irb infrastructure developers ltd Management discussions

1. Industry Review

1.1 India?s infrastructure opportunity

Infrastructure sector is a key driver for the Indian economy. Growing urbanisation, demand for energy and financing needs for sustainable living pose a challenge for the infrastructural setup in the country. Infrastructure, and the lack of it, is envisaged as the primary growth constraint, while good infrastructure is widely recognized as an enabler of growth. In the coming era of supply chain disruptions, new technologies and reversal of financial deleveraging, infrastructure growth must keep pace with the need created for it. The sector is accountable for propelling India?s overall development and garners intense focus from the government for introducing policies that would ensure time-bound formation of world-class infrastructure in the country. The opportunities in the sector have seen an incremental curve over previous years and are growing to establish the sector as a key driver in India?s development story at a high rate. The Government of India has given a significant push for capital expenditures for key infrastructure sectors, especially highways. The total allocation for the highways sector has increased to Rs 1.99 lakh Crore from Rs 1.18 lakh Crore in the Union Budget for financial year 2022-23. (Source: Government of India, Ministry of Finance, Union Budget 2022-2023)

National Infrastructure Pipeline

In December 2019, the Government launched the National Infrastructure Pipeline (NIP), an investment plan unveiled by the Central Government for enhancing infrastructure inidentified sectors is a first-of-its-kind exercise to provide world-class infrastructure effectively across the country and improve the quality of life for all citizens. NIP will enable a forward outlook on infrastructure projects which will create jobs, improve ease of living, and provide equitable access to infrastructure for all, thereby making growth more inclusive. NIP includes economic and social infrastructure projects.

It is envisaged that during the financial year 20-25, sectors such as energy (24%), roads (19%), urban (17%) and railways (12%) amount to 72% of the projected infrastructure investments in India, with a total capital expenditure projected at Rs 111 lakh crores. The Centre (39%) and states (40%) are expected to have an almost equal share in implementing the NIP in India, followed by the private sector (21%). The roads sector is likely to account for 19% capital expenditure over financial year 2019-25.

The financial year 23 was a challenging year for India?s infrastructure sector as the country was on the path of recovery from the impact of the COVID-19 pandemic distress coupled with strain on India?s economic prospects due to Russia -Ukraine conflict. The Government of India announced the Union Budget for financial year 23 which also focused on the NIP since it will require a major increase in funding both from the government and the financial sector, the finance ministry has proposed to take three concrete steps to boost the NIP. Firstly, through institutional structures; Secondly, by a big thrust on monetising assets, and thirdly by enhancing the share of capital expenditure in central and state budgets.

Out of the total expected capital expenditure of Rs 111 lakh crores, projects worth Rs 44 lakh crores (40% of NIP) are under implementation, projects worth Rs 33 lakh crores (30%) are at conceptual stage and projects worth Rs 22 lakh crores (20%) are under development.

Pradhan Mantri (PM) Gati Shakti National Master Plan (NMP)

The seven drivers of PM Gati Shakti are Roads, Railways, Airports, Ports, Mass Transport, Waterways and Logistics Infrastructure. The scope of PM Gati Shakti National Master Plan will encompass all seven drivers for economic transformation, seamless multimodal connectivity and logistics efficiency. The projects in the National Infrastructure Pipeline will be aligned with the PM Gati Shakti framework. The PM Gati Shakti master plan for expressways will be formulated in 2022-23 to facilitate faster movement of people and goods. The National Highways network will be expanded by 25,000 km in 2022-23. (Source: Highlights of the Union Budget 2022-23, February 1,2022)

Gati Shakti program has consolidated a list of 81 high impact projects, out of which road infrastructure projects were the top priority. The major highway projects include the Delhi-Mumbai expressway (1,350 kilometres), Amritsar-Jamnagar expressway (1,257 kilometres) and Saharanpur-Dehradun expressway (210 kilometres). The main aim of this program is a faster approval process which can be done through the Gati Shakti portal and digitized the approval process completely.

