 in North Africa Operations and within an year of hands on experience he took the full responsibility for all construction activity in leading projects in North. He has been instrumental in forming consortiums of DSC with other leading companies for big-ticket international projects with an idea to pool in the financial and technical competences and bid as EPC contractors, where margins and volumes are higher. The company is in the process of broadbasing its Board and inducting more professionals and independent directors to reflect its growing ambitions and in consonance with principles of corporate governance. A detailed summary of the Board of Directors and their experience is provided in Annexure IV. The Board of Directors are supported by an excellent team of professionals who have significant depth and breadth in their chosen field of expertise and who have been instrumental in taking the company on its current growth trajectory. The Company has employed/retained professionals MBAs, IITs, CAs, Company Secretaries, Civil & Mechanical Engineers, Legal Experts to assist it in its business. E. Key Management Personnel Mr. S.K. Dixit, the Chief Executive Officer, has graduated from IIT Kanpur and holds an AMP from Harvard. Mr. Dixit brings with him business acumen of over 25 years in the construction and hydropower sectors and was earlier the Managing Director of Jaiprakash Industries Limited, India for a period of eight years. He has considerable expertise in Cement, Roads and Infrastructure Development, Construction of Dams and also has substantial experience in the area of Hydro Power. Mr. Dixit’s experience and acumen have played a key role in the strategies followed by DSC, in the executing the planned strategies, formation of consortiums with other leading companies for big-ticket international projects and has played a key role in gearing up DSC for its current expansion. DSC has a team of 102 professionals with considerable expertise in the areas of finance, project formulation, concession agreements, traffic studies, engineering design and construction and a pool of over 50 engineers. A summary of the key management personnel, their qualifications, experience and expertise is summarized in Annexure V. The company is in the process of setting up an ESOP plan for its employees prior to the IPO. F. Bankers & Auditors: The company does not have any regular working capital limits. However it has taken finance against construction equipment from different banks /Vendors. At times it also raises short term loans from banks and financial institutions. It has relations with many lenders as term debt providers for its project SPVs. The company’s Auditors are Kanwal Channa & Associates, New Delhi. Table 3: Banking Limits Rs. Millions Fund Based Non Fund Based   ICICI Bank 300 2800 LC 500 + BG 2300 OBC - 400 LC 200 + BG 200 Lord Krishna Bank 50 190 Bank Guarantees Yes Bank - 150 Bank Guarantees Total 350 3540 It would be observed that the company is hitherto debt free (other than non-recourse debt availed for the Project SPVs). This reflects the initial conservative approach of the group with family avoiding burdening their businesses with debt and preferring to infuse private capital either as equity or in the form of unsecured loans. Absence of working capital in the past, compounded by the delay in decisions from authorities such as NHAI on large projects such as Delhi-Gurgaon and the scope extension therein, did result in delays and cash flow mismatches earlier, and the company is now geared to improve its liquidity through infusion of equity capital. DSC – Construction Business DS Constructions has been a relatively recent entrant in the Indian Infrastructure space given its overseas focus, but in the last four years it has set up an enviable track record of some pioneering efforts in the Indian Infrastructure space. The company has been able to win some of the best BOOT projects and it has followed a conscious policy of basing its EPC construction business primarily on BOOT projects at a time when the market was tilting heavily on cash contracts. The company’s strategy has paid off very well in that it now has a very profitable, high margin construction business which is supported in no low measure by a portfolio of excellent BOOT investments. The company’s success in this area can be gauged by the following pioneering efforts in India: * Developed India’s first Railway Project on a BOOT basis – the Viramgam Mehsana Road Project: completed and handed-over to Railways. * Developing India’s first fully access controlled 28 km urban expressway on a BOOT basis: the Delhi-Gurgaon Expressway. Also the first project to be won on a negative grant. * Awarded India’s longest/largest Toll Road Project – a 135 km Access Control Expressway – also considered as the Western Peripheral Expressway for Delhi: The Kundli-Manesar-Palwal Expressway. * Selected for and awarded a Mega Power Project of the first three Hydro Power Projects awarded in Arunachal Pradesh: Naying Hydropower Project * Amongst the only three consortiums which were technically pre-qualified for both the Mumbai as well as Delhi Airports in the elaborate Airport Privatisation exercise concluded recently, which laid significant emphasis on the technical prequalification cut-off being quite stringent. A. Revenue CAGR of 81% from FY2002-FY2005 The company has set a scorching growth since inception with revenues surging at a CAGR of 80.8% since inception. During this period, the company has completed the Viramgam Mahesana Gauge Conversion and the UP State Road Projects NH47 (3) 7 (4) between Meerut-Bijnore-Najibabad. Table 4: Construction Revenue Growth: Rs. Millions Year ended March 31, 2002 2003 2004 2005 Construction Revenue 615 592 2,572 3,623 The company has built up its size and pre-qualifications owing to the construction projects in Libya. However, given the complex structure and fiscal regime in Libya, the size of operations is not adequately reflected in the construction revenue that has been billed in the books. From 1.4.2005, the Libyan operations have been segregated and hived off to another group company and DSC is focusing only on construction business in India. The company’s size of operations and it orderbook have the potential to make it one of the top firms in the Indian Construction Industry in terms of size and profitability as can be seen from the table below. Table 5: Indian Construction Firms: Rs. Millions Name Sales FY05 EBITDA Margins Reported Order Book1 HCC 15,152 12.1% 78,950 L&T (including non-construction) 144,213 6.9% 235,000 Nagarjuna Construction 11,885 9.9% 53,000 IVRCL 10,535 10.7% 53,000 Gammon India 8,720 13.0% 52,500 Punj Lloyd 17,902 11.5% 49,000 Patel Engineering Co. 8,841 11.5% 43,400 DS Constructions 3799 17.5% 70,000 B. Strong Order Book of US$2bn providing visibility of revenue growth After a steady start and stabilization of operations of some of its initial projects, the company has focused on rapidly expanding its size and selectively bid for BOOT projects and has been in a position to ramp up its order book to over US$2bn. It would be observed that the company has primarily focused on BOOT projects and the revenues in its construction business primarily emanate from the EPC business handled for Project SPVS which are set up on a BOOT basis. The company has a strong order book of US$2 Bn as detailed in Table 6 below, which provides substantial revenue visibility for the construction business over the next five years - seven years. Table 6: List of main projects under execution Project Client Project Cost (Rs Mn) EPC Cost (Estimated) Rs. Mn Nature of Project Completed BOOT Projects 1. Viramgam Mahesana Project Ltd Railways 1,022 930 BOT 2. Raipur Durg Project MoRT&H 1,190 974 BOOT On-going Projects 3. Delhi-Gurgaon Highway NHAI 9,971 7,970 BOOT 4. Kundli Manesar Palwal Expressway HSIDC 18,230 16,484 BOOT 5. Raipur-Aurang Highway NHAI 2,637 2,437 BOOT 6. Lucknow Sitapur Road Project NHAI 4,392 3,952 BOOT 7. Sandur Bypass, Karnataka PWD, Karnataka 359 335 BOOT 8. 1000 MW Naying Hydro-Electric Project Govt. of Arunachal Pradesh 50,000 35,000 IPP 9. Attur-Salem Gauge Conversion Rail Vikas Nigam Ltd. 615 615 Cash L1 Projects 10. Gangapur Rail Conversion Railways 740 651 11. Jhansi-Gwalior NHAI 6400 Annuity The detailed project profile of each of these SPVs is provided in the next section. Of the above, the rail projects typically have a gestation period of 12 – 18 months for the construction revenue, whereas the hydropower project has an initial technical design and planning period of 12- 18 months followed by a construction period of five years. The road projects are constructed over a period of 24 – 36 months. DSC currently enjoys one of highest book/bill ratios in the Industry, reflective of its emergence as one of the fastest growing construction companies. The high book to bill ratio of DSC is also demonstrative of the high growth trajectory of the company in future as it rapidly seeks to scale operations and focuses on exploiting the high growth opportunity thrown up by the boom in the Indian Infrastructure sector. C. Best in the Class EBITDAs in the Industry As mentioned earlier, the company has chosen to focus primarily on BOOT projects for its EPC business and the same has grown rapidly in the past few years with its burgeoning order book. A summary of the performance of the construction business of DSC in Table 7 below also reveals that in addition to a sharp increase in revenues, the BOOT strategy has also been an extremely profitable one and the company has clocked very satisfactory EBITDAs in its business. Table 7: Construction Margins Year ended March 31, 2002 2003 2004 2005  Rs. In Mn. Actual Actual Actual Actual Construction Revenue 615 592 2,572 3,623 Operational Expenses 546 535 2,054 2,988 EBITDA 68 57 517 635 EBITDA % 11.1% 9.6% 20.1% 17.5% Profit before tax 67 58 383 493 Profit after tax 43 38 262 269 PAT% 7.0% 6.4% 10.2% 7.4% The company has posted far higher margins to other players in the industry in the civil construction space. The margin comparison shows that DSC has far higher margins in comparison to its peers (EBIDTA margin of 17.5% for FY05 and 20.1% for FY04 vis-à-vis an average EBITDA margin for its peers of 8.9% in FY05 and 10.8% in FY04). The higher margins are owing to the fact that the construction activities of the company are focused more towards BOT projects where returns are higher than in cash contracts. Significant competition and low entry barriers have resulted in unhealthy competition and projects being awarded on L1 basis have resulted in margins being considerably squeezed and cash contracts being awarded at values significantly below NHAI estimates. In BOOT SPVs, the company has been able to avoid the unhealthy competition and thereby protect its margins. The margins are expected to remain at the current levels with the increase in BOOT activities and the company building up an impressive order book at low L1-L2 differentials. Further, given the experience of poor maintenance in cash contracts, and with a paucity of funds, NHAI is now moving in a large way towards awarding more and more projects on a BOOT basis. Table 8: Construction Industry Expected Returns Type of Projects2 Expected Returns (%) Cash Contracts 4-8 BOT- Annuity Projects 10-12 BOT- Toll Projects 16-20 Whereas the company is not averse to picking up cash contracts in construction in case the margins are healthy, (or for some other strategic reason, eg. building up pre-qualifications), the company is focusing on BOOT projects as a primary strategy with a view to maintaining its EBITDA and bottom line. D. Superior Bid Strategy & Project Selection The most notable feature of the growth of DSC has been its superior and astute bid strategy and project selection. The company has very carefully and selectively bid for projects and been able to win its bids based on detailed homework done on its projects. Its business model has been superior on account of leveraging business acumen to bid and win select projects that have formed arguably the best portfolio of highway and rail BOT assets in the country, and its having consistently churned its strategy to ensure winning of projects. The following illustrations demonstrate the company’s acumen, as well as its lithe nimble footedness which enabled it to adopt a different strategy to win projects which were profitable for its construction business as well as equity investments: * The Delhi-Gurgaon expressway was the first road BOT project to be given on a negative grant of Rs.610 million. The company’s foresight in changing the rules of the game and aggressively opting to bid a negative grant for a profitable project at a time when other projects were bid on a positive grant revealed its entrepreneurial spirit and the turn of events as time unfolded, both on the Delhi Gurgaon Project, as well as the trend of bidding for projects, have borne out the company’s foresight: As can be seen in Table 9 below, with the same set of project economics, and in spite of far lower concession period, recent projects with comparable project costs and estimated traffic revenues, have been bid at negative grants of close to Rs 5,040 mn – reflective of the value accretion on Delhi Gurgaon. Table 9: Recent BOOT Projects Awarded PROJECT Project Cost (Cr) Concession Period (years) Year I Revenues (Cr) Grant offered (Cr) Estimated Project IRR Delhi Gurgaon 550 20 112 (-) 61 17% Mumbai Pune Expressway 1400 15 120   10% Baroda Bharauch 550 15 125-130 (-) 471 Bharuch Surat 498 15 130-140 (-) 504 Sitapur Lucknow 450 25 40 (+) 117 18% KMP Expressway 1700 23.50 128   17% Raipur Aurang 275 25 36 (+) 7 18% Sandur By Pass 40 20 8 (-) 1 26% * The Sitapur Lucknow is a project with a similar project cost range – 4,392 mn, which was bid out in the same set of projects as the ten or eleven packages related to Surat Bharuch projects in the above table. It may be noted that the company was able to win the project with a positive grant of Rs 1171 mn – effectively being in a position to secure an EPC contract (with healthy EBITDAs) for a Rs 3952 mn project with a net equity contribution of only Rs 147 mn. * The company has ably leveraged its project preparation to avail of higher construction revenues with the construction revenues increasing or expected to increase in three of its projects post award. Effectively, the strategy of bidding for a negative grant in the Delhi Gurgaon expressway paid off as the company was later also awarded a cash contract of a value in excess of Rs 2,250 mn as it was subsequently required that the designs be changed and the scope of the project be enhanced. * The company’s planning for projects prior to bidding has paid off as it has won two projects Raipur Aurang and KMP which are close to the sites of existing projects i.e. Raipur Durg and Delhi Gurgaon respectively. Given the high cost of mobilization in construction industry and an investment of almost Rs 1,000 mn on DG – which is off 12 kms from the KMP expressway, this would definitely ensure high EBITDAs on these projects. * The low L1 – L2 differential in the case of projects won as summarized in Table 10 herein below vis-à-vis industry majors would suggest that the projects won have not been won by extremely aggressive bids and the profitability on these projects ensures that it cannot be adverse vis-à-vis industry. Table 10: L1 – L2 Differential Project Name L1-L2 Differential Delhi-Gurgaon -61 crs v/s – 55 crs Kundali Manesar 24 years 3 mths v/s 24 yrs 6 mths (Gammon) Attur Salem 61 crs v/s 63 crs (Punj) Viramgam Mehsana 7.98 v/s 9.34 crs (L&T) * The company is focused on completing select projects in and around Delhi and Chhattisgarh which is enabling it to maintain profitability through concentrated and focused operations. It aims to build its power portfolio around Arunachal Pradesh to similarly leverage economies of scale. * Equipment base: The Company is looking to expand its equipment base due to increasing size of operations and the large size of its order book. This would enable it to save on leasing costs going forward. Its current equipment base is about Rs. 900 mn consisting of crushers, cranes, dumpers/tippers, pavers, loaders, excavators, JCBs, transit mixers, HMP, WMP, etc. to enable it to maintain its margins. E. Regular Churning of BOT/BOOT Investments The company would as a policy invest in new BOT projects during its construction phase and would subsequently sell substantial portion of the investments after completion of construction. This allows the company to generate cashflows for further investments and invest in newer projects. As and when those projects would mature DSC would sell stakes in the project and generate capital gains revenues on such sale as well as generate cashflows for further investment. F. Selection for development of Complex Infrastructure Projects: Hydropower: DSC has been selected, ahead of Reliance Energy & Jaiprakash Associates, by the Govt. of Arunachal Pradesh to develop a 1000MW run of the river hydro power plant on the Siyom River in the state. Projects awarded to two other power majors are less attractive in terms of technical and commercial features compared to the DSC Project at Naying as detailed in the subsequent section. The selection of the bidders was done through a process of competitive bidding based on the % of free power offered to the government. Winning these projects against stiff competition from two established power majors enables DSC to break into not only the select league of hydropower developers, which is considered to be an excellent opportunity, but also offers significant revenue potential to DSC as construction of hydropower projects involves substantial civil costs and margins in hydropower construction are significantly higher. Airports: The Delhi and Mumbai Airport Privatisation bids mark a significant threshold in terms of DSC’s emergence as a leading construction firm in India. None of the other construction firms – Gammon, HCC, IVRCL, NCC, managed to pursue the largest and complex airport up gradation and modernization opportunity. DSC formed a consortium along with Munich Airport, which has been rated as the best airport in Europe and the 4th best in the world, Ebony and Hiranandani to bid for this opportunity. This transaction saw major players such as Reliance, Sterlite, GVK, Essel, GMR, Bharti and Larsen and Toubro, form consortiums with major global airport operators to bid for the same. The consortium was pitted against 8-10 bidders in the initial fray including global majors such as Changi, Macquarie, Piramals, etc. The privatization process was an elaborate exercise involving a comprehensive short listing and technical pre-qualification exercise. The pre-qualification exercise involved evaluation of each consortium on their development plan and commercial strategy proposed, on a detailed matrix of parameters including technical competence, net worth, management capability, transition plan, HR strategy, real estate development and construction, etc. It also required the consortium to submit stiff financial guarantees including bank guarantees of US$20 mn, performance guarantees of US$65 mn, and financing commitments exceeding US$1bn. This was made more difficult by the fact that some bidders entered into arrangements with most of the leading banks in the country including SBI, IDBI, ICICI and IDFC to tie them up exclusively for this transaction and thereby try and crowd out competition. The threshold for pre-qualification was set very high at 80% of the technical and financial evaluation. ICICI Securities advised DSC on the bid advisory and the privatization transaction and arranged the funding commitments for the same. Only five bidders managed to pre-qualify technically for one or the other airports and only three consortiums managed to pre-qualify for both the two airports. The process was complex with substantial lobbying from all bidders in the race to reduce competition for the transaction. Process involved substantial management, technical & financial efforts where DSC was pitted against formidable players, and came out well. Only three consortiums – GMR, Reliance and DSC managed to pre-qualify for both the airports. DSC lost out on the price bids for these airports. However, given that one of the conditions in the privatization process was that one bidder could only get one of the airports, it is expected that DS would be in a good position to pitch in for the other airports. G. Pre-qualification Experience across Sectors D S Constructions has started its operations in India in 2002. However, prior to this the company has executed a variety of projects across sectors in other countries. The company has undertaken projects in the field of urban infrastructure, industrial plants, highways, wastewater treatment, environmental study facilities, pipelines projects, airport infrastructure etc. This gives the company the expertise to expand into these sectors and diversify its operations. As has been observed, it has already developed pre-qualifications for large roads, rail, hydro power and airport projects. The company is also exploring options of entering the oil and gas sectors where the margins are higher. Taking into consideration the above, DSC is appropriately poised to leverage the all pervasive boom in the Indian and Asian infrastructure sector. The financial projections for the company are provided in the subsequent sections. It is important to note that the above numbers only reflect the status of settled issues – whereas there are no significant claims against DSC, DSC has significant claims on the projects it is