Indian metro rail projects to provide Rs 800 bln business opportunity for infra cos, says Icra

Metro rail projects is expected to generate Rs 800 billion of opportunities for construction companies over the next five years, according to ICRA research report.

The report said 15 cities have operational metro networks of about 746 km and many of the network are undertaking expansion. In addition, another seven cities of about 640 km are under implementation stage and 1,400 km of metro rail projects worth Rs 2 trillion are in the approval or proposal stage.

“The metro rail network is likely to witness 2.7 times expansion in the next five years and its development cost ranges between Rs 280-320 crore per km for elevated metro and the cost could be much higher in the case of an underground metro network,” said Abhishek Gupta, Sector Head & Assistant Vice President, Corporate Ratings,

Gupta noted that civil construction forms approximately 35-45% of the overall cost and given the large size of the metro projects, this is likely to offer sizeable opportunities for construction companies over the next five years.

The report by the rating agency said that due to less number of players in the sector, the competition among bidders for various metro rail projects has remained moderate compared to other infrastructure segments like roads, railways, etc.

Gupta added that that the competiton among bidders is expected to remain moderate in the near to medium term, with the incumbents expected to benefit the most. He also noted that the cash conversion cycle of the companies which are bidding is expected to remain comfortable as majority of the orders are funded by multilateral agencies as well as Central Government allocations.

According to ICRA’s analysis, about 58% of the projects in terms of value were awarded at a premium over the base price, with 14% of the projects awarded at a premium of over 20%. Further, 42% of the bids were awarded at a discount and majority of these were at a nominal discount and only 7% of winning bids were at discount of over 25%.