1.2 Road and highway sector

India has the second-largest road network in the world, spanning a total of 6.3 million kilometers (kms). This road network transports 64.5% of all goods in the country and 90% of India?s total passenger traffic uses road network to commute. Road transportation has gradually increased over the years with improvement in connectivity between cities, towns and villages in the country.

According to the Ministry of Road Transport and Highways (MoRTH), Financial Year 2022-23 was the year of consolidation of the gains that accrued from major policy decisions taken in the previous eight years, a time for monitoring of ongoing projects, tackling road blocks and adding to the already impressive pace of work achieved during the past years. During the year, the MoRTH and its associated organizations have expanded the national highways network in the country, taking various steps to make these highways safe for the commuters and making best efforts to minimize adverse impact on the environment. As a result, over the last eight years, length of National Highways has gone up by 48.12% from 97,830 km (financial year 2014-15) to 1,44,955 km (as on March 31,2023) out of the set target of 2,00,000 kms for 2024-25. (Source: MoRTH press release titled "Year End Review 2022: Ministry of Road Transport and Highways" dated January 04, 2023 and MoRTH Annual Report 2022-23).

The MoRTH has envisaged an ambitious highway development programme Bharatmala Pariyojana which includes development of about 65,000 km NHs. Under Phase-I of Bharatmala Pariyojana, the MoRTH has approved implementation of 34,800 kms of NHs in five years (2017-18 to 2021-22) with an outlay ofRs 5,35,000 crores.

The programme focuses on optimising efficiency of freight and passenger movement across the country by bridging critical infrastructure gaps through effective interventions like development of Economic Corridors, Inter Corridors and Feeder Routes, National Corridor Efficiency Improvement, Border and International Connectivity roads, Coastal and Port Connectivity roads and Green-field expressways. Multi-modal integration is also built into this program. This includes 5,000 km of the national corridors, 9,000 km of economic corridors, 6,000 km of feeder corridors and inter corridors, 2,000 km of border roads, 2,000 km of coastal roads and port connectivity roads and 800 km of green field expressways. Phase I will also subsume 10,000 km of balance roadworks under the NHDP.

Bharatmala Pariyojana: This is the umbrella program for the highways sector that aims to optimize the efficiency of road traffic movement across the country by bridging critical infrastructure gaps. The Phase I of the Bharatmala Pariyojana approved in October 2017, focuses on development of 34,800 km of National Highways. The Pariyojana emphasized on a "corridor based National Highway development" to ensure infrastructure symmetry and consistent road user experience. The key components of the Pariyojana are Economic Corridors development, Inter-corridor and feeder routes development, National Corridors Efficiency Improvement, Border and International Connectivity Roads, Coastal and Port Connectivity Roads and Expressways.

The Bharatmala (approved for estimated cost of Rs 6,92,324 Crore including other ongoing schemes) is to be funded from CRIF Cess (Rs 2,37,024 crore) collected from Petrol & Diesel (as per Central Road & Infrastructure Fund Act, 2000, erstwhile CRF Act, 2000), amount collected from toll remittances (Rs 46,048 crore) apart from additional budgetary support (Rs 59,973 crore), expected monetisation of NHs through TOT (Toll-Operate-Transfer) (Rs 34,000 crore), Internal & Extra Budgetary Resources (IEBR) (Rs 2,09,279 crore) and Private Sector Investment (Rs 1,06,000 crore) as per Financing Plan upto 2021-22.

However, due to increase in the project cost as well as cost of land acquisition, the revised financial proposal for the Bharatmala Pariyojana is under process for approval. The status ofvarious components of Bharatmala Pariyojana Phase-I and other schemes upto December 31,2022 are as under:

Sr. No.	Components	Total Length in km	Total Length Completed up to 31.12.2022 in km
1.	Economic corridors development	9,000	3,155
2.	Inter-corridor and feeder roads	6,000	1,381
3.	National Corridors Efficiency improvements	5,000	1,412
4.	Border and International connectivity roads	2,000	1,213
5.	Coastal and port connectivity roads	2,000	93
6.	Expressways	800	779
	Subtotal	24,800	8,033
7.	Balance road works under NHDP	10,000	3,756
	Grand Total	34,800	11,789

(Source: MoRTH Annual Report for Financial Year 2022-23)

Under Phase-1, about 23,500 km. has been awarded and about 11,400 km. has been completed. The balance projects are targeted for award by Financial Year 2024-25.