developing taking into consideration the rights vested upon it under the different concession agreements, and it arguably has a strong case. Whereas these spin-offs have been excluded from the projections as a measure of prudence, given that the quantum is very significant, even if one of these claims materialize, they present a strong buffer to address unforeseen eventualities in internal operations or market variations. DSC – Equity Investments in Project SPVs: Completed Projects VIRAMGAM MAHESANA PROJECT LTD. (VMPL) Project Summary: VMPL is a Project SPV set up to undertake the 90 km Gauge Conversion project from Viramgam to Mahesana on a BOT basis. This is India’s first Rail BOT Project modeled on the lines of NHAI BOOT Projects, and has been successfully completed. The Viramgam-Mahesana Gauge Conversion project is of a strategic importance to the Railways, being the first to be implemented through BOT route and with private sector participation. The broad gauge line reduces the distance between the West Gujarat ports and North/North-West India by about 70 kms and also avoids the congested Ahmedabad section. Project Overview & History: Viramgam-Mahesana section is situated in the West Indian state of Gujarat. Both, Viramgam and Mahesana are well connected through railway and road networks. Viramgam is about 61 km west of Ahmedabad and Mahesana is about 67 km north of Ahmedabad. Earlier, the traffic from the ports of Kandla, Mundhra and Okha moved North/North-West via Viramgam-Ahmedabad-Mahesana route. Map 1: Viramgam Mahesana Project Location The new line also facilitates long distance passenger train operations between the two regions. The project of gauge conversion of Viramgam Mahesana section of Western Railway on Build, Own and Transfer basis is the first railway gauge conversion BOT project in India. However, the Concession Agreement (CA) for the project railway is substantially in the form of the Model Concession Agreement (MCA) of National Highways Authority of India (NHAI) with certain modifications to suit the specific requirements of the Indian Railways and the railway sector. Unlike the road concessions (both Build, Operate and Transfer and Annuity), under which the concessionaire finances, builds and operates the asset created till the end of the concession period, in the present railway concession, the concessionaire is only required to finance and build the asset, which he owns, and not operate it. Therefore, for all practical purposes, the concessionaire’s role, responsibility and liability end nearly 12 months after achieving the commencement of commercial operations. Under the CA, there are three certificates that are required to be taken at various stages of project execution. The first certificate is the Provisional Certificate, which would be provided by the Independent Engineer (IE), when he is satisfied that the commercial operations can be commenced, despite certain items of works are not yet complete. RITES LIMITED the Independent Engineer for the Project Railway, had on 25.10.2004 given a Provisional Certificate of Completion whereby they have certified that the track is fit for maximum speed of 75Km ph for goods train. The second certificate is the Performance Certificate, which would be obtained by the concessionaire after completing all the outstanding works as mentioned in the punch list items pointed out by IE at the time of issuing the Provisional Certificate. The COD was achieved by the Concessionaire on 2nd December 2004. The Concessionaire handed over the project assets and project facilities on achieving COD to Western Railway on 6th December 2004. The Performance Certificate was received in October 2005. After obtaining the Performance Certificate, the concessionaire is required to obtain the Completion Certificate, which would be given after completion of 12 months from grant of Performance Certificate and rectification of all defects. Once the Concessionaire obtains the Completion Certificate, it does not have any liability towards the O&M of the project railway. A summary of key clauses of the concession agreement are provided in Annexure VI. FINANCIAL SUMMARY (in Rs. Millions) Cost of Project 1022 Debt 625 Advances 128 Equity 269 Equity IRR 39% Access Charges payable half yearly 79.7 Mn payable KEY DATES Concession Agreement Signed May 2003 Financial Close Oct 2003 Financial Close official announced on Jan 2004 Appointed Date / Construction Start Date Jan -2004 Provision Completion Certificate Received on Oct 2004 Hand over Certificate of Assets etc on achieving COD Dec 2004 1st Installment of Access Charges released on Dec 2004 Concession Period Ends June 2016 Equity Investment Highlights: As this is an annuity project, there are no further upsides on the project other than the semi-annual annuity of Rs 79.6 million which the SPV receives every year for twelve years. Railways are an AAA rated entity and hence the receivables have the highest level of security. The company has already received the first three installments of semi-annual payments and is to receive the balance amounts in their ordinary course. The company is in the process of securitizing its receivables and has received a credit rating of AA+ from Ms. Fitch Ratings for its debt on the transaction. The rating rationale is available on www.fitchratings.com and is one notch lower than the highest credit rating. ICICI Securities is in the process of securitizing the receivables to leverage the free cash flows of the project. After repayment of the balance current debt which is Rs. 485 mn, maintenance of a DSCRA of Rs 45 million and a deposit of Rs 28 million as required under the rating provisions, the company is expected to have surplus free-cash flows of approximately Rs.500 million as at 1st April, 2006 with no future obligations on O&M. Thus, not only was the company in a position to complete the EPC project with healthy margins, but the equity of Rs 269 million invested in the project has appreciated to Rs 700 million within a period of 18 – 24 months on the project earning an Equity IRR of 39%. This project is an excellent representative of the success of the DSC business model focusing on twin-pronged strategy of high margin EPC and high IRR project investments. DELHI-GURGAON SUPER CONNECTIVITY LIMITED: Project Summary: Delhi-Gurgaon Super Connectivity Limited (formerly Jaypee-DSC Ventures Ltd.) (“DG”) is a project SPV that is undertaking the development of the Delhi Gurgaon Highway. The project is for conversion of the Delhi- Gurgaon Section of NH-8 into an access controlled 6/8 Lane Highway with service lane along certain sections & strengthening of existing lane from Km 14.3 to Km 42.0 falling partly in Delhi & Haryana to be executed at site, including maintenance of the existing lanes during construction Period as well as the concession period. The revised project cost is estimated at Rs 9971mn now and located in one of the fastest developing urban township regions, in the national capital territory; the Delhi-Gurgaon Expressway Project has the potential to be arguably India’s best BOOT asset in the roadways sector. Map 2: Delhi-Gurgaon Highway Region Project Overview & History: The project was awarded to an SPV - Jaypee DSC Ventures Ltd (JDVL) a joint venture company between DSC and Jaiprakash Associates Ltd. The Concession Agreement had been signed with NHAI on 18th April 2002. Jaiprakash Associates presently holds only 1.2% stake in the SPV now and the balance is held by DSC and its associates. The Financial Closure for the project was revised subsequent to the arrangement and the arrangement has been formalized. The name of the SPV has subsequently been changed to the Delhi-Gurgaon Super Connectivity Limited. The Delhi - Gurgaon Highway also provides a vital link with Domestic & International Terminal of IGI Airport and with the growing Gurgaon city. It is also an important segment of National Highway-8, which provides connectivity from Delhi to Jaipur. This was one the first projects on a BOOT module set out for competitive bidding in India and hence the concession agreement has various features which are in favour of the concessionaire. Key features of the agreement are summarized in Annexure VI. The heavy traffic volumes, frequent stoppages and slow moving traffic lead to poor travel speeds and driving conditions which result in considerable loss of time, frequent accidents and environmental hazards on the project highway. The implementation of the project would result in a considerable reduction in vehicle operating costs and journey time, improvement in traffic flow, increase in average travel speeds, reduction in accident rates and lesser fatigue to users with improved service. The proposed toll rate structure at Rs.15 per car (at Delhi-Gurgaon Border) is quite reasonable considering the benefits, comfort and improved service that would be available to the road users upon completion of the project. Also, the absence of any major comparable alternative road would induce a large proportion of the existing traffic to continue using the project highway. The Project has undergone many changes subsequent to award and consequently suffered delays owing to the same. These delays were pertaining primarily to the following issues (i) Change of Design prescribed by the selected Concessionaire to accommodate changes required by other state authorities and state governments, addition of flyovers to avoid intersections, etc. (ii) Delays in Acquisition of Right of Way for undertaking the said project. This was an obligation of NHAI and the State Government under the tripartite State Support Agreement entered into with the concessionaire. (iii) Modification of the traffic allowed on the project as a result of a Supreme Court Order banning entry of multi-axle vehicles in the city of Delhi. These delays resulted in an increase in the interest payable to lenders on account of the delay in project commissioning, which is being funded by NHAI. The significant delay in project commencement on account of design changes and Right-of-Way acquisition have also led to project cost escalations. These shall be funded by NHAI and the company is following the process laid out in the Concession Agreement to formalize the same. It may be noted that these changes have ensured additional EPC revenue for the company’s construction business but the company would not be required to raise debt or infuse equity for the additional project cost. Further the improvement in project design is expected to significantly improve the project technical parameters making the project a pleasure for the users and in a macro manner increase traffic given the quality of the project as well as the fact that the tolls levied shall be on the basis of a lower project cost. A summary of the changes in the project cost has been stated in the table below: Table 11: Delhi-Gurgaon Highway Project Cost Break-up Particulars Amount (in Rs. Millions) Financed By Initial Project Cost 5,475 Change in Scope 2,410 To be reimbursed by NHAI as per CA and agreed to by Independent Engineer. Change in Law ( Aggregate and Boulders) 470 To be reimbursed by NHAI as per CA Interest beyond initial COD 582 To be reimbursed by NHAI as per CA Escalation (Steel and Bitumen Cost) on account of delays in Project 460 Claim yet to be accepted by NHAI to be met by advance from promoters Increase due to change in scope against the original drawings/designs 540 Claim is yet to be accepted by NHAI Total project cost 9,937 NOTE: The claims of Rs.460 mn and Rs.540 mn have been considered as a part of the enhanced project cost to be met by the lenders/equity holders (as quasi debt). When these claims are accepted by NHAI the interim financing would be repaid through the grant received and would remain as a valuation upside. However, till any final settlement is reached the amount of Rs.1000mn (Rs. 460mn+Rs.540mn) is being financed as a debt as given above. The claims that the company are assured that they will be paid by NHAI are considered is grant (Rs 3462 mn). FINANCIAL SUMMARY (in Rs. Millions) Cost of Project 9,971 Debt 4,556 Equity 1,953 Grant 3462 Project IRR 17% Equity IRR 30% KEY DATES Concession Agreement Signed Apr-2002 Date of Financial Closure May-2003 Appointed Date/ Concession Period Starts Jan -2003 COD Dec-2006 Concession Period Ends Jan -2023 Equity Investment Highlights: * One of the largest urban expressways in India: Urban expressways are seen to have a lower resistance to willingness to pay given the credit for convenience accorded to the project and a high level of domestic users and time saved. Tolls notified by NHAI of about Rs 15 – 20 are expected to be seen as extremely attractive for the facility availed and travel time saved. * High and Stable Traffic: Over 120,000 PCUs expected to use the expressway everyday in the first year of operations as per traffic studies. The highway is one of the busiest sections of NH-8 and in addition to carrying local and inter-state traffic, provides connectivity to the ports along the western coast. NH-8 connects Delhi to the Western Region of the country and terminates at Mumbai, after passing through Jaipur, Ajmer, Bhilwara, Chittorgarh, Udaipur, Ahmedabad and Surat. The first year annualized revenue is estimated to be over INR 1,200 Mn. * High EBITDA: With toll rates being linked to WPI, toll roads are a high margin business as the cost of maintaining the roads and collecting tolls are negligible. EBITDA margins are more than 75%. * Growth in Local Traffic: The project highway section also caters to a significant volume of the local traffic, which has been increasing with the emergence of Gurgaon as an important satellite town of Delhi following the development of large commercial, institutional and residential complexes. Gurgaon has in the recent years become a major commercial hub, being a favored destination of many large Corporations / MNCs. The highway also provides a signal free high speed access to the domestic and international airports from the capital. The phenomenal growth of the Delhi – Gurgaon region has significantly aided in the boom in traffic. Whereas the preliminary financial closure was based on annual traffic estimates of Rs.800 mn, the current estimates of traffic are significantly higher. * Emergence of new facilities & satellite towns: The emergence and growing importance of new satellite towns like Dwarka would provide a huge increase in the local traffic as seen in the case of Gurgaon. The development of the Inland Container Depot would also cause a significant increase in the interstate heavy vehicle traffic and contribute to the high growth for the highway. Development of six lane link by Delhi Development Authority to Dwarka Phase – II via Kapashera Junction, where trumpet arrangement underpass is proposed as per Change of Scope to provide connection to NH-8. * Proposed Development of Mega size SEZ in Haryana: The decision of Haryana Government and Government of India allowing private players (Reliance Industries) to setup Mega SEZ at Kundli-Manesar stretch, adjacent to the Delhi Gurgaon Project would further fuel the growth in traffic. * Relocation of Domestic and International Airport : The relocation of the domestic airport and international airports to increase the size of the airports to meet the growing traffic requirements would also lead to additional traffic for the project highway. With the modernization of the Delhi Airport even domestic airport access will be from existing link to IG International Terminal, thus proving additional traffic & revenue for IGI Toll Plaza. * No Alternative Routes: The Delhi-Gurgaon Highway does not have any major competing routes. The routes which may be used by users to avoid the project highway are far longer and would be costlier and would take more time for the users than the project highway. The Concession Agreement provides that in case any other toll road emerges as a competing route, the new road would be obliged to charge a toll 33% higher, and further, the balance concession period for the SPV would increase by 50% to compensate them for potential loss of revenue. * Significant Investments in Tolling Planning & Strategies and Transparent Tolling Systems: The Company has made significant investments and has spent considerable time and efforts to monitor the flow of traffic. The tolling strategies have been made on a state of art basis using videography keeping in mind the kind of traffic that flows on the project highway and mechanized to the highest extent to keep the tolling transparent. It has one of the most advanced fully automated toll collection system comprising videography, auditable toll collections and state of the art equipment to ensure virtually no leakage in the revenues. Financial Projections: The financial projections together with the assumptions and sensitivity analysis have been provided in Annexure VII. DS VICON VENTURES LTD: Project Summary: The project (“RD”) is a 27 Km - Widening of NH-6 between Raipur and Durg cities in the state of Chhattisgarh from 2-lane to 4-lane on a BOT basis. The concession period is 11 yrs and 9 Months with a project cost of Rs.1190 million being wholly executed by DS Vicon Ventures Ltd. (DVVL), a SPV. Upon completion of the concession period DVVL would hand over the project highway to MoRTH. Project Overview: NH6 provides connectivity between Mumbai and Kolkata and other important regions of West, Central and Eastern/North–Eastern India. It is located in the state of Chhattisgarh and provides connectivity to the important cities of the urban and industrial complex of the state, such as Raipur, which is the capital of Chhattisgarh, Bhilai, the steel town and Durg, the industrial town. Therefore, in addition to providing connectivity to Western and Eastern regions of India, the project highway also carries high volumes of urban/local and commercial/through traffic. Map 3: Raipur Durg Project Location The Project Highway is one of the busiest sections of NH-6 and carries both local and inter-state traffic. There being no comparable alternative road, this section has a high traffic density. Four laning of the Raipur-Durg section is further expected to fuel the economic growth of the region, especially as a new capital of Raipur is expected to come up with the formation of the new state of Chhattisgarh. High traffic volumes, lower seasonality and continuing economic growth in the Raipur-Durg region would not only ensure the commercial viability of the project but also provide an ideal financing opportunity for investors and healthy returns. FINANCIAL SUMMARY (in Rs. Millions) Name of Project Raipur Durg Cost of Project 1,190 Debt 833 Equity 357 Grant 0 Project IRR 17% Equity IRR 26% KEY DATES Date of Financial Closure 08-Jul-03 COD 01-May-06 Concession Period Starts 08-Jun-03 Concession Period 11 years 9 months Concession Period Ends 08-Mar-15 Equity Investment Highlights: * Demonstrable success: Durg Bypass road BOT project, just further to the project highway on NH6 is one of the first road BOT project that was taken up by NHAI. Durg Bypass is one of the successful BOT road projects in India, which clearly demonstrates the viability of the traffic volume and the willingness of the users to pay the tolls on the project highway. * High tollable traffic and willingness to pay: At present, the heavy traffic volumes coupled with bad roads lead to poor travel speeds and driving conditions which result in considerable loss of time and accidents. With the implementation of the project, the highway will be widened to four lanes. This would result in a considerable reduction in vehicle operating costs and journey time, improvement in traffic flow, increase in average travel speeds, reduction in accident rates and lesser fatigue to users with improved service. It is estimated that the development of the project highway will reduce the travel time from Raipur to Durg by about half (to nearly 30 minutes compared to the current level of around 55 minutes). The project would involve four laning of an existing two lane road. Therefore, the project highway is expected to have high willingness to use and pay, especially as users are already used to traveling on the facility. * Proximity to Major Plants: The road is a link to the Bhilai Steel Plant for SAIL, ACC’s Cement factory and the Ispat Steel Plant and hence benefits from the traffic of inputs into and output from these plants * Healthy mix of local and commercial vehicles: The project highway provides an important link on the NH6, which connects Mumbai (Western ports/markets) with Kolkata (Eastern/North Eastern markets). It also provides connectivity to the important cities of Chhattisgarh: Raipur, the capital ; Bhilai, the steel town and Durg, the industrial town. Over 13,000 vehicles expected to use the expressway every day in the first year of operations * Development of Chhatisgarh as a State: The formation of Chhatisgarh as a new state that is cash rich and hence at the heart of development heralds well for the company as the traffic on the route has increased significantly. * Concession agreement allows 100% tolling at both toll plaza’s against 50% being allowed in new Concession Agreements. Financial Projections: The financial projections together with the assumptions and sensitivity analysis have been provided in Annexure VII. DSC – Projects on the Anvil Kundli-Manesar-Palwal Expressway Project Summary: The project is for the development of access controlled 4/6 lane Kundli-Manesar-Palwal Expressway in the State of Haryana on Build Own and Transfer(BOT) basis for Haryana State Industrial Development Corporation (HSIDC). The length of proposed Expressway