Road ahead for integrated projects: Yamuna Expressway

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Project Presentation on Financial Analysis of Yamuna Expressway
Roadways Integrated Expressway Project

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Road ahead for integrated projects: Yamuna Expressway

  1. 1. Road Ahead for Integrated Projects: Financial Analysis of Yamuna Expressway By Neeraj Mehra and Shaman Singh
  2. 2. Objectives • Understand the phases of the project • Identify risks • Financial calculations with own assumptions • Analyze the results • Suggestions
  3. 3. Past to Present 1997 • Conceptualized by Ms. Mayawati 2001 • Bidding Invited 2002 • Fresh Bids: Six Bidders 2003 • Concession Agreement between YEA and JAL • Mayawati stepped down- Corruption Allegations • Project Halted 2006 • Narayan Committee submitted report: In favor of grant of the project
  4. 4. Past to Present (Contd.) 2007 • Mayawati Comes Back to Power • JIL Incorporated • Project Construction Begins 2008 • Land Acquisition Issues- Mathura 2009 • Urgency Clause • Extension of Construction Period 2010 • Land Acquisition Issues- Tappal 2012 • State Elections: Mayawati Lost; SP comes back in power • Questions raised by new CM on the project • Taj International Airport Project scrapped • Ready for operation- No clarity on toll rates
  5. 5. Project Details Length 165.537 Km Right of Way 100m Number of Lane 6 Lanes extendable to 8 lanes Type of Pavement Rigid (Concrete) Interchange/ Main Toll Plaza 6 / 5 Vehicular Underpasses / Minor Bridges 70 / 41 Cart Track Underpasses / Crossing 76 Culverts 183
  6. 6. Project Parties
  7. 7. Traffic Study • Origin Destination Survey • Traffic Growth Rate Estimation: Log e (P) = Ao + Ai Log e(EI) Dependent variable : Number of registered vehicles Independent variable: Net State Domestic Product (NSDP) • Traffic Growth Rate = Growth Rate of NSDP * Elasticity • New Expressway Toll Rate Rules: Feb 2010
  8. 8. Risks • Land Acquisition • Environmental • Construction • Operating • Demand Supply/Market • Approvals • Regulatory
  9. 9. Social Costs and Benefits Social Costs • Construction • Maintenance • Land • Business on Original Route Social Benefits •Fuel Savings •Reduction in Pollution •Time Savings •Reduced Accidents •Economic Development •Tourism Boost
  10. 10. Financial Modeling Main Assumptions Risk Free Interest Rate: 6.47% Tax Rate: 33.99% Cost of Debt: 12.50% Target D/V ratio: 0.6 Target E/V ratio: 0.4 Area per township (Acres): 1235 % of Total Area needed for utilities (Roads, Reserved, etc): 15% Residential: 60% Commercial: 20% Institutional: 20% Total Development Time (years): 15
  11. 11. Financial Modeling Main Assumptions OLD Toll Growth Rate Assumption Increment per 3 years: 12% Toll Rate (Base)(Rs/Km) Car 1.47 LCV 2.29 Bus 4.35 2A 3.17 3A 7.52 MAV 10.02 NEW (Proposed) WPI Annual Proportion Increase: 6.30% Escalation (Annual): 2.52% Toll Rate (Base)(Rs/Km) Car 0.8 LCV 1.3 Bus 2.75 2A 4.3 3A 4.3 MAV 5.25
  12. 12. Calculations Cost of Equity Risk Free Interest Rate 6.47% Beta 1.217 Market Return 15.09% Expected Return (Equity) 16.961% Target D/V ratio 0.6 Target E/V ratio 0.4 WACC Calculation Weight of Debt 0.6 Weight of Equity 0.4 Cost of Debt 12.50% Cost of Equity 16.96% Tax Rate 33.99% WACC 11.74%