According to the MoRTH Annual Report 2022-23, Bharatmala Pariyojana envisages 60% projects on Hybrid Annuity Mode (HAM), 10% projects on BOT (Toll) Mode and 30% projects on EPC mode respectively. Total aggregate length of 25,713 km with a total capital cost of Rs 7,81,845 crore have been approved and awarded till date under Bharatmala Pariyojana (including 6,649 km length of residual NHDP with a total capital cost of Rs 1,51,991 crore). Out ofthe total approved 25,713 km, an aggregate length of 14,317 km have been approved on EPC mode, an aggregate length of 10,989 km on Hybrid Annuity Model (HAM) mode and an aggregate length of 408 km on Build operate transfer (BOT) (Toll) mode [EPC: HAM: BOT:: 56%:42%:2%], (up to December 31, 2022). (Source: MoRTH Annual Report 2022-23).

Out of the 24,800 km approved under Bharatmala Pariyojana Phase-I, total length of 18,348 km have been awarded upto December 31, 2022. Similarly, out of the residual NHDP component to be completed under Bharatmala Phase-I, a total length of 6,412 km have been awarded upto December 21, 2022. (Source: MoRTH Annual Report 2022 23).

MoRTH placed target of 14,300 km for award and 1 2,200 km for construction in the financial year 2022-23 to provide a boost to infrastructure development and enable it to overcome the impact of Covid-19 and global conflict due to Russia -Ukraine war.

Details of National Highway length constructed per day during last five financial years are as follows:

Year	Length in Km	Pace (Km per day)
2016-17	8,231	22.55
2017-18	9,829	26.93
2018-19	10,855	29.74
2019-20	10,237	27.97
2020-21	13,327	36.51
2021-22	10,457	28.64

(Source: Year End Review- 2022: MoRTH)

The MoRTH achieved the record-breaking milestone of constructing ~37 km highways per day in the Financial Year 2020-2021. The pace of National Highway construction had slowed to 28.64 km a day in 2021-22, due to pandemic-related disruptions and a longer-than- usual monsoon in some parts of the country. However, in order to provide a boost to infrastructure development and enable it to overcome the impact of COVID-19 pandemic, the MoRTH has increased the annual project award by 42% in the past four years from 8,948 km in financial year 2019-2020 to 1 2,731 km in Financial Year 2021-2022.

1.3 Growth Drivers

To accelerate the pace of construction, several initiatives have been taken to revive the stalled projects and expedite completion of new projects:

• Identification of Model National Highway in the state for development by the government.

• Streamlining of land acquisition and acquisition of major portion of land prior to invitation of bids.

• Award of projects after adequate project preparation in terms of land acquisition, clearances etc.

• Disposal of cases in respect of Change of Scope (CoS) and Extension of Time (EoT) in a time bound manner.

• Procedure for approval of General Arrangement Drawing for ROBs simplified and made online.

• Close coordination with other Ministries and State Governments

• One-time fund infusion

• Regular review at various levels and identification/ removal of bottlenecks in project execution

• Proposed exit for Equity Investors

• Securitization of road sector loans

• Disputes Resolution mechanism revamped to avoid delays in completion of projects.

• As an integral part of Atmanirbhar Bharat, the various relief measures have been taken by the MoRTH for providing relief to Contractors/ Developers/ Concessionaires of Road Sector from the impact of COVID, subsequent lockdown and other measures taken to prevent spread of COVID.

• The several steps undertaken by the Government under Atmanirbhar Bharat includes granting time extensions for 3 to 9 months, relaxation in contract provisions for ensuring cash flow, direct payment to sub-contractors and release of retention/security money to augment cash flow, waiver of penalty in case of delay in submission of Performance Security (for new Contracts), to expedite the construction work to achieve the target.

• Mandatory Electronic toll collection through FASTag with effect from February 15, 2021.