is around 135.65 km with a project cost of Rs.18.2 billion with a concession period of 23 years 9 months. The stretch of 135 km access controlled expressway is one of the longest stretches in the country. The project lies in the NCR which has experienced major industrial and urban development in the satellite towns like Gurgaon and Noida. This exponential growth around NCR has brought all surrounding areas into focus. Project Overview: Map 4: Kundli-Manesar-Palwal Expressway Region Layout The alignment of proposed Express highway takes off from NH-I near KundIi, crosses NH-10 at west of Bahadurgarh, crosses the NH-8 near Manesar and finally joins NH-2 near Palwal. NH-1 goes towards Chandgarh, NH-10 to Rohtak, NH-2 to Faridabad and NH-8 to Jaipur. This road intersects all these major highway and provides a Western Periphery Expressway. The NCR has been the centre of focus with major commercial and urban development taking place. This exponential growth around the NCR has brought all surrounding areas into focus. The Govt of Haryana has planned the expressway with an objective to provide high-speed link to the northern Haryana with its southern districts like Sonipat, Jhajjar, Gurgaon & Faridabad. The state of Haryana has made rapid strides in attracting industrial development in the state. Nine SEZs are planned in the state in addition to the MOU signed between Reliance and HSIDC for an SEZ of 20,000 acres bordering the toll road. The plans for an SEZ near this road post-bid would result in significant increase in traffic beyond what was envisaged earlier. The government is also considering expanding the size of the road from a four lane to an eight lane expressway to cater to the increased traffic road, and DSC would benefit from any scope extension in terms of increased business as well as increased traffic. Several planned industrial establishments of HSIDC are located along the corridor of the proposed KMP expressway. Besides, there are many industrial estates that are being developed /augmented in the State of Haryana by HSIDC out of which those falling within the project road corridor are given below: Table 12: Industrial Estates in Haryana along KMPL Industrial Estate Area (ha) Industrial Estate Area (ha) 1. Bahadurgarh 900 2. Rai 230 3. Manesar 3200 4. Barhi 192 5. GC Saha –Ambala 168 6. Narwana Dhaboli 200 7. Palwal 400 8. Sirsa 30 9. Bawal 506 10. Badli 350 11. Kundli 491 These proposed industrial areas would generate additional traffic as these areas are being developed with connections to the proposed expressway. Complete development of these areas is a time bound process and is expected to take shape over a period of 6-7 years. Therefore, the impact of the same on the proposed expressway is to happen in stages and it is expected that all the above proposed industrial areas would become operational by year 2011. Additionally alongside this corridor the approved Haryana Industrial Policy propoes the development of prestigious projects like Medi-city, major townships, Food Processing units, Educational Cities, ICD (Dry Port), Power Generating Stations, inviting a major growth through local and international players attracting FDI as well. This corridor will become the major industrial, prime real estate and the principal commercial hub in the NCR. Consequently, the Government of Haryana has already made suggestions to enhance the facility from the existing 4 lane to 8 lane Expressway. The additional COS as a result is being studied and the initial proposals that are under informal discussions are to compensate the company by way of a land bank instead of cash compensation. The spin offs both by way of a big increase in the EPC value of the work and as a result of the enhanced world class facility and increased traffic a substantial increase in the project fundamentals would be very substantial. FINANCIAL SUMMARY (in Rs. Millions) Name of Project Kundli Manesar Palwal Cost of Project 18,230 Debt 12,761 Equity 5,469 Grant 0 Project IRR 17% Equity IRR 23% KEY DATES Beginning of Operations 28-Feb-06 Concession Period Starts 31-Jul-06 COD 31-Jul-09 Concession Period 23 years 9 months Concession Period Ends 01-May-30 Equity Investment Highlights: * Provides a high-speed link to the northern Haryana with six southern districts like Sonipat, Jhajjar, Gurgaon & Faridabad. This western peripheral spells the large opportunity for large scale developments and it would be a third ring road in NCR once the eastern peripheral is also constructed. A real estate corridor is expected to develop on this road. * Kundli - Manesar - Palwal Expressway is a perfect destination for being a Dry Port and development of an SEZ as this project intersects the key railways line and four national highways and links and connects all major industrial estates and integrates Haryana with Delhi. * An MOU for setting up of a 20,000 acre SEZ has recently been signed by the Mukesh Ambani Reliance Group with the Haryana Government subsequent to the award of the project. Hence traffic numbers are expected to improve substantially from the initial forecasts. * The NCR has experienced one of the highest industrial growth and urban development in the satellite towns like Gurgaon and Noida. This exponential growth around NCR has brought newer areas under focus. * The highway is expected to have traffic of over 257,000 PCUs per day in its first year of operations with revenues over Rs.1,500 mn in the first year. Financial Projections: The financial projections together with the assumptions and sensitivity analysis have been provided in Annexure VII. RAIPUR AURANG Project Summary: The project (“RA”) assignment contemplates widening and upgrading the Aurang – Raipur section (Km 239 to Km 282 of NH-6) in the state of Chhattisgarh from existing 2-lane to 4-lane configuration on a BOT basis. The Project Road starts at Km 239 and ends at Km 282 (right at the start of the ongoing Raipur Durg project) on NH-6.The National Highway 6 (NH-6) originates from West Bengal and traverses through the states of Chatisgarh, Madhya Pradesh and Maharashtra, connecting Kolkata to Surat in Gujarat and is on the same stretch as Raipur-Durg, on the other side of the city of Raipur. Project Overview: The road presently has a traffic volume of 25,000 PCUs per day. The project is expected to gain significant advantage due to the connectivity with Raipur-Durg project and the complementary schedules of the projects. Further, significant growth is being experienced on the travel corridors given the rapid development at Chhatisgarh to make the project attractive for DSC. Project Cost is estimated at Rs.2.6 billion with a concession period of 25 years The expressway links Raipur with the surrounding industrial areas Map 5: Raipur Aurang Project Stretch FINANCIAL SUMMARY (in Rs. Millions) Name of Project Raipur Aurang Cost of Project 2,637 Debt 1,846 Equity 653 Grant 138 Project IRR 18% Equity IRR 23% KEY DATES Beginning of Operations 01-Dec-05 Concession Period Starts 11-Apr-06 Concession Period 25 years COD 01-Oct-08 Concession Period Ends 11-Apr-31 Equity Investment Highlights: * Located adjacent to the Raipur Durg project, there would be considerable saving in terms of cost and time of construction for Raipur-Aurang. Financial Projections: The financial projections together with the assumptions and sensitivity analysis have been provided in Annexure VII. LUCKNOW SITAPUR Project Summary: The project involves strengthening and widening to 4-lanes of the existing 2-lane section of NH24 between Lucknow and Sitapur (Km 413.600 to Km 489.000) in the state of Uttar Pradesh on a BOT basis. The project cost is Rs. 4.4 billion and the concession is for a period of 20 years. Project Overview: The National Highway 24 (NH24) originates at New Delhi and ends at Lucknow, covering approximately 500Km. Except for initial 15Km in Delhi, the entire NH24 is in UP State, in the northern part of Indian Peninsula. The project enhances the accessibility of western UP, Uttaranchal, Northern Haryana, Punjab, Himachal Pradesh and Jammu & Kashmir States to the EW corridor and GQ. Due to its connectivity to EW corridor, high economic growth of area along NH24 and accordingly rapid traffic growth on NH24 are likely in the future. Lucknow, the capital of UP State, at one end is likely to add to the traffic growth on the project road. FINANCIAL SUMMARY (in Rs. Millions) Name of Project Lucknow Sitapur Cost of Project 4,392 Debt 3,075 Equity 147 Grant 1171 Project IRR 18% Equity IRR 30% KEY DATES Beginning of Operations 01-Mar-06 Concession Period Starts 23-Jun-06 COD 01-Jul-09 Concession Period 20 years Concession Period Ends 23-Jun-26 Equity Highlights: The cost of project is funded to the extent of 27% by a Grant. This would be treated as equity support for the project. Hence, the equity investment required in the project would be significantly lower than other similarly sized projects. This makes the project attractive for investment for equity investment. Financial Projections: The financial projections together with the assumptions and sensitivity analysis have been provided in Annexure VII. SANDUR BYPASS Project Summary: The project is the development of a bypass roads to Sandur town, which would help divert the heavy iron ore traffic moving from mines situated in and around Sandur away from the town. The town is surrounded by Bellary and Hospet, two of the important cities in the area. Project cost of Rs. 0.36 billion for a concession period of 20 years. The project has been taken with a view to establishing a base in South India and increasing its presence and understanding of nuances in the region. Project Overview: The project is for the development of Bypass Roads to Sandur Town ( Bellary District) on Build Operate and Transfer(BOT) basis for PWD, State Government of Karnataka. Sandur Town is encompassed with roads leading to major towns of Bellary district like Hospet and Bellary town. The town has a state highway, SH-40, connecting Kudlgi to Bellary and passing through the center of the city while Hospet is connected to Sandur town with a major district road (MDR). A Zilla Parishad road connecting MDR on the Hospet side to SH-40 forms a part of alternative link to Sandur town. The road is in a bad condition and difficult to manoeuvre. Sandur town is well connected with railways for transporting the material from mines and has railway heads at Yashwantpura, Ranjitpura, Bannihatti and Hospet railway yard, though it has no provision for passenger transportation with Hospet being the only nearest railway station. FINANCIAL SUMMARY (in Rs. Millions) Name of Project Sandur Bypass Cost of Project 359 Debt 251 Equity 108 Grant 0 Project IRR 26% Equity IRR 36% KEY DATES Beginning of Operations 01-Mar-06 Concession Period Starts 18-May-06 COD 18-Nov-07 Concession Period 20 years Concession Period Ends 18-May-26 Equity Highlights: Preliminary observations of the traffic on the corridors passing through the Sandur town indicate high volume of commercial traffic especially two-axle trucks and MAVs. Smaller volume of two-wheelers and cars also contribute to the total traffic observed on the corridors and may be attributed mainly to the local factor. Financial Projections: The financial projections together with the assumptions and sensitivity analysis have been provided in Annexure VII. JHANSI-GWALIOR Project Summary: The project is the 4 laning of the highway between Jhansi and Gwalior. The stretch is an 80 km stretch with an estimated project cost of Rs.640 crores. The project is on a BOOT basis with a concession period of 20 years including 2.5 years for construction and 17.5 years of annuity payments. The annuity payment will be on a semi-annual basis with an annuity amount of Rs. 524 million on a semi-annual basis for 17.5 years post-construction. As can be noted the project is extremely attractive in terms of Equity IRR for the project. The project cost also offers much higher margins than usual.(Lucknow Sitapur is also a similar stretch at a much lower project cost). NAYING HYDROPOWER PROJECT Project Summary: D S Constructions has signed an MOU with the Government of Arunachal Pradesh for developing a hydro-power project for a concession period of 40 years. The project would be implemented under a separate SPV that may not be held by D S Construction as the company has not decided to enter the business of operation and management of power projects at this stage. However, the EPC or construction contracts for the project will remain with D S Constructions. This would account for approximately Rs.35 billion of civil contract works for D S Construction. Project Overview: The Naying Hydro-Electric Project is located in the West Siang district of Arunachal Pradesh and lies upstream of the Siang Middle (Siyom) Hydro-Electric Project and downstream of the Tato-II Hydro-Electric Project on the same river. Map 6: Arunachal Pradesh River Topography The hydro power plant would be a run of the river project on the Siyom river (a tributary of Siang river) with a capacity of 1000MW. The project is of a concession period of 40 years. The Project cost is estimated at Rs.50 billion .Approximately 70% of the hard project cost is accounted for by Civil Construction works The Key highlights of the project awarded to DSC vis-à-vis the projects awarded to Reliance and JP are as listed in Table 13 below: Table 13: Comparison- Hydro Projects in Arunachal Pradesh SIANG MIDDLE (1000 MW) NAYING (1000 MW) TATO ( 700 MW) HIRONG (500 MW) SIANG LOWER (1600 MW) LOCATION 60 KM UP STREAM OF ALONG 40 KM UP STREAM OF SIANG MIDDLE 41 KM UP STREAM OF NAYANG 87 KM UP STREAM OF Naying 40 KM DOWNSTREAM OF ALONG SUBMERGENCE (KM) 9.11 SQ KM 1.89 SQ KM 1.25 SQ. KM 0.70 SQ KM 43.43 SQ KM DESIGN ENERGY (MU P. A.) 3640.95 4966.67 3411 2490 7744.55 LAND REQD 1800ha 600ha 400 ha 400 ha 3000ha COST (cr) 4699 3017 2680 2073 8297 (1st year tariff) 2.89/Kwh 1.34/Kwh 1.69/Kwh 1.84/Kwh 2.04/Kwh AWARDED TO REL DSCL REL JAL JAL It would thus be observed that this project is very attractive in terms of lower technical and enviromental risks, with the track record of an established NHPC project having commissioned in the vicinity to fall back upon. The tariff is also extremely competitive, making it an extremely attractive project. Equity Investment Highlights: * Arunachal Pradesh has over 26700MW of Hydro Power potential of which only 415MW has been developed. The hydro potential in the country is about 84000MW out of which 26700MW is located in Arunachal Pradesh and only 415MW has been developed. On a benchmark cost of Rs.50 million per MW this translates to an investment opportunity of Rs.1300 billion in the state. This provides a huge untapped opportunity to develop hydro-power projects in the state. The project would provide DSC the expertise and experience in India required to tap the huge opportunity and secure more orders in this lucrative sector. The project offers an opportunity to become a significant player in the hydro power construction business and focus its energies on the region. * The project is a Run off the River project with the River system wholly in Arunachal Pradesh. The area under submergence at only 2 Sq Km and the rehabilitation is insignificant. These factors would reduce the time and cost associated with the project. A Preliminary Feasibility Report has already been submitted by NHPC. The project thus has a high state of preparedness in comparison to other projects in Arunachal Pradesh. * The project is up stream of the 1200 MW NHPC Hydropower Project currently under execution on the same river. * The project cost including adjustments for escalation and projected over the construction period is extremely attractive. The proposed tariff calculated in accordance with GOI policy in the year of Generation (2013) at Rs. 2.2 /unit after meeting the free power requirements. Even after factoring in transmission costs and potential escalations in project costs, this compares favourably with today’s existing tariffs prevailing in the power sector - the Government of Delhi (Rs. 2.65/unit) for some units – and the reported costs of fresh generation capacity addition which range from Rs. 2.3 to 2.5 (and higher at more than Rs 3 for LNG based plants). This makes this an extremely attractive equity investment opportunity for power project developers. A detailed analysis of the prevailing power scenario and hydropower projects is provided in the next section. Opportunities Overview A significant capex upswing globally and in India in particular has been the key driver for a significant boom in the fortunes of the construction industry in the last two years. Share of investments in GDP have peaked to 27% of GDP (vis-à-vis 5.25% for oil-producing economies) – a peak last scaled in 1992 (Chart 1) reflecting the sharp upswing in capex in the country. With up gradation of infrastructure being seen as the pre-requisite foundation for corporate India’s global ambitions as well as the government’s social development thrust, the floodgates have just opened for the sector. An aggressive and ambitious 7% - 8% GDP growth target can only be achieved given a 1.5 times multiplier on the growth in basic infrastructure The commitment to infrastructure spending has been dovetailed into the Indian Government’s allocations of investments in its Five Year plans which are the key tool of the Government in its economic planning. The plans are developed, executed and monitored by the Indian Planning Commission. The construction investments as per the 11th Plan upto FY 2010 are estimated at US$150 billion, and on a preliminary basis, the construction potential over the next five years appears to be 10 x the aggregate current industry revenues for the next five years. Table 14: Planned Construction Investments through 2010 as per 11th Five year Plan Rs. Bn FY05 FY06E FY07E FY08E FY09E FY10E Airports 14 17 21 27 33 42 Ports 12 14 15 16 18 20 Power 260 282 306 332 360 391 Railways 123 128 133 139 144 150 Roads 239 323 403 484 581 697 Urban Infrastructure 411 473 544 625 719 827 Total 1,060 1,237 1,423 1,623 1,856 2,126 Political will (driven in part by success of political parties at the state and government levels on infrastructure issues), lower interest rates, liquidity and efficiency linked projects has opened the floodgates for the sector. The estimated revenue for construction over the next three years is itself in excess of US$50 bn. Thus, given the estimated growth rate in infrastructure spending at a CAGR of 18%-20% till FY10, growth in construction spends and revenues for construction firms at a CAGR of 25% through 2009 appears sustainable and more than a distinct feasibility. Structural Framework of Award for Projects: Whereas initially most of the spending on construction was by way of award of cash contracts, the priority on infrastructure development has coincided with an inadequacy of resources in the public sector as well as a demonstration of significant efficiency improvements being witnessed in the infrastructure developed in the private sector. Accordingly, to meet the financing of infrastructure development the government has encouraged private sector involvement primarily through the use of Public Private Partnerships (‘‘PPP’’), which are based on a partnership between the public and the private sectors for the purpose of delivering a project or service traditionally provided by the public sector. Hence instead of bidding out cash contracts, government has been giving out these projects on a BOOT basis - `Build Own Operate & Transfer’ basis. Typically, BOOT Projects have been of two types – Traffic Risk Projects where the traffic risks in the projects are borne by the Developer or Annuity Projects where, on the completion of the Projects, the developer receives an annual payment at pre-specified interval over the concession period. Traffic Risk projects are bid primarily on the basis of Grants or Concession Periods with the per vehicle Toll being pre-notified by the government and toll escalation linked to WPI whereas Annuity Projects are bid on the basis of annuity received. A summary of the opportunities in the four key segments where DSC is focusing (Roads, Rail, Airports and Hydropower) is provided herewith. Roadways: The sector that has benefited the most from the boom in infrastructure spending has clearly been the highways and roadways sector. Roads account for approximately 85% of passenger-related and 70% of freight-related land transport in India. Although the National Highways grid comprises only 1.8% of the country’s roads network, it accounts for approximately 40% of total traffic. In order to improve mobility, the Government has started extensive projects to strengthen high-density traffic areas or ‘‘corridors’’ in the country. The most important of these is the National Highway Development Programme (‘‘NHDP’’) which was established in 2000 with an estimated cost of Rs.540 billion. It consists of two projects: the four-to-six-laning of 5,846 km of routes connecting the four metropolises of New Delhi, Mumbai, Chennai, and Calcutta (“the Golden Quadrilateral”) and the construction of 7,300 km of roads in the North-South and East-West corridors. NHDP Current Status: In the last one year, the Government has awarded contracts for nearly 5,500 Km of new roads which is the highest ever since the commencement of National Highway Project aimed at strengthening the country’s surface transport infrastructure. The first phase of connecting the major metropolis is almost over (i.e the Golden Quadrilateral). The second phase of the NHDP, the North–South-East-West corridor is well under way and the NHDP Phase III A has just been started. The phase III- B