  13. 13. NPV IRR Calculations: Expressway and Real Estate Expressway Valuation - Old Rule NPV 255.75 NPV Equity -4638.44 Project IRR 12.33% Equity IRR 5.41% Expressway Valuation - New Rule NPV -1733.43 NPV Equity -5558.25 Project IRR 6.32% Equity IRR N/A Real Estate Valuation Total NPV 14307.69 NPV Equity 7144.12 IRR 52.20% Equity IRR 48.10%
  14. 14. NPV IRR Calculations: Project Project Valuation - New Rule NPV 12339.92 NPV (Equity) 3359.88 Project IRR 34.74% Equity IRR 26.49% Project Valuation - Old Rule NPV 14557.74 NPV (Equity) 4206.15 Project IRR 35.77% Equity IRR 27.80%
  15. 15. Scenario Analysis NPV Project (New) vs. Traffic
  16. 16. Scenario Analysis (Contd.) NPV Equity (Old) vs. Traffic
  17. 17. Scenario Analysis (Contd.) NPV Equity (New) vs. Real Estate Price Level
  18. 18. Scenario Analysis (Contd.) Real Estate NPV vs. Real Estate Price Level
  19. 19. Sensitivity Analysis Independent Variables • For Interest rates: Historical Bank PLR in India has standard deviation of 1.28% • For Property Prices: Historical Standard Deviation of Property Prices in Noida is 18.33% • For Traffic: 70% as downside and 110% as upside Dependent Variables 2 cases: Old Tariff Scenario and Revised (Proposed) Tariff Scenario • NPV • NPV-Equity • IRR • IRR-Equity • Number of Samples: 25,000
  20. 20. Percentiles Equity IRR- new NPV (Equity)- new NPV- new Project IRR- new Equity IRR- old NPV (Equity)- old NPV-old Project IRR- old 0% 4.59% -4255.1 -76.17 11.97% 8.96% -3515.88 1702.9 15.02% 10% 20.28% 1119.6 8520.76 28.76% 21.94% 1898.33 10474.2 1 29.95% 20% 22.35% 1843.06 9723.98 30.80% 23.84% 2629.33 11711.7 9 31.90% 30% 23.88% 2388.19 10617.1 9 32.27% 25.24% 3170.26 12642.9 1 33.31% 40% 25.15% 2844.83 11423.5 33.46% 26.45% 3631.87 13458.8 2 34.47% 50% 26.29% 3264.5 12135.9 5 34.57% 27.53% 4053.85 14214.7 8 35.53% 60% 27.46% 3701.98 12864.8 1 35.70% 28.64% 4492.12 14958.2 1 36.63% 70% 28.67% 4153.51 13671.5 2 36.86% 29.80% 4945.66 15779.3 8 37.76% 80% 30.09% 4692.65 14603.1 3 38.24% 31.16% 5485.3 16773.3 2 39.10% 90% 31.98% 5418.73 15928.1 1 40.05% 32.98% 6213.4 18137.3 7 40.87% 100% 43.59% 10021.71 25915.3 8 50.26% 44.36% 10879.36 28820.9 2 50.87% Sensitivity Data Assumptions Equity IRR- new NPV (Equity)- new NPV- new Project IRR- new Equity IRR- old NPV (Equity)- old NPV-old Project IRR- old Cost of Debt -0.21 -0.19 -0.34 -0.07 -0.21 -0.19 -0.4 -0.07 Real Estate 0.97 0.97 0.92 1 0.97 0.97 0.89 0.99 Traffic 0.03 0.05 0.06 0.03 0.06 0.09 0.12 0.05
  21. 21. Observations of Sensitivity Analysis • Very low probability of the negative Project NPV • Under Old Tariff, Project NPV is always positive. • Negative Equity NPV is possible in both the case, Old and Proposed New Tariff with very low probability. • In Terms of sensitivity: Real Estate>Cost of Debt>Traffic
  22. 22. Conclusion • Project conceived in 1997 (9th 5-year plan period) got completed in 2012 (12th 5-year plan period) • Massive increase in the estimated cost of the project • Returns from real estate development significantly outweigh the deficit from the expressway
  23. 23. Food for thought!! • Separate bids for real estate and expressway? • Are roads viable without corresponding real estate? • Should toll be waived in lieu of high real estate returns? • Should government take back portion of land given for townships?
  24. 24. Thank You

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