• For faster settlement of claims through conciliation and reduce liabilities, NHAI has rigorously started the process of conciliation by constituting three Conciliation Committees of Independent Experts (CCIE) of three members each.

• In addition, there are a few more initiatives that will drive growth for the infrastructure sector in India:

Massive infrastructure push: The Union Budget has given much-needed impetus to infrastructure development which could reduce trade and transaction costs and improve factor productivity. Moreover, the focus on roads and railways will create a unified market in India for seamless movement of goods and human resources. The Government of India has given a massive push to the infrastructure sector. The total budgetary outlay increased by 68.59 %, from Rs 1,18,101 crores in financial year 2021 -22 to Rs 1,99,107 crores for the financial year 2022-23.

NH expansion: PM Gati Shakti Master Plan for Expressways will be formulated in 2022-23 to facilitate faster movement of people and goods. The National Highways network will be expanded by 25,000 km in 2022-23. Length of national highways to reach 200,000 km.

Growing demand: With the increase in consumer demand and nuclear families, need for two-wheelers and compact cars have been on the rise and is expected to grow even further. The market for roads and highways in India is projected to exhibit a CAGR of 36.16% during 2016-2025, on account of growing government initiatives to improve transportation infrastructure in the country. Almost 40% (824) of the 1,824 Public-Private Partnerships (PPP) projects awarded in India until December 2019 were related to roads.

Government initiatives: The government has tried to improve the rate of awarding over the years. HAM has seen a significant share of awarding recently, which is expected to increase going forward.

The major initiatives undertaken by the Government such as National Infrastructure Pipeline (NIP) and the PM Gati Shakti National Master Plan will raise productivity, and accelerate economic growth and sustainable development. The approach is driven by seven engines, namely, Roads, Railways, Airports, Ports, Mass Transport, Waterways, and Logistics Infrastructure. All seven engines will pull forward the economy in unison. The projects pertaining to these 7 engines in the NIP will be aligned with PM Gati Shakti framework. The major initiatives undertaken by MoRTH are described under:

1. MORTH, through its implementing agencies NHAI / NHLML and NHIDCL has kept pace with the work of implementing of 35 Multi-Modal Logistics Parks (MMLPs) Projects identified for development under Bharatmala Pariyojana - Phase I.

2. MoRTH developed a comprehensive Port Connectivity Masterplan to ensure adequate last-mile connectivity to all the operational/UI ports in the country. As part of the Masterplan, connectivity requirements of all the operational and under implementation ports were assessed and connectivity projects were identified. The 59 projects (1,249 km) will be taken up under PM Gati Shakti National Master Plan for improving last mile connectivity to ports in the country.

3. In order to improve the comfort and convenience of the highway users, the Ministry has planned development of state-of-the-art Way Side Amenities (WSA) at approximately every 40 kms along the National Highways.

4. Launch of Surety Bond Insurance: MoRTH launched Indias first-ever Surety Bond Insurance product from Bajaj Allianz on December 19, 2022. With this new instrument of Surety Bonds, the availability of both liquidity and capacity will be boosted, and the infrastructure sector will be strengthened.

5. Relief for Contractors/Developers of the Road Sector in view of the COVID-19 Pandemic. The MoRTH has extended reliefs/extension to relief granted to the Contractors / Developers of the Road Sector in view of the COVID-19 pandemic.

6. In order to ensure seamless movement of traffic through fee plazas and increase transparency in collection of user fee using FASTag, the National Electronic Toll Collection (NETC) programme, the flagship initiative of MoRTH, has been implemented on pan-India basis. FASTag implementation has also reduced the wait time at National Highway fee plazas significantly, resulting in enhanced user experience. In order to ensure that the payment of fees at Toll Plazas is through Electronic means only and vehicles pass seamlessly through the Fee Plazas, the FASTag drive has been very well supported by the highway users as it has achieved over 95% penetration with more than three Crore users in the country.