and Phase IV have also received in principle approval from the government. The opportunity from the segment is estimated to be over Rs.425 billion in just FY06 and FY07 and with Phase III A requiring an investment of Rs.220 billion (4000Kms) and III B an investment of Rs.330 billion (6000 kms), this sector is expected to continue to grow at a rate of at least 25% per annum. In case of the GQ and North South - East West (NSEW), the majority of the stretches were less than 80 km and some were less than 40 km. As the project size was small and most stretches were planned on cash-contract basis, they required low investment from the contractor, fuelling higher participation from small contractors. Table 15: Road Projects: NHDP Status NHDP & Other NHAI Projects  (Status : 31st December , 2005)   NHDP Port Connectivity Others Total by NHAI GQ NS - EW NHDP Phase III  NHDP Ph. I & II   Total Already 4-Laned (Km) 5,846 7,300* 4,015 17,161 356 811^ 18,328 Already 4-Laned (Km) 5,154 797 - 5,951 99 287 6,337 Under Implementation (Km.) 692 2,488** 44 3,224 251 156 3,631 Contracts Under Implementation (No.) 45 67 2 114 7 6 127 Balance length for award (Km) - 1,904 3,089 4,993 7 223 5,223 BOOT projects constituted around less than 20 per cent (in terms of km) of NHDP Phase I. In all about eight annuity, nine toll and 13 SPV projects were awarded in NHDP Phase I. Uncertainty associated with factors like willingness of the private players to go ahead with BOT projects (involves blocking of funds for a long time), traffic projections and also the acceptability of the road user charges, contributed to the low representation of the BOT projects in Phase I. Most of the BOT-toll/annuity projects awarded in GQ have either just achieved completion or are nearing completion. Hence, it will be possible to measure the performance of these projects only after some passage of time. However, whereas annuity projects have been fairly successful owing to their fixed assurance of cash inflows, many traffic risk projects in the first phase floundered and had mixed fortunes due to the following reasons: * Projects like Noida project, Ahmedabad-Mehasana project, Vadodara-Halol are not doing well as the toll collections have been less than expected for a variety of reasons, including poor estimation • Actual traffic being much lower than the initial estimates (for instance, Noida Toll Bridge) • Existence of untolled alternate routes, leading to traffic diversion (Mumbai-Pune Expressway) • Significant level of user resistance to payment of tolls (Coimbatore Bypass), and * While a few of the projects have been completed on schedule (Mumbai-Pune Expressway) and have been relatively successful (Narmada Bridge project), many others (such as the Coimbatore Bypass and the Mumbai-Pune Expressway) have been facing financial difficulties, in their initial years of operation, due to reasons such as high gearing levels of the SPV or the project-implementing organisation (Mumbai-Pune Expressway). These experiences have been taken into account in the next set of projects which were set out and developers have learnt from the past mistakes. The opportunity in the BOT sector is huge and is expected to increase rapidly in the years to come. This would lead to only the large players with the capability to take risk in BOT projects emerging as leaders with the smaller players playing the role of subcontractors. Map 7: NHDP PROJECT MAP Opportunity Space: Going forward, the government proposes to implement the Phase III B to Phase VI (excluding Phase IV) on BOT toll basis, envisaging an investment of Rs 656 billion (assuming an average subsidy of 25 per cent) from the private sector (that is, from private players and financial institutions). Phase IV, which is expected to be totally on an annuity basis, will require a total investment of Rs 400 billion from the private sector. Out of the total investment required to implement Phase III to Phase VI, private players alone (construction companies) will need to invest Rs 264 billion. To attract foreign investment, particularly in National Highway Construction under the NHDP, the Government is planning to award bigger contracts for stretches of about 200 Km. At present , contracts are given for shorter stretches of road which is about 50 Km. Very recently , the Prime Minister’s committee on infrastructure has cleared in-principle two expressway projects of around 1000 Km to be built at a cost of Rs 150 Bn. Out of the two, 400 Km expressway project between Mumbai & Vadodara has been selected for preparation of the feasibility study. Till May 2005, 11 projects covering a total length of 746 km had been awarded. NHAI plans to award an additional 730 km by the end of 2005-06, another 1,700 km of stretches by end of 2006-007 and the balance 824 projects after 2006-07. All the projects under Phase IIIA have so far been planned on a BOT-toll basis. This apart the Government has already given in-principle approval for Phase III B (6,000 kms). The general opportunity space in Roads in BOOT in terms of specific projects expected to be bid out is summarized in the following tables at US$ 5.2 billion. Table 16: PROJECTS ON OFFER UNDER NHDP PROJECTS ON OFFER UNDER NHDP PHASE II WITH BOT MODEL(Source: NHAI) S.NO STRETCH LENGTH ESTIMATED PROJECT COST RS. (CRORES) USD (MILLION) ON NORTH SOUTH CORRIDOR 1 Maharashtra/ Andhra Pradesh Border to Armur km 175 to km 308 137.95 750 168 2 Lakhnadon to Madhya Pradesh/ Maharashtra Border km 544 to km 652 104 580 129 3 Gwalior- Jhansi including Gwalior by pass km 0 to km 95 118 680 151 4 Madhya Pradesh/ Maharashtra Border to Nagpur including Nagpur By pass km 652 to km 714 103.5 640 142 5 Kerala Border to Thrissur on NH 47 km 182 to km 170 88 590 131 6 Salem to Kerala Border on NH-47 km 100 to km 182 82 340 75 7 Jhansi to Lalit pur km 0 to km 94 94 515 114 8 Agra Bypass km 199.8 of NH-2 to km 8 of NH-3 32.5 240 53 ON EAST-WEST CORRIDOR 1 Kosi Bridge( 2 km) and 2km approaches on NH-57 km 155- 165 10 140 31 2 Palanpur to Swaroopganj km 264.00 to km 340.00 on NH-14 76 475 105 3 Orai to Bara km 220 to km 255 on NH-25: km 422 to km 449 on NH-2 62 468 104 4 Assam- West Bengal Border to Gairkatta km 223.00 to km 145 78 595 132 5 Garikatta to Siliguri km 145.00 to km 105.00: 634.00 to km 623.00: and km 623 to km 551.00 30 160 36 PROJECTS ON OFFER UNDER NHDP PHASE III A WITH BOOT MODEL(Source:NHAI) S.NO NH NO STRETCH LENGTH ESTIMATED PROJECT COST RS. (CRORES ) USD (MILLION) 1 9 Hyderabad- Machhlipatnam 241 1450 322 2 10 Delhi-Hissar 160 900 200 3 58 Delhi-Meerut 46 200 45 4 22 Kalka-Shimla 133 1330 300 5 33 Hazaribagh-Ranchi 75 318 70 6 17 Mangalore-KNT/Kerala Border 18 90 20 7 4 Bangalore-Hoskote-Kolar-Mudabagal 75 450 100 8 17 Kundapur-Surathkal 71 400 85 9 46 Neelamangala-Hassan 154 930 207 10 4A Belgaum-goa/Karnataka Border 84 420 95 11 47 Charthala-Kanyakumari 300 1850 411 12 6 Durg-Nagpur 226 1175 261 13 215 Panikoili-Roxy 249 1245 280 14 215 Panikoili-Roxy 249 1500 335 15 200 Chandikhole-Duburi 39 235 53 16 66 Pondicherry- Tindivanam 40 200 45 17 21 Chandigrah-Kiratpur 73 365 81 18 67 Trichy-Karur(Including Trichy bypass) 88 525 117 19 45B Dindigul-Trichy 80 400 90 20 67 Nagapatnam-Trichy 134 670 150 21 68 Salem-Uluenderpet 135 605 135 22 45B Madurai-Tuticorin 130 486 105 23 205 Tiraputi Tiruthani- Chennai 138 690 155 24 58 & 72 Muzaffarnagar-Dehradun 146 850 190 DS Constructions as one of the leading players in the BOT segment would be well positioned to emerge as one of the strongest player in the segment with its capability to invest in large BOT projects and experience of managing the risk of such projects. The company already has an impressive portfolio of road BOT assets and has been executing two road projects (detailed on Page no:-23 to 29 and 32 to 35) and has been awarded four more BOT projects. Given its strategy and approach, the company is preparing itself for specific projects and in particular focusing on the following projects: * Badarpur Elevated Expressway: The Technical PQs are complete and the financial bids are likely to be called in April. The Project cost is approx. 4000 Mn and this corridor will be the connectivity between Delhi and Haryana (Faridabad area). * Eastern Peripheral Expressway This is the counter part of the KMP Expressway (Western Expressway). The Project is 110 KM long including 2 major bridges over the river Yamuna and the project cost is estimated at Rs.12bn. The Detailed Project Report is under preparation by Span Consultants and the bid for the same is expected by the middle of the year. * Annuity Projects: a. Agra ByPass Rs 3920 mn b. Gwalior ByPass Rs 3010 mn c. Gwalior-Jhansi Rs 6040 mn d. Jhansi- Lalitpur Rs 3550 mn e. Jhansi Lalitpur (2) Rs 2760 mn f. Lakhandon – MP Border Rs 6700 mn (2 packages) * Projects being targeted on a Swiss Challenge basis: a. Delhi Mehrauli Border to IFFCO on the Delhi Gurgaon Expressway b. Gurgaon – Faridabad Highway c. Dhaula Kuan to RTR elevated connectivity on Annuity Basis d. KM 42 Toll Plaza (Delhi Gurgaon Expressway) to Manesar Junction on KMP Expressway 6 lane connectivity Railways: The railway sector has not been opened up to the private sector till recently and has suffered from major under-investment. The sector has grown at over 10% for the last two years and is slated to grow at a CAGR of over 12% for the period 2004-20093. In recognition of the same, the annual outlay for railways has been allocated at Rs. 234 Bn, an increase of 32% over the current year allocation, as declared in the railway budget 2005-06. Railways will attract investments of over Rs 749 bn over FY05-10 from both budgetary as well as private resources. At a macro level, the following trends are worth noting: * An Integrated Railway Modernization Plan. The IRMP envisages running of 150 kmph passenger trains and, 100 kmph freight trains on the golden quadrilateral and its diagonals; introduction of higher axle load; double stack containers; light weight corrosion resistant aluminium wagons; modernization of track, bridge, signaling and telecommunication, etc. * The massive investment requirement in the sector has prompted the government to launch the National Rail Vikas Yojana (“NRVY”) on the lines of NHAI, whose primary mandate is time and cost bound implementation of railway projects through largely non-budgetary financial resource using host of funding options including from external multilateral agencies like World Bank, Asian Development Bank, use of private participation model of Build-Own-Transfer (BOT), Joint Venture SPV with equity participation by strategic and financial investors and debt from bankers/FI etc, market borrowing and implementation by RVNL through EPC contracts etc. * National Rail Vikas Yojana has in turn identified he following investment planning focus: • Strengthening of Golden Quadrilateral and Diagonals connecting the 4 metro cities i.e. Delhi, Mumbai, Chennai and Kolkata. – Rs. 80 Billion • Strengthening of rail connectivity to ports and development of multimodal corridors to hinterland, at a cost of Rs.30 billion • Construction of four mega bridges — two over the River Ganga, one over River Brahmaputra, and one over the River Kosi — at a cost of Rs. 35 billion • Accelerated completion of last mile at a cost of Rs. 7.63 billion * Ministry of Railways has further ushered in reformist endeavor by offering privatization of freight corridors. It has already invited EOI form the parties and has got enthusiastic response as mix of local, national and, global players have bunged in their expression of interest for the movement of private container trains. Railway container transportation is a highly profitable business in India, but all these years it was a monopoly with the container corporation of India (Concor) Container traffic in India is growing at a compounded annual growth rate of 14 percent as against a global growth rate of 7 to 8 %. It is estimated that Indian ports would be handling 14 million TEU’s by 2014-15 of this nearly 4 million TEU’s are expected to flow on the railway network increasing the number of inter-model trains from 26 per day to 138 by 2014-2015. Realizing this potential, the Ministry of Railways and the Planning commission decided to allow the private sector entry into this business. The committee headed by Prime Minister, Manmohan Singh has recently cleared the dedicated rail freight corridor project to be executed through SPV for the Delhi-Mumbai and Delhi-Kolkatha strengths of the corridor. Opportunity Space: On a Project Specific Level, the following opportunities are expected to come up on the horizon from RVNL: Table 17: Rail Projects from RVNL Sl.No. Project Location Length (Kms) Projected Cost (in Mn) Completion (Months) 1 Renigunta- Guntakal 408 6120 30 2 Kalyan- Kasara 3rd Line 67 1350 18 3 Igatpuri – Bhusaal – 3rd Line 408 8200 30 4 Palwal – bhuteshwar 3rd Line 81 1000 18 5 Jn.Cabin – Palwal 4th Line 37 75 12 6 Bhopal – Bina 3rd Line 138 280 24 Other Projects to be implemented through SPVs : The following projects are being planned for implementation through creation of Project specific Special Purpose Vehicle (SPVs) having equity participation by both strategic and financial investors. * Haridaspur – Paradeep New Line (Orissa) * Dadri ICD – Tughlakabad New Line (U.P., Delhi) * Bharuch – Samni – Dahej Gauge Conversion (Gujarat) * Surat – Hazira New Line (Gujarat) * Obuvallirapalle – Krishnapatnam New Line (Andhra Pradesh) * Hassan – Mangalore Gauge Conversion (Karnataka) * Gandhidham – Palanpur Gauge Conversion (Gujarat) Future Plans for DSC: The Viramgam-Mahesana gauge conversion project, which has been executed by DS Constructions, has been a highly successful venture. The success of the project would encourage the government to give more projects on a BOT basis. DS Constructions has already received a LOI for the Amroha-Kankather BG line project which would be the second BOT railway project in the country after Viramgam-Mahesana. Going forward, it is expected that a huge chunk of railway projects would be on BOT annuity basis which would be another prime driver for the growth of DSC as well as a steady source of income post the construction phase. The company, as per its strategy, is planning and focusing on bid preparation for the following projects: * Independent Freight Corridors (BOT Revenue model as opposed to Annuity) a. Surat- Hazira b. Bharauch-Dahej c. Tuglaquabad –Dadri * High Spee Freight Corridors between Mumbai-Delhi / Mumbai- Kolkata * These projects valued according to studies conducted by Ministry of Railways at over Rs.180bn are expected to be launched and executed through a SPV and will be an extremely huge area of focus in the next 5 financial years. Airport: The country has experienced one of the fastest air traffic growths in the world in recent years. The passenger traffic in India has grown at the rate of 22% in 2004-05 and 19% in the first 8 months of 2005-06. The domestic passenger traffic has grown at a rate of 24% in 2004-05 and is expected to continue to grow at a phenomenal rate of over 15% in the coming few years with large expansion plans of airlines coming up and increasing affordability of air transport due to the number of budget airlines coming up. The primary airports of Delhi and Mumbai accounting for over 60% of the air traffic in the country are already under severe traffic pressure. In its effort to develop Indian airports to world class standards, the government is inviting private participation for investments. The private investments would develop the existing airports such as Mumbai, Delhi, etc as well as Greenfield airports such as Kolkata and Chennai. AAI has already initiated initial feasibility studies for 35 minor airports in the country and appointed advisors for the same. etc. The total investment envisaged in airports over the next five years is Rs.228bn. Hydropower: The Case for Power: The Indian Power Sector is a US$50 bn industry with deeply entrenched complexities and 25% of the value being lost in losses and inefficiencies. The current generation capacity is 112000 MW with a fourth being contributed from hydro power and a 72% being thermal power. Whereas the bulk of the demand and generation comes from the Western region, the North Eastern Region accounts for about 17% of the power generation. The North Eastern region is also a power surplus region given a lower share of power demand in the country and the same is transmitted across to the power deficit regions. India has perennially been a power deficit nation with peak shortage and energy shortage consistently hovering around 10%-12% and 9%-10% not only in recent times but consistently over the last decade even during the periods of recession. Thus, India has always been a power deficit country. It may be noted that this power deficit has consistently prevailed inspite of an addition of more than 30,000 MW over the last thirty years. Thus, addition of more capacity whether in the form of existing plans or drawing board analysis, or mega power projects, are not likely to dampen the demand for power, even if one ignore the history which suggests that not all plans of setting up generation capacity have fructified. As India embarks on a high-growth trajectory, this power demand can only spurt further. India is currently the second fastest growing economy, the fourth largest in terms of purchasing power parity and amongst the top five-six power generators in the world. A target 8% GDP growth rate can only be achieved with growth in power consumption at an elasticity of over 1.5, i.e. growth rate in power being in the region of 12% - 15%. India has set itself a target of adding another 100,000 MW over the next ten years to meet its growing requirements. Clearly, this is a sector whose time has come. Power remains one of the few recession-free industries as far as demand for goes with the thirty year CAGR for growth in power consumed being 7.34%. Given the above, a capacity addition requirement of 1,00,000 MW over the next decade appears to be a very real and pressing requirement. The Case for Hydro Power Key issues plaguing the Indian power sector have been commercial viability with the average cost recovery trailing average cost of supply by more than 30% on account of subsidized tariffs, free power to agricultural sector in many sectors, unremunerative residential sector tariffs, etc. Given the above, either the generation plans where not found to be viable, or in some cases like Enron, when they were set up the capacities did not find adequate buyers at the price at which they sought to sell the power. Ensuring that the power generated is competitive is hence the biggest lesson from the first generation of power reforms in the country. However, the industrial sector which was hitherto the cash cow has found it imperative to have commercial power in order to be globally competitive and has resorted to captive power in a big way forcing the losses at State Electricity Boards to mount and face the prospect of having non-lucrative consumers in its fold. This, along with consistent power deficits, government financing for setting up power projects drying up, virtually no power addition in the private sector (only one project of more than 500 MW has managed to go of the drawing boards and come up in the last ten years –other than Enron – in the private sector – the 655 MW combined cycle power project set up by Torrent in Gujarat) has forced the government to adopt a more pragmatic approach and restructure the power sector. The New Electricity Act, 2003 has put in an appropriate regulatory framework which has segregated the government from the issue of setting tariffs thereby depoliticizing the sector to the extent possible. Generations have been delicensed except for some large power projects which would require the CEA’s approval. The National Tariff Policy provides the policy directions for tariff setting and the Central Electricity Regulatory Commission stipulates the norms for setting of tariffs. Returns on generation are set at 14% on equity invested plus incentives linked to efficiency of the generation capacity. These efficiencies include, operating load efficiency, O&M, working capital efficiency, etc. Returns of 18 – 20% are expected for the efficient plants. However, the regulator does not need to approve tariffs which are negotiated by distribution licensees through a process of competitive bidding. Hence many hydro power projects are being set up on merchant power basis with an agreement sell the offtake to the power trading corporation with a view to capture the upside on cost effective power. The key to the incremental generation is the competitiveness of tariffs – power which is not affordable is a sector which has less probability to be sustainable. Hydropower has the potential to be extremely competitive with low operating costs, no fuel costs and low fixed costs as the projects have longer shelf life. Given the prices of crude oil linked LNG, issues with coal hydro appears to be most attractive option for India. Once the debt has been repaid, the variable cost is negligible where as it is still Rs. 1 – 1.5 in the case of other fuels. The segment also offers higher margins (20%-24%) to construction players due to the long gestation period, high technology, limited competition and presence of selected players. The order sizes are of a higher size and longer duration. The number of players in this segment are also comparatively less and only larger players are present. The other major players in the segment are Jaiprakash Associates, Patel Engineering, Hindustan Construction Company. India’s hydel power potential is estimated to be 150,000 MW out of which so far