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Gammon Infrastructure says will weigh spinning off roads business

Monday, 23 May 2011 - 1:53am IST | Place: Mumbai | Agency: DNA
Gammon Infrastructure Projects is considering hiving off its road projects under a separate arm, KK Mohanty, managing director, said.

Gammon Infrastructure Projects is considering hiving off its road projects under a separate arm, KK Mohanty, managing director, said.

Though he did not specify a timeline, Mohanty said once the size of the company’s total road portfolio reaches Rs10,000 crore, it will make sense to hive off.

“Each of our verticals has to achieve a critical mass before we can spin them off and roads will be the first,” Mohanty said.

At present, Gammon’s eight road projects are together worth Rs4,500 crore.

It is also developing three ports, five power projects and one special economic zone near Jamshedpur where it’s not made much progress.

“This fiscal, we are looking to win about Rs10,000 crore worth of projects, including Rs4,000 crore in roads,” Mohanty stated.

He said Gammon has qualified to bid for Rs175,000 crore worth of projects in roads, power, ports, airports and urban development.
Of this, Rs45,000 crore is in roads.

The company is also bidding for 5-7 projects across verticals in Indonesia, Sri Lanka and South Africa.

Of its eight roads, three are operational and the others will be commissioned by June 2012.
Only three of its projects are on a toll basis, while the rest are annuity projects.

A build-operate-transfer or BOT project is one which a developer bids for, and, after winning it, builds, operates for a specified period, earning revenue through toll and then hands it back to the National Highways Authority of India (NHAI).

In an annuity project, the NHAI pays the developer half-yearly annuity through the life of the project in lieu of toll. The NHAI reserves the right to toll the stretch.

Talking of the rationale behind keeping verticals separate, Mohanty said, “It leads to greater sectoral expertise and operational efficiency.” He also said they find better valuations.

Some of Gammon’s peers, including Ramky Infrastructure and Reliance Infrastructure, have plans to consolidate their road and other verticals under separate subsidiaries with the aim of listing them at a later point.

For the three months ended March 31, Gammon’s sales and profit after tax rose 42% and 14%, respectively, from a year ago to Rs77 crore and Rs8.3 crore.

The company has approved a Rs200 crore rights issue to partly meet its equity requirement of Rs270 crore in its various projects this fiscal.
 


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