7. MoRTH brought out changes in the Model Concession Agreement (MCA) & Request for Proposal (RFP) of the Road Construction Models such as HAM and BOT (Toll).

i) Much needed changes have been made in the relevant clauses of the model RFP and MCA of the HAM project to allow the Lowest Quoted Bid Project Cost (BPC) as the basis for awarding the HAM Project and O&M cost to be fixed as being done in EPC projects. It will now bring out the winner immediately after the opening of financial bids in a transparent manner as in EPC mode of bidding.

ii) Changes have been made in the relevant clauses of the Model Concession Agreement of the BOT (Toll) project permitting the change of ownership from existing 2 years to 1 year after the Commercial Operation Date (COD). This move will free the equity/funds of construction companies for taking up other projects.

8. In November 2020, the MoRTH in modified the change in ownership clause in the Hybrid Annuity Mode ("HAM") projects and permitted the bidders/ consortium members to dilute their equity after a period of six months from the commercial operations date ("COD"). Prior to the relaxation, the concessionaire/bidders/consortium members had to retain their equity for a period of two years from COD. Further, MoRTH in May 2022 approved changes in the model concession agreements of Build-Operate-Transfer projects and permitted the change of ownership from the existing two years to one year after COD/issuance of completion certificate and completion of punch list items.

Increasing investments: With the Government permitting 100% Foreign Direct Investment (FDI) in the road sector, several foreign companies have formed partnerships with Indian players to capitalise on the sectors growth.

1.4 Opportunities

Here are some trends that are ensuring seamless travel,

better infrastructure and connectivity:

• Electronic toll collection: National Electronic Toll Collection (FASTag) programme, the flagship initiative of MoRTH and NHAI, has been implemented on pan-India basis to remove bottlenecks and ensure seamless movement of traffic and collection of user fee as per the notified rates, using passive Radio Frequency Identification (RFID) technology which is made compulsory with effect from February 15, 2021.

• Different models: The type of PPP models used in road projects BOT toll, TOT and HAM. The government has already started developing new, flexible policies to create investor-friendly highway development initiatives by monetising highway assets under TOT mode. The next fiscal year is likely to witness an increase in private participation by award of contracts under the BOT, TOT and HAM model.

• FDI in roads: 100% Foreign Direct Investment (FDI) is allowed under the automatic route in the road and highways sector. The Government aims to boost corporate investment in roads and shipping sector, along with introducing business-friendly strategies, which will balance profitability with effective project execution. According to the data released by Department for Promotion of Industry and Internal Trade Policy (DPIIT), Cumulative FDI inflows in construction development stood at US$

26.3 billion between April 2000-December 2022. In financial year 2021-22 (until November 2021), the private sector invested Rs 15,164 Crore (US$ 1.98 billion) in roads. Cumulative FDI in construction development (includes Townships, housing, built-up infrastructure and construction-development projects) stood at US$ 25.93 billion between April 2000 and September 2020. The Government?s move to cut GST rates on construction equipment from 28% to 18% is expected to give boost to the industry.

Asset Monetization: The National Highways Authority of India (NHAI) has drawn up an ambitious plan to monetize 46 operational highway stretches of total length of 2,61 2 kms in the Financial Year 2023-24 through TOT/ InvIT mode to beef up resources for its road building program.

Other favourable policies: These include 100% exit policy for stressed BOT players, providing secured status for PPP projects while lending, and proposal to scrap slow-moving highway projects, among others.

1.5 Outlook

India?s infrastructure sector is rapidly evolving and the key trends demonstrate positivity and optimism. The market for roads and highways in India is projected to exhibit a CAGR of 36.16% during 2016-2025, on account of growing Government initiatives to improve transportation infrastructure in the country. For the period of 2016-17 to 2021 -22, the CAGR stands at 20%.

The highways sector in India has been at the forefront of performance and innovation. The government is committed towards expanding the National Highway network to 2 lakh kilometres by 2025 emphasizing the construction of the World Class Road infrastructure in time bound & target oriented way. India has a well-developed framework for Public-Private-Partnerships (PPP) in the highway sector. The Asian Development Bank ranked India at the first spot in PPP operational maturity and also designated India as a developed market for PPPs. The Hybrid Annuity Model (HAM) has balanced risk appropriated between private and public partners and boosted PPP activity in the sector. In the recent past, the BOT projects have witnessed renewed interest from private players, therefore it is envisaged that the NHAI may come out with more tenders on BOT mode in the coming year. Asset recycling, through the TOT model has also been taken up by the NHAI and other State Government agencies.