only about 31,000 MW (20% of potential) has been tapped. It is estimated that of the balance, almost 40% of this is in Arunachal Pradesh – 39000 MW. Given the huge potential that remains in hydro power DS Constructions has signed a competitively awarded MOU with the Government of Arunachal Pradesh to set up a 1000 MW hydro-power project on the Siyom river. This would be a launch pad for the future growth in the sector which would account for a significant portion of future revenues. DSC would be well positioned to leverage its project track record, depth and breadth of service capability and domain expertise to penetrate this huge market. While DSC is focusing on Arunachal Pradesh and has also submitted pre-qualification for the following projects in Himachal Pradesh: * Jangi Thopan HEP (480 MW): Jangi-Thopan Hydro-electric Project located in Kinnaur district of Himachal Pradesh, is a run-of-river type development proposed to harness the hydel potential of river Satluj between Spillo and Thopan villages. A gross head of 186 m is available at the power station, which shall be utilized to generate 480MW (3x160MW) of power. * Thopan Powari HEP (480MW): Thopan Powari Hydro-Electric Project located in Kinnaur Distt. Of Himachal Pradesh, is a run-of-the river type development proposed to harness the hydel potential of river Satluj between Thopan and Powari Villages. A gross head of 172m is available at the power station, which shall be utilized to generate 480MW (3x160 MW) of power. * Kutehar HEP (260 MW): Kutehar Hydro-electric Project has been envisaged on river Ravi in Distt. Chamba (HP). Installed capacity is estimated at 260 MW * Chamba HEP (126MW): Chamba Hydro-electric Project has been envisaged on river Ravi in Distt. Chamba of Himachal Pradesh. Capacity of 126 MW Global / Middle East Opportunities: It needs to emphasized that whereas the opportunity space in India is itself sizeable for DSC to focus on in its business strategies, there are signficiant opportunities of Indian construction companies in the Middle east and other regions which DSC has the presence and wherewithal to capture should the need arise or the opportunity appear more attractive. Investment Risks * Construction Risk / Delay Risk: Concession agreements carry a penalty for any deviation from the deadlines agreed upon (inclusive of a cure period). The projects could be delayed due to unavoidable delays such as land acquisition or other delays on part of authorities. Construction delay may cause projects to be less profitable and delay in revenue than initially expected. * Volatility in order inflows: A major portion of the order inflows is from government infrastructure agencies such as NHAI and Indian Railways. Considering the approvals and legal procedures involved in tendering, orders are likely to flow in clusters. For instance, in FY05 NHAI could not release the anticipated quantum of contracts related to NHDP, thus the order inflows dried up for many EPC players; these contracts were awarded in H1FY06, thereby boosting the order books of many players. This causes lumpiness in order inflows which can potentially swing revenue booking. The company is thus expanding the sectors of operations so as to have more stability in its order flows. * Commodity price variation: A considerable portion of the cost in contracts is dependent on commodity prices i.e. steel, cement etc. The company, to the extent possible, enters into back to back arrangements for the same as the contract is entered into at fixed BOQ rates incorporating therein the volatility factor. However, an abnormal increase in prices would impact the profitability of the company. * Risk in securing contracts: The majority of the contracts entered into by the company have been won through a competitive bidding process. There is the risk of the company failing to secure contracts should it lose to its competitors. However, the record of the company shows that the company has been able to achieve a very high bid success ratio. This is due to the thorough research undertaken by the company prior to bidding and target only select projects that it intends to execute. * Government Focus: A shift in government focus from infrastructure could delay award of projects and delay future revenue potential. Application of Funds The funds would be primarily be used for the following purposes 1. For investment in different project SPVs: An amount of approximately Rs.4,500 mn. is planned to be invested in the project SPVs in FY07 and another 2,000 mn thereafter (assuming a smaller investment of Rs 1500 mn in the hydropower project. 2. For the purpose of acquiring equipment: Amount of Rs.2000 mn 3. For financing working capital requirements. 4. Fore general corporate purposes. Financials & Projections Profit and Loss Account: Rs. Mn. 2006E 2007E 2008E 2009E Operating Income (Revenues) 3,800 10,296 16,232 23,422 of which Existing Contracts 3,800 10,296 13,982 13,972 of which New Contracts - - 2,250 9,450 Operating Expenses 3,112 8,424 13,281 19,164 EBITDA 688 1,872 2,951 4,258 % margins 18.1 18.2 18.2 18.2 of which Existing Contracts 688 1,872 2,542 2,540 of which New Contracts - - 409 1,718 Depreciation & Amortisation 114 210 320 361 Gross Interest 150 215 242 391 Other Income 45 47 49 52 Recurring EPC PBT 469 1,494 2,438 3,557 Recurring Income from Sale of Investments 254 1,437 1,800 1,800 Add: Share in Associate Cos. 22 (44) 127 162 - Provision for Tax 61 329 475 601 - Deferred tax - - - - - Tax on Associates 0 0 13 19           Net Recurring Income 684 2,558 3,876 4,900 of which Existing Projects 429 1,326 1,864 1,884 of which New Projects - - 300 1,274 Sale and Income of Investments 254 1,232 1,712 1,741 Recurring Net Income 684 2,558 3,876 4,900 The projections above clearly segregate the visibility of revenues from current orderbook as well as estimates from future orders won. The company currently has won an orderbook of US$0.75bn in the last one year. It is conservatively estimated that of the US$150 bn investments expected to pan out in the country over the next three years, the company would be in a position to win incremental orders of US$1bn in making the above projections. The company has the option to churn its residual investments in BOOT assets in a phased manner commencing FY2008. The Balance Sheet, Cashflow and Ratio projections are provided in Annexure VIII. The detailed financial projections and cashflow valuations for the SPVs are summarized in Annexure VII. However, the projections for the first DG & RD are summarized herewith: Delhi-Gurgaon: Year Ended FY 2007 FY 2008 FY 2009 FY 2010 Months of Operation 3 12 12 12 Toll Revenue 278.5 1286.3 1503.5 1742.5 EBITDA 198.8 1103.7 1309.5 1536.0 PBT -101.4 315.4 538.6 788.3 PAT -101.4 280.0 478.2 559.8 Raipur Durg Year Ended FY 2007 FY 2008 FY 2009 FY 2010 Months of Operation 11 12 12 12 Toll Revenue 198.9 251.8 278.9 325.5 EBITDA 174.5 225.7 252.6 298.5 PBT -22.4 26.3 60.2 115.3 PAT -22.4 23.3 53.5 102.4 Valuation Benchmarks a. Construction Business Valuation Benchmarks The infrastructure construction space has grown rapidly in the past few years and a large number of companies have entered the sector and grown rapidly. The sector has also attracted large amounts of equity investment which would be required by the companies to fund their growth plans and investment into projects. The existing Indian construction companies provide a benchmark that can be used to value the construction business of DS Constructions. The company is better placed vis-à-vis its peers given that (i) its margins are much higher, (ii) its revenues are focused, (iii) it has unique pre-qualifications in hydro, rail and airports (iv) It is lowly geared and most importantly (iv) its consolidated multiples are the lowest on a trailing basis. b. Basket of BOOT Projects Valuation: Global Toll Roads Valuation In the absence of any major listed toll road in India, we have collated data on toll roads in the emerging markets. Table 20: Global Toll Road Multiples Ticker Name P/E EV / EBITDA DES THAILAND BECL BANGKOK EXPRESSWAY PUB CO 11.25 9.1 BTO. Operates 3 toll road networks. Urban/Semiurban SPAIN CIN CINTRA CONCESIONES DE INFRAE 164.2 27.68 Toll roads in spain, USA(Chicago skyway), Portugal etc. EUR EUROPISTAS CONCESIONARIA ESP 11.94 20.11 SINGAPORE CMH CHINA MERCHANTS HLDGS PAC 6.9 111.29 Operates five toll roads totalling 330 km. in china ITALY SIS SIAS SPA 20.84 8.61 AT AUTOSTRADA TORINO-MILANO SPA 14.98 12.05 Holding Operator for 500 km of italian highway AUTME AUTOSTRADE MERIDIONALI SPA 13.7 5.79 HONG KONG 737 HOPEWELL HIGHWAY INFRASTRUCT 18.11 13.09 3 expressways in the Guangdong Province 1052 GZI TRANSPORT LTD 12.4 12.5 Guangdong Province. 13 highways/bridges CIFH CHINA INFRASTRUCTURE HOLDING 91.55 6.69 Roads in China 629 YUE DA HOLDINGS LTD 13.37 2.87 2 toll roads in china FRANCE ASF AUTOROUTES DU SUD DE LA FRAN 26.94 12.16 Roads in France CHINA 177 JIANGSU EXPRESS CO LTD-H 27.21 13.76 China Expressway + servicing, petroleum retailing etc 600377 JIANGSU EXPRESSWAY CO LTD-A 31.85 13.76 China Expressway + servicing, petroleum retailing etc 576 ZHEJIANG EXPRESSWAY CO-H 20.77 10.52 China Expressway + servicing, petroleum retailing etc 600350 SHANDONG INFRASTRUCTURE CO-A 21.73 9.18 3 bridges + petroleum retailing 600269 JIANGXI GANYUE EXPRESSWAY CO 19.34 9.15 Changjiu, Changzhang, changfu roads + yinsanjia overpass 600020 HENAN ZHONGYUAN EXPRESSWAY 13.31 8.68 Zheng Expressway 600033 FUJAIN EXPRESSWAY DEVELOPMNT 17.55 11.05 Quanxia Expressway + Fuquan expressway 000916 HUABEI EXPRESSWAY CO LTD-A 18.05 7.14 Jing Jin Jang 000828 DONGGUAN DEVELOPMENT HLDGS C 17.07 17.96 Dongguan 995 ANHUI EXPRESSWAY CO LTD-H 16.24 10.68 Anhui Province roads 548 SHENZHEN EXPRESSWAY CO-H 15.66 18.46 Roads in China 000905 XIAMEN PORT DEVELOPMENT CO-A 23.55 8.3 000900 XIANDAI INVESTMENT CO LTD-A 34.15 9.09 600035 HUBEI CHUTIAN EXPRESSWAY CO 25.48 16.46 107 SICHUAN EXPRESSWAY CO-H 15.07 7.87 600368 GUANGXI WUZHOU COMMUNICATION 16.81 8.02 Pingwang Road, Nanwu road, Jinyi road 600106 CHONGQING ROAD & BRIDGE CO-A 19.57 16.1 Average 18.66 11.7 It would be observed that the EV/EBITDA multiples are in the median range of 8.5 – 13.5 and averaging around 11.5. Given, the urban profile of Delhi Gurgaon and its presence in high traffic density, a premium to the average multiple may be justified.The other option for benchmarking valuation is to look at the discounted cashflows of the individual projects. The same has been undertaken discounting cashflows @12% for Raipur Durg which is starting tolling shortly, and @13% - 14% for Delhi Gurgaon, which shall commence tolling early next year. In the case of projects where the construction/project risk is significant the discounting rates have been assumed to be significantly higher at 18%. (Risk adjusted discount rate for Indian construction companies is 14.7%). Another way of attributing a value to the equity would be to ascribe a value say 5% of the project costs as development rights for these projects. For eg. the rights to develop a hydropower project concession for a period of 45 years with an option to renew it for another 45 years would have a value ascribed to it. (b) Completed/About to be Completed Projects: In Rs. Mn Delhi Gurgaon Raipur Durg VMPL Total First full Year EBITDA: 1104 mn 226 mn - EV/EBITDA Benchmark 10.5 – 12 9 – 11 - Equity Value Range 7000 - 9000 1200 - 1600 500 8750 – 11000 DCF Value 7250 - 8750(14% - 12%) 750 (12%) 500 8500– 10000 A trading market cap range of Rs.8,500mn – Rs.11,000mn could be benchmarked for this portfolio of assets, of which the company would have cash to the extent of disposal of 55% stake in these companies and a 45% stake in these entities. (c)Projects in Development Stage: We have explored alternative ways of valuing the right to develop the project: In Rs. Mn Hydro KMP SL RA SB JG Total DCF @18% - 1980 542 448 235 1500 4705 Development Rights @6% 3000 3000 Total 3000 1980 542 448 235 1500 7705 Transaction Structure The investment would be by way of fresh issue of equity shares of D.S. Constructions Ltd. A separate company DSIDL would also hold stake in the different SPVs and would invest in the BOT projects of the company. This section examines the drivers for business restructuring, the options and evaluation thereof and the proposed steps for implementing the same for the current transaction: DRIVERS FOR BUSINESS RESTRUCTURING INTO TWO COMPANIES: * DSC has hitherto taken up equity investments in projects for the primary objective of its EPC business, although it has taken care to ensure that the stand alone Equity IRR for these projects is also profitable. This strategy has paid dividends and has been successfully deployed in the Road and Rail BOOT/Annuity projects. However, the business has now evolved to a stage wherein the group has acquired rights for (i) hydro projects (ii) an SEZ (iii) has submitted bids and would be bidding in future for complex airport development projects (iv) is in active discussions for acquiring land banks in lieu of financing expansion in some of the construction projects. It is felt that these projects are primarily of the nature of complex infrastructure development and have (i) far longer maturities (ii) complex business risks (iii) negative cashflows initially in some cases and (iv) of a nature which is primarily removed from pure construction and project formulation. EPC, and regular BOOT projects are a time bound business which can be a little amenable to say quarterly revenues whereas development of complex infrastructure projects is contingent on many unforeseen eventualities and hence more risky. Consolidation of all businesses within one entity would change the very nature of the company. For eg. carrying out a 1000 MW hydropower project under DS is likely to change the complexion of DS from a EPC driven firm to a hydropower project developer owing to its sheer size. Segregation of business hence appears to be the right strategy. * From the perspective of business focus, DSC would like to focus on its strengths in Design, Project Formulation, Bidding Strategy and EPC Construction. It would not have appetite for project development including, say, hydro power project, real estate or SEZs where significant opportunities are emerging. However, as a group, the company would not like to forego these opportunities. Further, DSC may also like to have the option of pursuing construction projects which are cash contracts in case margins improve. It may not be keen to induct strategic partners in its construction businesses whereas it may be far more flexible to get strategic partners with equity stakes in projects such as the hydro project, technical operators for the airport or land bank development. All such scenarios support a case for having two vehicles, pursuing two separate business focuses. * Segregation of EPC Construction & Complex Infrastructure Project Development as separate businesses with different business cycles, maturity profiles and project risk profiles is an accepted industry practice with companies such as L&T and Gammon having also housed these two businesses in separate companies. * From the perspective of investors, it is also felt that such a segregation would only offer investors wider choice of chosing to invest in one or both business models in stead of being obliged to either accept or leave the whole business as a package deal. The group would also have two vehicles to access capital markets with different business plays and the rating of the sectors is expected to be different over a period of time as construction is cyclical whereas equity returns in BOOT businesses are more steady in nature. * In the case of DSC, its construction business with its orderbook is mature and ripe for going to the market, whereas the BOOT projects are yet to be fully ripe, and in some cases are just developing. Thus, in terms of access to capital markets also, segregation of businesses is also expected to be optimal. * The company requires about US$250 mn over the next two years. However, whereas its construction & EPC business is mature, its two largest BOOT projects will mature next year. Segregation of businesses would give the group the option of hiving-off part of the not yet mature investments in the BOOT SPVs into DSIDL and unlocking value when they mature. * Given significant quantum of non-recourse debt in each project SPV, and long project gestation period (2 – 7 years), consolidation under one company would also strain the EPC business balance sheet financially, which is hitherto free from long term or working capital debt. The key issue with relation to segregation of businesses is to allay any apprehensions related to conflict of interests and have appropriate role definition for the two businesses and the company has expressed its willingness to be flexible and allay apprehensions on this count.. Restructuring Options: Given the need for segregation of businesses, the options are: A. A vertical segregation with the Infrastructure Holding Company being a wholly owned subsidiary of the EPC company B. A horizontal segregation under the same promoters and management with both arms holding equity stakes in the Project SPVs (to ensure aligned interests), and the EPC arm holding an equity stake (to ensure contracts), but not a majority one (to avoid consolidation issues and valuation issues), in the Infrastructure Development arm. Option A is tax inefficient resulting into a leakage of 15% of the enterprise value of the infrastructure development business. Further it is still plagued with the consolidation issues as the entire infrastructure development business would get consolidated at the construction arm along with the debt thereof. Further the objectives of accessing the capital market only with the mature business are not achieved as the construction company enterprise value would capture a not so ripe infra business. The investors would also not have a choice as they would be obliged to partake in both businesses as a package deal. Given the above, it is proposed by I-sec that the company prefer Option B. Proposed Role Definition: * DS Construction focuses on EPC, O & M, Project Formulation, Bid Strategy and Winning the Project. It will provide pre-qualifications, back-to-back EPC risk at the time of bidding and will also invest minority equity stakes in its BOOT SPVs to secure EPC (other than in project which it has already acquired where it is obliged under the concession agreement to necessarily hold a majority equity stake). * DSIDL will focus on Infrastructure Development for large, long gestation and complex projects – hydropower, SEZs, land banks, etc. investing equity, developing SPVs, getting strategic partners, etc and would not enter into EPC business. * Conflict of Interest would be avoided by ensuring that DSIDL does not enter into parallel EPC business and DSIDL would have the option of investing in projects won by DSC. Given that initially investors are investing in the construction arm which is receiving or has already been awarded the EPC contracts, the conflict of interest of overpricing of construction contracts perceived in other transactions where investors where getting a stake in the Infra Development Business but not in the construction arm does not arise. * In case of completed projects, investments are transferred at market value and DSC already has EPC which would be factored in the valuation. In the case of new projects, DSIDL would be given an option of investing in these projects at the value assessed at the pre-IPO stage. * In the case of future projects, proposed equity stakes and EPC contracts are pre-decided prior to bidding. * To further address the issue of conflict of interest between DSC and the promoters, DSC will hold a 26% stake in DSIDL. * Appropriate MOUs to allay investor apprehensions on perceived conflict of interest can be entered into Implementation of Proposed Business Restructuring: * The investors would be issued fresh equity shares in D.S.Constructions. DSIDL would then acquire stake in the SPVs at a valuation that is based on the value assessed jointly with the Pre-IPO investor. Thus the stakes are acquired at the current market value and not at book value, which would be a strong message sent to IPO investors and would ensure strong checks and balances for undervaluation or overvaluation. * DSC would enter into an agreement with DSIDL giving it the option to subscribe to upto 40% of the equity of Kundli-Manesar-Palwal, Raipur-Aurang, Lucknow-Sitapur, Sandhur Bypass and Nanying Hydro projects at the value assessed for these basket of projects within the next eighteen months. * DSC benefits from not having to delay its access to capital markets nor having to substantially forego the value of its investments at a time when they are not fully mature. * Valuation of EPC Business has many industry benchmarks. Value of BOOT investments assessed jointly with Pre-IPO investor and re-validated by institutional investor, as well as Promoters who have infused funds at this valuation. This would send a strong signal to the IPO investors. * This is expected to be a Win-Win structure for all stakeholders. ANNEXURES ANNEXURE I: D S CONSTRUCTION LTD- PROMOTERS FAMILY TREE ANNEXURE II: KEY FINANCIALS FOR DSC OPERATIONS IN LIBYA Rs. in Mn 1997-98 1998-99 1999-2000 2000-01 2001-02 Turnover 361 280 405 803 615 Expenses 323 256 345 659 520 EBITDA 42 27 62 147 97 PBT 38 24 60 145 95 PAT 31 20 48 110 72 ANNEXURE III: LIST OF KEY PROJECTS EXECUTED IN LIBYA AND THE MIDDLE EAST DSC has designed and built, seaports, housing colonies, power stations, pipelines and waste-water management systems, among others. DSC had the