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

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

7. Project Parties

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%

15. 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%

16. Scenario Analysis
NPV Project (New) vs. Traffic

17. Scenario Analysis (Contd.)
NPV Equity (Old) vs. Traffic

18. Scenario Analysis (Contd.)
NPV Equity (New) vs. Real Estate Price Level

19. Scenario Analysis (Contd.)
Real Estate NPV vs. Real Estate Price Level

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

21. 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

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?

25. Thank You