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Road ahead for integrated projects: Yamuna Expressway
1. Road Ahead for Integrated Projects:
Financial Analysis of Yamuna
Expressway
By
Neeraj Mehra and Shaman Singh
2. Objectives
• Understand the phases of the project
• Identify risks
• Financial calculations with own assumptions
• Analyze the results
• Suggestions
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. 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. 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
8. 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
9. Risks
• Land Acquisition
• Environmental
• Construction
• Operating
• Demand Supply/Market
• Approvals
• Regulatory
10. 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
11. 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
12. 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
13. 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%
14. 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%
20. 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
22. 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
23. 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
24. 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?