support of global giants in its endeavours. These included ASLSTOM, SIEMENS, ABB, OCRIM, FAVA, SMELT, and INTERTOLL to name a few. Roadways * 300 kms Agricultural and Communication roads in Azizia, Libya. * 250 kms Main highway from Multan to Quetta, Baluchistan. * 250 kms Roads : small strips of approach roads. * 92 kms National trunk road from Nankana Sahib to Quetta, Pakistan. * Internal (metropolitan) road in Tripoli, Libya. * 20 Kms connecting roads serving residential areas in Libya. * Taxi Track, Essider for WAHA OIL COMPANY * Runway of Nafoora Airport for Civil Aviation. * Approach Road and Storage Yard, Tajura. * Resurfacing and drainage work in 11 June clinic. * Al-Goush Road, Libya. * Seaport Terminal, Tripoli, Libya. * Administration complex for Seaport at Misurata, Libya. Power Infrastructure * CLIENT: SIEMENS – Germany: PROJECT: 400 kV Substations HOMS & GMRA-1 Construction of 400 kV Substation at GMRA-1 & Homs switching stations. Work includes the complete construction of civil foundations and superstructures, erection and commissioning of GIS 400 kV metal bus bar section, modifications of existing transformer feeder, gantry crane, HV & LV cables, auto-transformers, neutral reactors, LV AC equipment & switchboard, fire protection, emergency generator and related Civil works for switch gear building. This also includes laying, gland, tag, termination of all types of cables for electrical and instrumentation works. * CLIENT: ABB – Germany PROJECT: 3 AIS 220 kV/66kV Substations at Raslanuf, Benghazi and Zawia. Complete civil construction involves building and equipment foundations, construction of superstructures of control building, outside gantry, switchgear yard, etc. including peripheral roads, boundary walls, etc. * CLIENT: Cogelex Alstom, France PROJECT: 4*220 KV/66KV GIS and AIS Substations at Sebha and Benghazi Region. Execution of Civil Works for Construction of 4 Nos. Substations. This project includes complete surveying, designing, foundation works, sheet metal cladding works, installation of Prefabricated Steel Building for GIS and AIS Building, Control Building and Gantry Crane. Urban Infrastructure : * CLIENT: Government of Libya PROJECT: Al-Fateh Tower, Tripoli A state-of-the art 28 storeyed twin tower, located in the heart of Tripoli with covered area of 65000 sqmt, equipped with all modern amenities including underground parking, central air, conditioning and integrated building management and access control systems. * CLIENT: Government of Libya PROJECT: Sirte Utility Project. Construction of complete Roads and Sewerage network, Power system design, Street lighting and Telecommunication works. The work includes demolition of existing building & temporary building, surveying, designing, laying of asphalt roads, raising of manholes, inter connecting of manholes lines, sewerage networking, power system design and installation of street lighting and telecommunication works. * CLIENT: ALSTOM – France PROJECT: Sirte National Control Centre and Tripoli Regional Control Centre with 11 Telecom Towers between Sirte and Tripoli. Complete construction of 5 storied Sirte National Control Centre comprising construction of the civil foundations and superstructures, electrical system, communication system, building security system, automation system, lifts system, completion of all works from inception to commissioning including supply of all related materials. Complete Civil foundation and Structural erection of 11 Telecom Towers between Sirte and Tripoli. * CLIENT: PANTA LESCO – Malta PROJECT: Expertise Services for the Corinthia Tripoli Hotel Project. * CLIENT: Libyan Arab Hungarian Company for Construction PROJECT: 8 Floor Hotel Complex at Zawia Construction of 8 floor hotel complex at Zawia inclusive of all services including fire fighting, centralized air-conditioning, kitchen and laundry services etc. * CLIENT: Government of Libya PROJECT: Housing Project Souk-Talata Construction of 11 multistory Residential Blocks at different places in Tripoli. This includes complete services including electrification, water supply and lifts. * CLIENT: Government of Libya PROJECT: GauZ-EL-Tec Hotel at Misurata Construction of a five star Hotel with top of the line finishes and equipped with automation system communication system, central air-conditioning, building security system, etc. * CLIENT: Government of Libya PROJECT: 5 Nos. 120 Bed Hospitals Construction of 5 nos. 120 bed hospitals equipped with all sophisticated and modern facilities situated in different cites in Libya. * CLIENT: Government of Libya PROJECT: ICU and Chronical Care Unit Building at Tajura. Construction of very modern ICU and Chronical Care Unit Building. * CLIENT: Government of Libya PROJECT: Housing Project, Tripoli. Construction of 1345 houses at different places in Tripoli including all services. Industrial Complexes: * CLIENT: Brega Petroleum Marketing Company PROJECT: Central Workshop Phases I & II at Tripoli and Benghazi Construction of central workshop comprising of civil and installation work related to hangars, generators, underground water tanks, steel water tank, oil separators, septic tanks, roads and other external services. * CLIENT: Smelt International PROJECT: Modification of Coil Conveying System at the Rolling Mill Misurata, Libya Demolishing, casting of reinforced concrete for the slab by the special method in the sea under ground water, including shuttering, reinforcement bars and foundation pit walls, water proofing of foundations pits, manufacturing and placing of reinforced concrete piles, placing of iron anchors for fixing of columns of the conveyor line and equipment of erection, de-watering during execution and concreting. Water, Sanitation & Environmental Projects: * Water Supply and Sewerage Disposal at Dinjan, Assam, India. The Dinjan Project includes Compressed air de-hydration, Re-drilling and providing overhead tanks, 18 kms of piping works, A series of pumping stations, Sewerage lines at treatment units. * Sewerage Treatment Plant at Zwarah, Libya The Zwarah Project is one of the largest sewage treatment plants in with a capacity of 4.5 million gallons per day. The treated water is suitable for irrigation. Residential sludge is to be used as fertilizer for agricultural purposes. The project features primary screening, secondary screening, oxygenation and treatment of sewage water with sludge drying beds incorporating automatic sludge removal, in-plant testing laboratories to monitor operating parameter, central control panel for control over complete network of pumping stations and pipeline infrastructure feeding sewage to the plant and subsequent discharge. * Storage and Disposal Plant at Tajura This scheme involved treatment of sewage water making it suitable for agricultural use in the Tajura Agriculture Development Scheme. * Sewerage Project at Zanzour The project meets the needs of complete municipal sewerage and rain water run-off, with domestic housing connections, trunk sewers and rain water having RCC tunnels. * Construction of Buildings and Allied works for Research and Solar Energy Studies Centre, Tripoli for the Government of Libya – Ministry of Energy. * Water supply and sewerage network development in Wadan (Jufra). ANNEXURE IV: BOARD OF DIRECTORS Mr. B.S. Narula played an important part in establishing the fundamentals of the DSC Groups activities in their overseas foray post 1979. Under the Leadership of the late Founder Father he was responsible for the setting up of the group’s businesses in the Middle East. Presently, Mr. B.S.Narula is based in Dubai and overseas the operations of the group there. Mr. N.S. Narula holds an Engineering Degree from Germany and spent 7 years with Demag AG. Joined the group business in 1979 and was an integral part of Project Execution Team in the construction activities of the group in Iran, Kuwait and Libya. He was responsible for the investments in real estate business in India and played an important role in the setting up of the group’s retail business Ebony. Currently the Joint Managing Director of the DSC Group is involved in the Group’s Indian operations. Mr. V.S. Narula, has been actively involved in charitable work. He has been associated in several capacities in the various Sikh Religious Institutions and other social organizations in Delhi and Punjab. Mr. Anhad Narula, has graduated as a Civil engineer from The Imperial College, London. Joined the Group in 2002 and since then has become an integral part of the Core Group of DSCL with special focus on Management of the Execution of BOT Projects. He lead the Project execution of both VMPL and Raipur Durg. Both these projects have been completed / on the verge of completion on time and cost. He was also a key member of the DSCL Team that made the bids for Delhi and Mumbai Airports Privatization. Mr. H.S. Kohli, Director- Marketing and Corporate Affairs has done his graduation from Kashmir University and higher education specializing in international trading from UK. He has over 23 years experience in the group in the trading and retail business spanning the various offices of the group world wide. Presently, the Marketing Department of the D.S. Constructions Limited is headed by Mr. H.S. Kohli. He also looks after corporate affairs of the group. Some of his main focus area includes developing Mission & Values of the DSC, developing Business Plans with growth strategies, new projects & alliances, monitoring actual progress against benchmarks for all the functions of DSC, taking corrective actions and relationship building in all spheres with the clients etc. He has also been on the advisory panel to the Ministry of Commerce on a select basis. Mr. N.D.Mehra, Director- Commercial & legal, joined the DSC Group in the early 80’s in the India operations. He is responsible for the Group’s legal requirements in all areas of business with specific focus on Joint Ventures, the development of real estate and due diligence of new business areas. He was a key member of the DSC Team that made the bids for Delhi and Mumbai Airports Privatization in the current year. His responsibilities include the Corporate affairs of Group. ANNEXURE V: KEY PERSONNEL Dr. Govind Sachdev is Executive Director and joined the organization in year 2005. Dr. Sachedeva is Phd. In construction Contract Analysis & Contract Administration and holds master degree in contract management and degree in civil engineering. He has 37years of rich experience in Project management, training, Quality Control, safety , environmental management and remedial engineering for large Infrastructure, Power and irrigation project. His last assignment was Sr. Vice President, Essar Group. Mr. Subroto Chuadhary, is Executive Director and joined the organization in year 2005. Mr. Chuadhary holds Bachelor degree in commerce and Master Degree in business administration from Xavier’s Institute of management, Bhuvaneshwar and has 25years of rich experience in business development and marketing. His last assignment was Director Marketing & Business Development, Ooms Averhorn Holding India Pvt. Ltd. Mr. Chuadhary is responsible for business development. Mr. H.S. Khokhar, is Senior Vice President – Corporate (HR) and joined the organization in 2003. Mr. Khokhar holds MBA degree with specialization in Human Resources Management and Post-Graduate Diploma in Personnel Management and Industrial Relations. His last assignment was Director – HR, Oberoi Group of Hotels and Resorts. He was also associated with renowned Indian Business Conglomerates like Ranbaxy Laboratories Ltd, Hilton Rubbers Ltd, etc. Mr. Khokhar as Senior Vice President – Corporate (HR) oversees the entire gamut of Human Resources Management, Corporate Communication and Public Relations of the group companies located in India and Abroad. Mr.V.K.Sharma, is Head – (Hydel Projects) and joined the organization in 2005. Mr. Sharma holds degree in mechanical engineering from Birla Institute of Technology & Science, Pilani and has over 36 years of experience in Hydropower projects and infrastructure projects management. His last assignment was Executive Director, National Hydro Power Corporation Limited. Mr. Sharma has been instrumental in procurement of Hydro electrical project for DSC. Mr.A.K.Sinha is Technical Head for Infrastructure projects and joined the organization in 2002. Mr. Sinha holds a degree in Civil Engineer from Allahabad University and has over 28 years of rich experience His last assignment was Project Director, Nahtional Highways Authority of India. He has also worked as executive engineer with UP Public Works Department. Mr. J. K. Trivedi, is Vice President (Projects) and has joined the organization in year 2005. He Trivedi holds Bachelor degree in civil engineering from MITS, Gwalior and Masters Degree in Civil Engineering from Roorkee University. He has 16years of experience in project management, tendering and business development in road and railways project. Mr. Allan Henry Le Roux, is an African National, is Head of Tolling Department and joined the organization in 2003. Mr. Allan holds a National Higher Diploma N6 in Digital Electronics and has 24 years of experience in design & construction of Toll Plaza Systems. Before joining DSC, Mr. Allan was associated with foreign companies like South African Transport Service, Vaal Toll Plaza & Grasmere Toll Plaza , Flow Electronics , Toll Road Concess.Pty Ltd , Intertoll Pty Ltd at the level of Regional Manager, IT Manager, Project Engineer , Signal Engineer. Mr.M.P.Venkatachalam is a mechanical engineer with over 38 years of vast and proven experience in technical matters pertaining to Equipment, Asset Procurement, preparation of maintenance and diagnostic guidelines for equipment, Training and R&D. Mr. Sanjay Grover, a fellow Chartered Accountant and Company Secretary, is the Advisor on the corporate laws and has been actively involved in the financial close of various BOT Projects. He has over 20 Experience in finance and company law and has worked with Jaypee Group. Mr. Surinder Sachdev, is Finance Advisor and joined the organization in 2004. Mr. Sachdev is a Fellow Member of the Institute of Chartered Accounts of India and Associate Member of the Institute of Company Secretaries of India and has over 24 years experience covering the entire spectrum of financial areas in infrastructure projects.. He has worked in different organizations in the last decade as Head-Finance, Finance Controller and Company Secretary which included Modi Group and Feedback Ventures. He has also worked with IRCON International. Mr. Dinesh Narang, is Sr. General Manager- Finance and Secretarial. He is handling Corporate Financial and Group Secretarial Affairs. He joined the organization in 2003. Mr. Narang is a Fellow Member of the Institute of Chartered Accountants of India and Associate Member of the Institute of Company Secretaries of India and has 24 years of rich experience of handling Public Issues, Corporate Finance and Taxation, Excise and Sales Tax matters of organizations of repute like Pure Drinks (New Delhi) Ltd., Onida Group of Companies, VLS Finance Ltd., and Dabur Group of Companies. He has been actively associated in the financial closure of various BOT Projects of the Group. His last assignment was Controller Finance & Company Secretary, Sanat Products Limited, a Dabur Group Company. Mr. Rajiv Dhingra Consultant (Finance & Taxation) joined company in 2004, Mr. Dhingra Qualified as Charted Accountant in the year 1991 and also holds Degree in Bachelor of Commerce (Hons) from Delhi University along with a PG Diploma in Portfolio Management. He has over 14 Years of experience in field of Finance, Accounts, Taxation and Auditing. Prior to joining the company he has been associated with Statutory / Management / tax audit of companies like Larsen & Toubro Ltd, Crompton Greaves, Godrej & Boyce, Kribhco, NTPC, REC, Singers India Ltd. Etc. He is actively associated with the accounting, financing and taxation matters of DSC and Group SPVs. Mr. N.K Agrawal, Head (Account & Taxation) joined company in 2005, Mr. Agrawal Qualified as Charted Accountant from The Institute of Chartered Accountants of India and Company Secretary from The Institute of Company Secretaries of India of India in year 1971 & 1989 respectively. He has over 27 Years of experience in field of corporate Finance, Taxation, Legal, Budgeting, Fund Management, Auditing. Prior to joining the company he has worked as Head Account & Taxation in companies like Jindal Pipes Ltd. Mr. Mukesh Nawani, General Manager (Finance) joined company in 2004, Mr. Nawani Qualified as Company Secretary in year 1995 and also hold Degree in Bachelor of Commerce from Delhi University. He has over 11 Years of experience in field of Financial Modeling, Capital Restructuring. Pior to joining the company he has worked as Additional General Manager (Finance & Account) for Punj Lloyd Limited. Mr.A.K.Jain , a Graduate Engineer-Civil from I.I.T. Kharagpur has over 45 years of experience in construction & supervision of Words bank funded and BOT highway Projects. Before joining D.S.Constructions Limited, he was associated with reputed organizations / companies like U.P.P.W.D , Unitech Limited , E.M.A., New Delhi at he level Project Coordinator, Project Manager and Senior Consultant. Mr.Balbir Singh a graduate Civil Engineer and has over 42 years of varied experience in large Civil construction projects in M/s.Gammon India Limited and other companies. Mr.D.K.Gupta a graduate Civil Engineer from IIT - Kharagpur has around 40 years of varied experience in Engineering and Project Execution. During his tenure of services he served in M/S. Gammon India Ltd. Indersons Constructions Pvt. Ltd. & Puri International Pvt. Ltd. Mr. Gupta heads the structure department and is instrument in delivery of state of art flyovers for various projects of DSC. Mr. Mahendra Singh Additional General Manager (Structure) joined company in 2003, Mr. Singh is Diploma Civil Engineer and having experience of more than 35years of in field of Construction Management & Supervision of Flyovers, Bridges, Rail Over Bridge, Aqueduct. Prior to joining the company, Mr. Singh working as Deputy Project Manager with U.P State Bridge Corporation & successfully constructed & handover more than 15 Flyover/Bridges. Mr.Hori Lal, a graduate Civil Engineer along with PG diploma in Project Planning, Evalauation & Control and contract management, has around 43 years of varied experience in Engineering and Project Execution Mr. B. S. Popli, is Team Leader (Highways), Delhi Gurgaon Project and joined organization in year 2006 a graduate Civil Engineer with 43years of experience in civil engineering. He started his career with Border Roads as Assistant Executive Engineer (Civil) in 1962, on various assignment in India and abroad and there after worked with RITES as different projects as Team Leader, before joining DSC. Mr. Popli is working as a Team Leader for prestigious Delhi Gurgaon Project of DSC. Mr. Kuldeep Singhi, is Team Leader (Highways), KMP Project and joined organization in year 2006. Mr. Singh holds master degree Civil Engineering with major in both Structure & highways and specialized course in Traffic and Transportation engineering from Pennsylyania State University. Mr.Mahesh Pandey has over 24 years of experience of Engineering and Project / Construction Management with emphasis on Cost Optimization in the areas of Infrastructure, Commercial and Power projects. He has also handled many high tech Projects through out India as Independent in charge including construction management, Planning & Finance Management. Mr. R. S. Shukla, is Pavement Specialist and Head Quality Control & Assurance and joined the organization in year 2004. Mr. Shukla hold degree in M Sc. And has obtained advanced training in Highway Engineering from various institutes in Poland He is fully conversant on design and material aspect for ASTM, AASHTO, AUSTROAD, TRL & UK, BIS and IRC practices and has working experience in various countries. Col.(retd.) M. K. Soota, is Quality Expert and joined the organization in year 2004. Mr. Soota holds Master degree in Soil Mechanics and Foundation Engineering from IIT, Delhi and Degree in Civil Engineering from College of Military Engineering, Pune and has 39yeras of rich experience in, design and execution works. His last assignment was Senior Consultant, CES. Mr. Soota is a key person to ensure company’s policy of delivering the projects with highest standards of quality. Mr. J. D. Kalla, is Head Railway Projects and joined the organization in year 2003. Mr. Kalla holds doctorate in Business Administration, Aligarh and degree in Civil Engineering from MBM Engineering college, university of Jodhpur. He has 30years of rich experience in project management, construction management and design of Railway Projects. His last assignment was Officer on Special Duty, GM, North Western Railways. Mr. Kalla was a instrument in successful delivery of India’s First BOT Project as Team Leader for Viramgam-Mahesana gauge conversion project for DSC and at present handling the Attur-Salem Gauge Coversion project. Mr. Sanjeev Kapoor, a Civil Engineer from the Delhi College of Engineering with twelve years of proven experience in the field of Project Management Mr. Kapoor started his career as Assistant Manager (Civil) with HSCC and thereafter has been associated for various Infrastructure and Condominium Project development with IJM Coporation Bhd. both in India and Malaysia before joining DSC. Mr. Kapoor heads the Project Management Cell of DSC and is responsible for Details Project Management of various Infrastructure project. Mr. A. Singhal, is General Manager (Estimation & Tender) and joined the organization in year 2001. Mr. Singhal holds degree in Civil Engineering from MLNR, engineering college and has 16yeras of rich experience in Project Planning, Cost estimation, tendering and budgeting for Infrastructure projects. Mr. Singhal, has been key player of DSC for bid costing of various BOT projects. Mr. Roopesh Jha, is Asstt. General Manager (Project) and joined the organization in year 2003. Mr. Jha holds degree in Civil Engineering and has 11yeras of rich experience in highway design and planning, detail estimation and project execution of large highway projects. Mr. Jha, is responsible for execution of Lucknow Sitapur Project after his effective contribution on Raipur Durg Project. Mr. Sanjay Shukla, is Addl. General Manger (design) and joined the organization in 2002. Mr. Shukla holds a degree in Civil Engineer from IIT, Kanpur and has over11 years of rich experience in Highway Design. His last assignment was design control and planning with KSHI (JV) for Delhi Metro Project. Mr. Shukla is a key player in finalisation in highway design for large and complex project like Delhi Gurgaon, KMP etc. Mr. Pankaj Tomar Sr. Manager (Planning & Costing) joined the company in 2005, Mr. Tomar qualified Civil Engineer in 1996 from G.B Pant University of Technology, Pantnagar. He has 10years of experience in the field of Project Management, Project Planning & Monitoring, Budgeting & Cost Analysis, Management Information System, Cost Control; prior to joining the company he has worked in India & overseas with organizations like Hindustan Construction Co., United Nations, Mitsui-Marubeni, B.S.C – C & C JV. Mr. K. Arunachalam Head- IT & EDP joined company in 2002, Mr. Arunachalam holds degree in Bachelor of Science in Computer in 1991 from S.R.N.M College, Sattur He has over 14 Years of experience in field of System Administration & Networking, prior to joined the company he has worked with companies like Progressive Construction, Hyedrabad, Unitech Ltd, New Delhi & Shapoorji Palonji & Co. Ltd Mumbai. Mr. Debabrata Mishra Sr. Manager- Human Resource joined company in 2003, Mr. Mishra holds Post Graduate Diploma in Human Resource Management in 1999 from Pondicherry University and Diploma in Personnel Management from National Institute of Construction Management & Research, Pune in 2001. He has 7Years of experience in field of Human Resource Management; prior to joined company he was working with Hindustan Construction Co. Ltd. Mr. Samiran Das Deputy General Manager- Human Resource joined company in 2002, Mr. Das holds Post Graduate Diploma in Industrial Relations & Labour Welfare in 1988 from Orrisa University. He has more than 17Years of experience in field of Human Resource Management, Personnel & Administration; Prior to joining the company he has worked with companies like Hyundai Unitech Electrical Transmission Ltd, Unitech Limited & Lloyd Insulation (I) Limited. Mr. Kaushik Nandi Additional General Manager (Structure) joined the company in 2002, Mr. Nandi is Graduate Civil Engineer in 1984 from University of Bengal and having experience of more than 21years in field of Construction Management & Supervision of Flyovers, Bridges, Highway . Prior to joining the company Mr. Nandi has worked with Punj Lloyd Limited. Mr. Balvir Singh Additional General Manager (Highway) joined company in 2005, Mr. Singh is Graduate Civil Engineer and having experience of more than 20 years in field of Construction Management & Supervision of Highway Works, Prior to joining the company Mr. Singh has worked with company like Intertoll ICS Cecons O&M Co. PNC Construction Co. Ltd, STUP Consultant Limited. ANNEXURE VI : CONCESSION AGREEMENT TERMS AND CONDITIONS Viramgam Mahesana Project Ltd. Date of execution of Agreement 23rd May, 2003. Parties to the agreement Western Railways (on behalf of the Hon. President of India) & Virmagam Mahesana Project Ltd. (Concessionaire) Scope of the project a.) Conversion of Viramgam-Mahesana section of Western Railway from Meter Gauge to Broad Gauge. b.) Concessionaire to develop, procure, finance, construct, and maintain the section for gauge conversion on the site leased to the concessionaire on Build, Own, Transfer basis Scope of concession / concession period Concession period shall be the period beginning from the appointed date and ending on COD + 12 years commencing from the appointed date. On successful implementation of the project and achievement of COD, the railways shall pay to the concessionaire regular 24 installments semi-annual access charges, each equal to Rs. 79.695 million, commencing from COD. In the event of early completion / delay in achieving COD vis-à-vis SCOD (27th June, 2004), concessionaire will be liable to receive bonus / pay penalty, which would be equal to proportionate access charges for the period of early completion / delay. Making project site available Railway is obliged to acquire the land required for the project and hand over the same to concessionaire free from all encumbrances. For the same site lease agreement to be executed between the railways and concessionaire. In any case, not less than 70% of the total land site to be leased is to be made available before commencement of construction. Balance can be released in stages taking into account the concessionaire’s requirement. Performance Security Of a sum of Rs. 50 mn To be released – a.) Upon shareholders contributing 100% of the equity; and b.) Issue of certificate by the Independent Engineer stating that new 52 Kg rails for the Project railways have been received at site / engineering workshop at Sabarmati for a minimum length of 45 Track Km. Appointment of Independent Engineer (IE) Independent consulted to be appointed by the railways. Defects & Maintenance liability period Defects liability: For completion of any work pending on COD and execution of all works to remedy defects notified by CRS within the defect notification period (of 120 days after two weeks of likely date of completion as advised by the concessionaire). Maintenance liability: 12 months from the date of issue of the performance certificate during which the concessionaire would be liable to rectify the defects that may arise in works due to defective material and poor workmanship (not normal wear & tear). Holding of the promoter consortium Equity shareholding of the Lead Partner of the consortium is not to be reduced to less than 26%. Escrow Account An escrow account to be established within 60 days of the execution of the CA. All the funds constituting the financing package for meeting the project cost, access charge payments by railways, proceeds from insurance claims and termination payments, if any, are to be credited to the Escrow Account only. Termination payments in the railways event of default A sum equal to the market value of the Project Assets created by the concessionaire. The market value of the assets will be the estimated replacement cost of the assets created by the concessionaire at the time of termination as determined by the Independent Engineer. The market value will be calculated by the Independent engineer based on the extant practice of Railways i.e. by sinking fund method or / any other method which is acceptable to the railways. Concessionaire event of default An amount equal to the market value of the Project Assets and Project facilities created or produced by the Concessionaire. The same will be the estimated replacement cost of the assets as determined by the Independent Engineer. Termination payments in case of a Force Majeure Event (FME) Non-Political FME An amount equal to 75% of the debt due to the Senior Lenders less insurance claims, subject to the limitation that such termination payment shall not exceed the value of assets created as certified by the Independent Engineer. Indirect Political FME An amount equal to a.) Total debt due less due insurance claims. However, if all or any of the insurance claims are not admitted and paid, then 80% of such unpaid claims shall qualify for being included in the computation of Debt Due. b.) 100% of Equity subscribed in cash and actually spent on the project if termination occurs within 3 years from the appointed date. Thereafter, such amount would be adjusted to fully reflect the changes in WPI and then reduced every year by 7.5%. Direct Political FME An amount equal to a.) Total debt due less due insurance claims. However, if all or any of the insurance claims are not admitted and paid, then 80% of such unpaid claims shall qualify for being included in the computation of Debt Due. b.) 125% of Equity subscribed in cash and actually spent on the project if the termination occurs at anytime during the period commencing from the appointed date till COD. Thereafter, such amount would be adjusted to fully reflect the changes in WPI and then reduced every year by 7.5%. Transfer of the project at the end of the concession period or on termination To Railways Insurance Concessionaire to obtain and maintain following insurance covers throughout the implementation period with Lender/s as loss payees: * Professional indemnity insurance for design of Rs. 2.5 million (to be maintained till five years from COD). * Contractor’s all risk insurance; * Comprehensive third party liability insurance including injury or death to personnel/representatives of Persons who may enter the Project Site; * Workmen’s compensation insurance; * Any other insurance that may be necessary to protect the Concessionaire, its employees and its assets against loss, damage, destruction, business interruption or loss of profit including insurance against all Force Majeure Events that are insurable. Dispute Settlement / Arbitration By a Board of three arbitrators of whom one each shall be selected by concessionaire and NHAI whereas the 3rd arbitrator shall be appointed jointly as the independent arbitrator and shall be the chairman of the tribunal. The nominated arbitrators shall have following minimum qualifications: a.) He shall be a serving or retired government servant who is serving / has served at post not lower than the Joint Secretary of the GoI. b.) Has in the capacity of single arbitrator or as part of Arbitral Tribunal, published award for arbitration in the last 5 years. Delhi Gurgaon Super Connectivity Ltd. Salient Features Of The Concession Agreement Date of execution of Agreement 18th April, 2002 Parties to the agreement NHAI & Jaypee DSC Ventures Ltd. (Concessionaire) Scope of the project Article-II a.) Conversion of Delhi-Gurgaon section of NH-8 into access controlled 8/6 lane highway from Km. 14.30 to Km. 42.00 b.) Concessionaire to execute all design, engineering, financing, procurement, construction, completion, operation and maintenance of the project highway. Scope of concession / concession period Clause 3.1 The exclusive right and authority during the concession period (20 years including the construction period) to develop establish, finance, design, construct, operate and maintain the Highway project. CA allows for a maximum 30-month construction period. For any delay in construction beyond 30 months, penalty shall be levied by NHAI. Sub-clause 3.2.iii Concessionaire provided the rights to levy, demand, collect and appropriate fees from vehicles using the project highway. Clause 6.1 In the event of traffic along the section being more than 130,000 PCUs per day, the incremental portion of toll fee to be shared equally between NHAI & the concessionaire. Exclusivity Article VII No competing road to come up before traffic level reached 170,000 PCU’s / day or the expiry of 20 years from the appointed date, whichever is earlier. In case a competing road comes up before that the concession period will be increased by half the balance concession period as on that date. Also, the fee to be levied on such road should not be less than 133% of fees collected by the project highway. Making project site available Sub-clause 10.1.i NHAI has undertaken to provide access to the project site free from all encumbrances to the concessionaire. All expenses incurred in this regard to be borne by NHAI. Sub-clause 9.1.xi Land acquisition for additional facilities is the responsibility of the concessionaire Performance Security Article V Of a sum of Rs.150 million To be released – c.) Upon shareholders contributing 100% of the equity; and d.) Amount expended on the project is not less than 50% of the project cost. Appointment of Independent Consultant (IC) Article XX NHAI in consultation with the concessionaire shall appoint a consulting engineering firm as an IC to oversee the activities of the concessionaire during design, engineering, procurement, construction, operation and maintenance of the project highway to ensure compliance of requirements of the CA. Defects liability period Article XLII 24 months post concession period. Notification Clause 6.1 Fees notification to be published by MoRTH on or before the financial closure. NHAI undertaken to ensure the same. Independent Auditor Clause 28.2 Shall be appointed by NHAI in consultation with the concessionaire. Collection of fee Clause 6.6 The concessionaire can delegate collection of fees to the O&M contractor / Tolling Contractor but shall himself remain solely liable for collection of fee and depositing the same in the escrow account. Fee charges (w.e.f. 01.04.2005 or ) Fee charges in excess of 130,000 PCU’s per day to be shared equally between NHAI & Concessionaire Schedule J Rate for one way trip (Rs.) Vehicle type To IGI Airport Crossing toll Plaza at Border Only Crossing Toll Plaza at Km 42 only Truck, 2 axle 30 45 57 Bus, 2 axle 30 45 57 Mini Bus 15 22 28 LCV 15 22 28 Car 10 15 19 MAV 30 45 57 Discounted fees to be charged - a.) 50% of applicable fees – for local personal traffic. b.) 66% of the applicable fees – for local commercial traffic. However, only those vehicles that pass only one toll plaza and are registered would be allowed to be eligible for the concessional pass. Passenger Car Unit (PCU) Factors Schedule W Vehicle Type Equivalency Factor Passenger Car, Pick-up Van 1.00 Agricultural Tractor, Light Motor vehicle 1.50 Truck or Bus 3.00 Truck-trailer, Agricultural tractor-trailer 4.50 Annual Fee Revision Schedule J The annual fee revisions shall be made w.e.f. April 1, 2006 and shall be to the extent of variation in WIP. Negative Grant Article XXIII An amount of Rs.610.6 million to paid in a single installment on or before earlier of the following: a.) 180 days from the date of execution of CA; b.) The date of achievement of financial closure. State Support Agreements Article XXVI To be entered into with GNCTD and GOH Revenue Shortfall Assistance Article XXIV If realizable fees in any accounting year fall short of subsistence revenue level (defined as the sum of operational expenses, and debt service payments due to the Senior Lenders in that accounting year) due to an indirect political or political Force Majeure Event (FME), NHAI shall provide to the concessionaire revenue shortfall loan @ SBI PLR per annum. Holding of the promoter consortium Sub-clause 11.1.xiii a.) Not less than 51% during the construction period and for 3 years following the COD; b.) Not less than 26% during the balance operations period. Escrow Account Article XXV All funds constituting the financing package & all toll collections shall be deposited in the Escrow Account. Appropriated during construction / operation as per the following priorities: a.) All taxes due and payable by the concessionaire; b.) Construction expenses payment to EPC contractor; c.) O&M expenses including those related to fee collection; d.) Expenses for repair work and O&M expenses incurred by NHAI; e.) All concession fees due to NHAI; f.) Debt service payments; g.) Residual amount in accordance with the instructions of the concessionaire. If payments towards the project cost other than to the EPC Contractor exceed 10% of the total Project Cost, then the same to made only after prior approval of NHAI. Appropriated in the event of termination as per the following priorities: a.) All taxes due and payable by the Concessionaire; b.) All concession fees due and payable to NHAI; c.) All accrued debt service payments; d.) Any payments, damages, termination claims and repayment of revenue shortfall loans to NHAI; e.) All accrued O&M expenses; f.) Any other payments required to be made under this Agreement; g.) Balance as per concessionaire’s instructions. Mortgage /Assignment Clause 35.3: The concessionaire has the right to mortgage / pledge / hypothecate goods / assets other than the project assets, and those covered by the Substitution Agreement and their related documents of title. Lenders’ step in rights Clause 35.4 As per the Substitution Agreement Effects of Force Majeure Event (FME) Clause 29.5 If it occurs before financial closure: a.) No termination (except if FME persists for 180 days during a continuous period of 365 days, either party can terminate the agreement after a 30-day notice); b.) The date of achieving financial closure to be extend by the period for which the FME subsists; c.) The parties shall bear their respective costs (no compensation to each other) Clause 29.6 If it occurs after financial closure: a.) No termination (except if FME persists for 180 days during a continuous period of 365 days, either party can terminate the agreement after a 30-day notice); b.) If FME takes place before COD, the project completion date to be extended by the period for which the FME subsists; c.) If FME occurs after COD, the concession period will be extended by the period for which collection of fees remains suspended on account of the FME; d.) The costs to be allocated among the parties depending on the type of FME. Termination of Agreement Sub-clause 33.2 (v & vi) All concessionaire right, title, interest transferred to NHAI. NHAI event of default Clause 32.4.2 NHAI to make termination payment to the concessionaire equal to the sum of – Total debt due; Plus: 120% of the total sub-ordinated debt; Plus: 150% of the equity (if the event of default occurs after 3 years from the appointed date, such amount shall be adjusted to reflect changes in WPI every year and then reduced every year by 7.5%). Plus: The Negative Grant amount paid by the concessionaire to NHAI. Concessionaire event of default Clause 32.3 NHAI to make termination payment to the concessionaire equal to the sum of – 90% of the debt due Less: Insurance claims, if any (if any or all insurance claims are not admitted or paid then 80% of such claims) Force Majeure Event (FME) Non-Political FME Sub-clause 29.9.i NHAI to make termination payment to the concessionaire equal to the sum of – 90% of the debt due; Plus: entire sub-ordinated debt Less: due insurance claims (if the claims are not admitted, than only 90% of the such amount shall qualify) Indirect Political FME Sub-clause 29.9.ii NHAI to make termination payment to the concessionaire equal to the sum of – The total debt due Less: due insurance claims (80% of such claims if they are not admitted) Plus: the outstanding sub-ordinated debt Plus: 110% of the equity if such an event takes place within 3 years from the appointed date. For successive years, the amount to be adjusted to reflect the changes in WPI every year and then reduced by 7.5% per annum. Plus: The negative grant amount paid by the concessionaire Direct Political FME Sub-clause 29.9.iii NHAI to make termination payment to the concessionaire equal to the sum of – Total Debt due; Plus: 120% of the subordinated debt due; Plus: 150% of the equity if such an event takes place within 3 years from the appointed date. For successive years, the amount shall be adjusted to reflect changes in WPI every year and then reduced by 7.5% per annum. Plus: Negative grant amount paid by the Concessionaire. Transfer of the project at the end of the concession period To NHAI Insurance Article XXVII During the construction as well as during operation, the responsibility of the concessionaire. Dispute Settlement / Arbitration Article XXXIX By a Board of three arbitrators of whom one each shall be selected by concessionaire and NHAI whereas the 3rd arbitrator shall be appointed in accordance with the Rules of Arbitration of the Indian Council of Arbitration. DSC Vicon Ltd. Salient Features Of The Concession Agreement: The consortium of DSC and Vicon, led by DSC signed the Concession Agreement with MoRTH on 08 May, 2003 to implement the project highway for a concession period of 11 (eleven) years and 9 (nine) months with the. DVVL would be able to levy, collect and appropriate fee from the users of the project highway at the two toll plazas provided in the CA. The Concessionaire shall operate and maintain the project highway by itself, or through a Contractor and be entitled to levy, collect and appropriate user fee from the users of the project highway, at the two toll plazas, in accordance with the CA. Upon achieving COD, the Concessionaire shall operate and maintain the project highway by itself, or through a Contractor and be entitled to levy, collect and appropriate user fee from the users of the project highway, at the two toll plazas, in accordance with the CA. One toll plaza would be at Raipur end and the second toll plaza would be located at the Durg end of the project highway. The user fees for different categories of the users, at each of the toll plazas for period starting 01 July 2003 to 30 June 2005, as specified in the CA are: Vehicle type At each of the two toll plazas Car 15 LCVs / Mini Bus 25 Truck, Bus, 2/multi- axle 50 Other heavy vehicles 110 These rates would be escalated at the rate of 10% every two years. The user fee can only be charged once from the user of the project highway, at either of the toll plaza. For instance, a user going from Raipur to Durg, would be charged at one of the toll plazas only. The CA provides that GOI and the State Government of Chattisgarh shall not construct and operate either itself or through some other agency/person, on BOT basis or otherwise a competing facility, either toll free or otherwise during the Concession Period. In case GOI builds and operates such a facility, it would be subject to the condition that the fee charged for vehicles using such facility shall not at any time be not less than 133% of the fee being charged at the project highway. The CA also provides for the capacity augmentation of the project highway any time after COD. The decision for such an augmentation would be taken by GOI based on a detailed traffic study conducted by it. For such augmentation, the GOI shall invite proposals from eligible parties. The concessionaire would be given the first right of refusal, in case some other party is the lowest bidder. In case the concessionaire chooses not to bid or fails or declines to match the preferred offer, the concession shall be terminated and the concessionaire would be paid termination payments, which is an amount equal to 90% of the debt due less pending insurance claims. During the operations period, the concessionaire would have to prepare a maintenance manual and operate the project highway in accordance with the manual, supervised by the Independent Engineer and the Steering Group. EVENTS OF DEFAULT AND TERMINATION PAYMENTS Termination payments under Force majeure events: Force Majeure Event Termination payments to concessionaire by GOI 1 Non Political Event An amount equal to 90% of the Debt Due less pending insurance claims and 90% of amount of such claims not admitted. 2 Indirect Political Event (a) The total Debt Due, less pending Insurance claims and 80%(eighty percent) of such claims not admitted, plus (b) 110% of the Equity subscribed in cash and actually spent on the Project if such Termination occurs at any time during three years commencing from the Commencement Date and for each successive year thereafter, such amount shall be adjusted every year to fully reflect the changes in WPI during such year, and the adjusted amount so arrived shall be reduced every year by 7.5%(seven and half percent) per annum. 3 Political Event (a) The total Debt Due, plus (b) 150% of the Equity subscribed in cash and actually spent on the Project if such Termination occurs at any time during three years commencing from the Commencement Date and for each successive year thereafter, such amount shall be adjusted every year to fully reflect the changes in WPI during such year, and the adjusted amount so arrived shall be reduced every year by 7.5%(seven and half percent) per annum. Termination payments under events of default: Event of default Termination payments to concessionaire by GOI 1 Concessionaire’s An amount equal to 90% of the Debt Due less pending insurance claims and 80% of amount of such claims not admitted. 2 GOI’s (a) The total Debt Due, plus (b) 150% of the Equity subscribed in cash and actually spent on the Project if such Termination occurs at any time during three years commencing from the Commencement Date and for each successive year thereafter, such amount shall be adjusted every year to fully reflect the changes in WPI during such year, and the adjusted amount so arrived shall be reduced every year by 7.5%(seven and half percent) per annum. ANNEXURE VII: PROJECT FINANCIALS & SENSITIVITY DELHI GURGAON EXPRESSWAY PROJECT SUMMARY (in Rs. Millions) Name of Project Delhi Gurgaon Project Cost of Project 9,971 Debt 4,556 Equity 1,953 Grant 3462 Project IRR 17% Equity IRR 30% Equity NPV 8,793 Date of Financial Closure May-03 COD Dec-06 Concession Period Starts Jan-03 Concession Period Ends Jan-23 Discount Rate of Equity NPV 12% Financials Year Ended FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 Toll Revenue - - - 278 1,286 1,503 1,743 1,996 2,183 2,419 EBITDA - - - 199 1,104 1,310 1,536 1,776 1,650 2,176 PBT - - - - 101 315 539 788 1,063 984 1,560 PAT - - - - 101 280 478 560 944 874 1,385 CASHFLOWS FOR EQUITY HOLDERS - 976 - 151 - 695 - 29 550 612 693 804 734 1,154 CASHFLOWS FOR PROJECT - 1,777 - 1,777 - 2,665 - 2,022 1,068 1,249 1,307 1,656 1,540 2,001 Year Ended FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 Toll Revenue 2,669 2,949 3,240 3,584 3,940 4,302 4,722 5,114 5,591 4,769 EBITDA 2,412 2,675 2,951 2,890 3,610 3,952 4,348 4,717 4,674 4,413 PBT 1,850 2,168 2,497 2,473 3,204 3,545 3,941 4,310 4,268 4,210 PAT 1,643 1,925 2,217 2,196 2,844 3,147 3,499 3,826 3,789 2,877 CASHFLOWS FOR EQUITY HOLDERS 1,411 1,694 1,986 2,375 3,251 3,554 3,905 4,233 4,196 3,080 CASHFLOWS FOR PROJECT 2,204 2,432 2,670 2,612 3,251 3,554 3,905 4,233 4,196 3,080 Assumptions in the Projections 1. Toll is based on a traffic and toll increase. Toll increase has been made with an assumption of 5% inflation. Base Traffic is based on the physical traffic data that has been observed on the toll road and projections by the in house traffic consultants. 2. Annual O&M Expenses have been assumed at a Rs.5.84 Crs. based on companies estimates and periodic maintenance at Rs.20.44 Crs. to be done once in 5 years. 3. Toll and maintenance has been assumed higher at 5% of the toll revenues as higher no of toll booths planned 4. Insurance Cost has been assumed at 0.75% of the value of the toll road. 5. Sec 80 IA benefit has been assumed starting from FY 2011. 6. Rate of Interest has been assumed at 8.5% p.a after the project is completed. During construction the interest is kept at the present 10.5% p.a. 7. Depreciation as per Income Tax has been assumed at 10 p.a. WDV method and 6.25% p.a. on Straight Line basis for the books of accounts. 8. Growth Rates are based on actuals and forecasts by consultants. In general a growth rate of 8-12% in the 1st 5 years, 7-10% in the next five and a 3%-5% growth in traffic can be considered as sustainable. A sensitivity analysis based on change in base traffic figures along the columns and change in toll growth along the rows has been shown as below: 8,793 -10% -5% 0% 5% 10% 15% -2% 5,898 6,470 7,041 7,612 8,181 8,749 -1% 6,654 7,267 7,880 8,492 9,103 9,714 0% 7,475 8,134 8,793 9,450 10,106 10,762 1% 8,368 9,077 9,785 10,491 11,197 11,903 2% 9,340 10,103 10,865 11,625 12,385 13,145 3% 10,397 11,219 12,039 12,858 13,677 14,496 The financial s of Delhi Gurgaon have the following upside: * Equity Value Discount Rates decrease significantly on commissioning and first year of operations * In case the partial tolling strategy proposed by the company is approved, tolls are expected to be higher by 16%. * In case the claims of the company are approved, there is an upside of Rs 1000 mn or 15% * Traffic revenues can also grow beyond imagination. RAIPUR DURG PROJECT SUMMARY (in Rs. Millions) Name of Project Raipur Durg Cost of Project 1,190 Debt 833 Equity 357 Grant 0 Project IRR 17% Equity IRR 26% Equity NPV 748 Date of Financial Closure Jul-03 COD May-06 Concession Period Starts Jun-03 Concession Period Ends Mar-15 Discount Rate of Equity NPV 12% Financials RAIPUR DURG                         Year Ended FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Toll Revenue - - - 199 252 279 325 361 419 464 543 566 EBITDA - - - 175 226 253 299 334 351 435 512 536 PBT - - - - 22 26 60 115 162 191 286 375 404 PAT - - - - 22 23 53 102 144 169 254 333 359 CASHFLOWS FOR EQUITY HOLDERS - 178 - 42 - 134 108 72 102 101 143 168 253 332 491 CASHFLOWS FOR PROJECT - 270 - 432 - 378 175 223 246 286 315 330 403 470 491 Assumptions in the Projections: Raipur Durg 1. Toll is based on a traffic and toll increase. Toll increase has been made with an assumption of 5% inflation. Base Traffic is based on the physical traffic data that has been observed on the toll road and projections by the in house traffic consultants. 2. Annual O&M Expenses have been assumed at 1% of Project Cost. 3. Periodic Maintenance has been assumed at 2.5% of the project cost. Periodic maintenance would be done once after every five years. 4. Toll Plaza maintenance has been assumed at 2% of the toll revenues. 5. Insurance Cost has been assumed at 0.75% of the value of the toll road. 6. Sec 80 IA benefit has been assumed starting from FY 2007 7. Rate of Interest has been assumed at 8.5% p.a after the project is completed. During construction the interest is kept at the present 10.3% p.a. 8. Depreciation as per Income Tax has been assumed at 10% p.a. WDV method and 11.11% p.a. on Straight Line basis for the books of accounts. A sensitivity analysis based on change in base traffic figures along the columns and change in toll growth along the rows has been shown as below: 748 -10% -5% 0% 5% 10% 15% -2% 487 562 637 713 788 862 -1% 536 613 691 769 847 924 0% 586 667 748 829 909 989 1% 639 723 807 890 974 1,057 2% 694 781 868 954 1,041 1,127 3% 752 842 932 1,021 1,111 1,201 VIRAMGAM MAHESANA Financials Year Ended FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Toll Revenue 79.67 159.34 159.34 159.34 159.34 159.34 159.34 159.34 159.34 159.34 159.34 159.34 79.67 EBITDA 79.12 158.18 158.12 158.06 158.00 157.93 157.86 157.79 157.71 157.63 157.54 157.45 79.67 PBT 8.00 22.01 30.05 38.08 46.11 54.14 62.16 70.18 79.21 83.17 83.09 83.00 79.67 PAT 7.93 21.82 29.69 37.62 45.56 53.49 61.42 69.35 78.27 82.18 82.05 81.92 79.67 CASHFLOWS FOR EQUITY HOLDERS 7.76 21.39 28.86 37.32 44.65 52.02 59.42 66.85 75.21 152.69 156.28 159.88 0.00 CASHFLOWS FOR PROJECT 78.45 156.69 156.06 156.43 155.67 154.94 154.25 153.58 152.83 152.69 156.28 159.88 0.00 1. Revenues based on Access Deficit Charges. 2. No further O&M Expenditure required; only nominal management expenses to be incurred 3. Only liability to debenture holders; Cash-flows to be securitized to realize value upfront. KUNDLI MANESAR: PROJECT SUMMARY (in Rs. Millions) Name of Project Kundli Manesar Palwal Cost of Project 18,230 Debt 12,761 Equity 5,469 Grant 0 Project IRR 17% Equity IRR 23% Equity NPV 1,980 Commencement of Operations Feb-06 COD Jul-09 Concession Period Starts Jul-06 Concession Period Ends Apr-30 Discount Rate for Equity NPV 18% Financials Year Ended FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Toll Revenue - - - - 1,039 1,774 2,391 2,733 3,087 EBITDA - - - - 809 1,494 2,096 2,431 2,778 PBT - - - - - 825 - 502 111 473 868 PAT - - - - - 825 - 502 98 419 771 CASHFLOWS FOR EQUITY HOLDERS - 340 - 2,395 - 106 - 2,341 - 202 409 755 948 917 CASHFLOWS FOR PROJECT - 340 - 2,840 - 5,942 - 6,886 154 1,494 2,084 2,378 2,680 Year Ended FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 Toll Revenue 3,481 3,938 4,443 5,052 5,642 6,381 7,262 8,114 9,069 EBITDA 2,257 3,608 4,100 4,694 5,269 4,834 6,846 7,674 8,603 PBT 413 1,861 2,494 3,240 3,967 3,684 5,853 6,763 7,692 PAT 367 1,652 2,215 2,877 3,522 3,270 5,196 6,004 6,829 CASHFLOWS FOR EQUITY HOLDERS 513 1,033 1,340 2,002 2,647 2,395 4,194 6,916 7,740 CASHFLOWS FOR PROJECT 2,211 3,399 3,820 4,331 4,824 4,421 6,189 6,916 7,740 Year Ended FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031   Toll Revenue 10,281 11,498 13,239 14,860 16,710 18,782 21,307 1,955   EBITDA 9,782 9,492 12,660 14,236 16,035 18,050 18,625 1,884   PBT 8,871 8,580 11,748 13,324 15,123 17,138 18,625 1,884   PAT 7,875 7,618 9,990 8,635 9,818 11,145 12,430 1,317   CASHFLOWS FOR EQUITY HOLDERS 8,787 8,529 10,902 9,546 10,730 12,057 12,430 1,317   CASHFLOWS FOR PROJECT 8,787 8,529 10,902 9,546 10,730 12,057 12,430 1,317   Assumptions in the Projections 1. Toll is based on a traffic and toll increase. Toll increase has been made with an assumption of 5% inflation. Base Traffic is based on the physical traffic data that has been observed on the toll road and projections by the in house traffic consultants. Broadly, a 8% increase has been assumed in the traffic based on the growth in the region (except for 2012 due to commencement of industrial regions in the vicinity) . 2. Annual O&M Expenses have been assumed at 0.5% of Project Cost. Periodic Maintenance has been assumed at 3.5% of the project cost. Periodic maintenance would be done once after every five years. 3. Toll Plaza maintenance has been assumed at 2.5% of the toll revenues. 4. Insurance Cost has been assumed at 0.75% of the value of the toll road. 5. Sec 80 IA benefit has been assumed starting from FY 2015 6. Interest has been assumed at 8.5% p.a after the project is completed. During construction the interest is assumed at 10% p.a. 7. Depreciation as per Income Tax has been assumed at 10% p.a. WDV method and 5% p.a. on Straight Line basis for the books of accounts. A sensitivity analysis based on change in base traffic figures along the columns and change in toll growth along the rows has been shown as below: 1,980 -10% -5% 0% 5% 10% 15% -2% - 445 45 530 1,012 1,493 1,975 -1% 180 702 1,220 1,736 2,252 2,768 0% 867 1,426 1,980 2,534 3,088 3,642 1% 1,621 2,221 2,817 3,413 4,008 4,604 2% 2,453 3,098 3,740 4,382 5,024 5,666 3% 3,372 4,066 4,759 5,452 6,145 6,838 RAIPUR AURANG PROJECT SUMMARY (in Rs. Millions) Name of Project Raipur Aurang Cost of Project 2,637 Debt 1,846 Equity 653 Grant 138 Project IRR 18% Equity IRR 23% Equity NPV 448 Commencement of Operations Dec-05 COD Oct-08 Concession Period Starts Apr-06 Concession Period Ends Apr-31 Discount Rate for Equity NPV 18% Financials Year Ended FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Toll Revenue - - - 156 361 396 444 485 540 EBITDA - - - 125 318 352 399 439 365 PBT - - - - 13 43 81 135 184 124 PAT - - - - 13 38 72 119 164 110 CASHFLOWS FOR EQUITY HOLDERS - 216 - 437 - - 56 121 150 146 195 33 CASHFLOWS FOR PROJECT - 216 - 560 - 1,281 - 260 313 357 401 441 376 Year Ended FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 Toll Revenue 597 653 714 794 874 966 1,054 1,165 1,281 EBITDA 548 603 662 740 654 907 993 1,100 1,213 PBT 326 401 482 582 518 785 873 980 1,093 PAT 289 356 428 517 460 697 775 870 970 CASHFLOWS FOR EQUITY HOLDERS 212 218 289 378 322 761 895 990 1,090 CASHFLOWS FOR PROJECT 536 558 608 674 596 819 895 990 1,090 Year Ended FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031   Toll Revenue 1,410 1,553 1,703 1,878 2,061 2,255 2,481 2,752   EBITDA 1,129 1,477 1,623 1,793 1,970 1,892 2,378 2,641   PBT 1,009 1,357 1,503 1,673 1,850 1,772 2,258 2,581   PAT 896 1,205 993 1,083 1,199 1,147 1,468 1,701   CASHFLOWS FOR EQUITY HOLDERS 1,016 1,324 1,113 1,203 1,319 1,267 1,588 1,761   CASHFLOWS FOR PROJECT 1,016 1,324 1,113 1,203 1,319 1,267 1,588 1,761   Assumptions in the Projections 1. Toll is based on a traffic and toll increase. Toll increase has been made with an assumption of 5% inflation. Base Traffic is based on the physical traffic data that has been observed on the toll road and projections by the in house traffic consultants. Broadly, a 6% increase has been assumed in the traffic based on the growth in the region. 2. Annual O&M Expenses have been assumed at 0.5% of Project Cost. Periodic Maintenance has been assumed at 3.5% of the project cost. Periodic maintenance would be done once after every five years. 3. Toll Plaza maintenance has been assumed at 2.5% of the toll revenues. 4. Insurance Cost has been assumed at 0.75% of the value of the toll road. 5. Sec 80 IA benefit has been assumed starting from FY 2014 6. Interest has been assumed at 8.5% p.a after the project is completed. During construction the interest is assumed at 10% p.a. 7. Debt Equity Ratio has been maintained at 70:30. The Grant is an equity grant and has been included in the 30% for Equity. 8. Depreciation as per Income Tax has been assumed at 10% p.a. WDV method and 4.55% p.a. on Straight Line basis for the books of accounts. A sensitivity analysis based on change in base traffic figures along the columns and change in toll growth along the rows has been shown as below: 448 -10% -5% 0% 5% 10% 15% -2% 28 112 196 280 364 447 -1% 136 226 316 406 495 585 0% 255 351 448 544 641 735 1% 387 490 594 698 802 901 2% 532 644 756 868 979 1,084 3% 694 815 936 1,057 1,174 1,288 LUCKNOW SITAPUR PROJECT SUMMARY (in Rs. Millions) Name of Project Lucknow Sitapur Cost of Project 4,392 Debt 3,075 Equity 147 Grant 1171 Project IRR 18% Equity IRR 30% Equity NPV 542 Commencement of Operations Mar-06 COD Jul-09 Concession Period Starts Jun-06 Concession Period Ends Jun-26 Discount Rate for Equity NPV 18% Financials Year Ended FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Toll Revenue - - - - 302 453 508 568 638 716 803 EBITDA - - - - 243 385 439 499 567 427 729 PBT - - - - - 227 - 148 - 89 - 19 66 - 60 267 PAT - - - - - 227 - 148 - 89 - 19 58 - 60 237 CASHFLOWS FOR EQUITY HOLDERS - 73 - 257 - 27 - 257 3 193 507 72 148 30 142 CASHFLOWS FOR PROJECT - 73 - 94 - 1,565 - 976 106 385 439 499 560 427 700 Year Ended FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026   Toll Revenue 896 1,000 1,119 1,251 1,400 1,554 1,729 1,922 2,137 2,393   EBITDA 821 923 1,038 890 1,313 1,463 1,634 1,822 1,675 2,280   PBT 389 525 678 565 1,023 1,188 1,359 1,547 1,401 2,280   PAT 346 467 602 502 908 1,055 1,207 1,374 1,243 1,936   CASHFLOWS FOR EQUITY HOLDERS 251 311 446 346 813 1,330 1,481 1,648 1,518 1,936   CASHFLOWS FOR PROJECT 777 864 962 826 1,198 1,330 1,481 1,648 1,518 1,936   Assumptions in the Projections 1. Toll is based on a traffic and toll increase. Toll increase has been made with an assumption of 5% inflation. Base Traffic is based on the physical traffic data that has been observed on the toll road and projections by the in house traffic consultants. Broadly, a 7% increase has been assumed in the traffic based on the growth in the region. 2. Annual O&M Expenses have been assumed at 0.5% of Project Cost. Periodic Maintenance has been assumed at 3.5% of the project cost. Periodic maintenance would be done once after every five years. 3. Toll Plaza maintenance has been assumed at 2.5% of the toll revenues. 4. Insurance Cost has been assumed at 0.75% of the value of the toll road. 5. Sec 80 IA benefit has been assumed starting from FY 2015 6. Interest has been assumed at 8.5% p.a after the project is completed. During construction the interest is assumed at 10% p.a. 7. Debt Equity Ratio has been maintained at 70:30. The grant is an equity grant and forms part of the 30% for equity. However during construction the Amount of grant cannot be more than the amount of equity bought in. Therefore redeemable preference shares are issued which would be subsequently redeemed on inflow of the grant. 8. Depreciation as per Income Tax has been assumed at 10% p.a. WDV method and 6.25% p.a. on Straight Line basis for the books of accounts. A sensitivity analysis based on change in base traffic figures along the columns and change in toll growth along the rows has been shown as below: 542 -10% -5% 0% 5% 10% -3% 26 116 207 296 386 -2% 119 215 310 405 499 -1% 220 321 421 522 622 0% 329 435 542 648 753 1% 447 560 673 784 896 2% 574 694 813 932 1,050 3% 712 839 965 1,091 1,217 SANDHUR BYPASS PROJECT SUMMARY (in Rs. Millions) Name of Project Sandur Bypass Cost of Project 359 Debt 251 Equity 108 Grant 0 Project IRR 26% Equity IRR 39% Equity NPV 235 Commencement of Operations Mar-06 COD Nov-07 Concession Period Starts May-06 Concession Period Ends May-26 Discount Rate for Equity NPV 18% Financials Year Ended FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Toll Revenue - - 26 79 87 98 108 120 134 148 165 EBITDA - - 22 72 80 91 100 94 126 140 156 PBT - - 4 31 40 53 65 61 97 115 135 PAT - - 4 27 30 38 45 54 86 102 119 CASHFLOWS FOR EQUITY HOLDERS - 16 - 53 - 24 37 30 33 35 34 66 81 94 CASHFLOWS FOR PROJECT - 16 - 212 - 91 68 70 75 80 87 115 127 141 Year Ended FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 Toll Revenue 184 204 225 251 278 308 344 379 423 468   EBITDA 174 170 215 240 267 296 300 365 407 451   PBT 154 150 195 220 247 276 280 345 387 441   PAT 137 133 173 195 219 245 249 306 258 291   CASHFLOWS FOR EQUITY HOLDERS 157 153 193 215 239 265 268 326 278 301   CASHFLOWS FOR PROJECT 157 153 193 215 239 265 268 326 278 301   Assumptions in the Projections 1. Toll is based on a traffic and toll increase. Toll increase has been made with an assumption of 5% inflation. Base Traffic is based on the physical traffic data that has been observed on the toll road and projections by the in house traffic consultants. Broadly, a 6% increase has been assumed in the traffic based on the growth in the region. 2. Annual O&M Expenses have been assumed at 0.5% of Project Cost. Periodic Maintenance has been assumed at 3.5% of the project cost. Periodic maintenance would be done once after every five years. 3. Toll Plaza maintenance has been assumed at 2.5% of the toll revenues. 4. Insurance Cost has been assumed at 0.75% of the value of the toll road. 5. Sec 80 IA benefit has been assumed starting from FY 2013 6. Interest has been assumed at 8.5% p.a after the project is completed. During construction the interest is assumed at 10% p.a. 7. Debt Equity Ratio has been maintained at 70:30 8. Depreciation as per Income Tax has been assumed at 10% p.a. WDV method and 5.56% p.a. on Straight Line basis for the books of accounts. A sensitivity analysis based on change in base traffic figures along the columns and change in toll growth along the rows has been shown as below: 235 -10% -5% 0% 5% 10% -2% 140 159 178 197 216 -1% 164 185 205 225 246 0% 191 213 235 257 278 1% 220 244 267 291 314 2% 252 278 303 328 354 3% 288 315 342 369 396 ANNEXURE VIII: BALANCE SHEET AND CASHFLOW STATEMENTS Balance Sheet Rs. Mn. 2004 2005 2006E 2007E 2008E 2009E Assets             Total Current Assets 1,314 1,850 1,718 4,790 7,716 10,588 of which cash & cash eqv. 210 959 468 1,405 2,380 2,888 Total Current Liabilities & Provisions 1,250 1,251 635 1,703 2,678 3,860