The second phase ofthe Government of India?s Bharatmala programme has been announced for launch 5,000 km worth of projects are expected to be constructed under the aegis of this programme and Detailed Project Reports (DPRs) are being prepared prior to the approval ofthe projects so as to speed up the implementation process. In order to facilitate seamless travel between important economic centres, Bharatmala Phase-2 seeks to improve connectivity to a number of infrastructure projects, including multi-modal logistics parks (MMLPs) and under-construction expressways. The new phase would also take up the construction of highways that decongest existing roads, ring roads around major industrial centres and bypasses. The simultaneous implementation of phase-ll projects will help in operationalising the remaining projects under phase-l, which is now scheduled to be completed by 2027.

2. Company and business overview

2.1 Company Overview

The Company is among India?s leading and the largest integrated infrastructure developers, specializing in roadways and highways. It enjoys robust in-house integrated project execution capabilities — Engineering, Procurement and Construction (EPC) and Operation and Maintenance (O&M) — across all its business verticals like Build Operate Transfer (BOT), Toll-Operate-Transfer (TOT) and Hybrid Annuity Model (HAM).

The Company is a pioneer in the road BOT business. It is India?s largest road BOT operator with a rich portfolio of 24 projects, including 18 BOT, 2 TOT and 4 HAM projects through the parent company and 2 InvITs. Operation and Maintenance of all projects is carried out by parent company. The Company also has the largest TOT - Mumbai-Pune Expressway - to its credit. The company?s TOT portfolio aggregates to 37% ofthe total TOT market share of TOT projects awarded in India. Altogether, it

has ~20% share of the prestigious Golden Quadrilateral Highway Network which connects four metro cities of India i.e. Mumbai, Delhi, Chennai and Kolkata.

Over the years, the Company has developed rich in-house expertise in both its EPC and O&M verticals. The Company?s clients primarily comprise government authorities. Today, the IRB Infra is the only integrated Highways development platform in India providing a compelling business visibility for almost 3 decades through the projects under O&M in its umbrella and catering to the investors with diverse risk appetite through parent company and the two Investment Trusts (InvITs). The group has three listed entities which caters to various kind of investors

1. Public InvIT - Investors seeking stable yield

2. Private InvIT - Its development platform for IRB Group for BOT and TOT Projects and has tied up with long term investor, GIC affiliates - Sovereign wealth fund of Singapore (49% partner).

3. The company- Investor seeking regular divided and capital appreciation.

The Company, at this juncture of time, has reached the status of being fully integrated multi-national player with global marquee strategic investors on board and possesses rich in-house domain expertise and experience in designing, construction, operations, maintenance and tolling. With its own equipments and machinery bank, the Company has the ability to undertake world class quality construction of 500 to 600 kms at any given point of time. The investments by our global partners has opened the avenues of introducing world class technology and best industry practices in our operations while making available ready access to capital for growth. The Company, through its well devised policies in place has imbibed efficient O&M practices by deploying advanced technologies and systems with a strong focus on sustainability aspect.

On a per lane kms basis, IRB?s geographic spread is 18% in Maharashtra, 19% in Rajasthan, 15% in Uttar Pradesh,18% in Gujarat, 10% in Karnataka, 5% in Haryana, 3% in Punjab, West Bengal and Tamil Nadu, 1 % in Himachal Pradesh and 9% in Telangana.

The Infrastructure Investment Trusts (InvITs) are new avenues available in the market for Investors, which have been designed to pool money from various investors for investing in revenue generating assets. The Company has two listed InvITs, one Public InvIT and another Private InvIT. Further, incase of Private InvIT 49% owned by Government of Singapore affiliates, where the Company is playing dual roles, i.e., a Sponsor to the InvIT and Project Manager; thus, utilizing its strengths for enhancing Stakeholders? interests.

Public InvIT is the platform, where Company is offering the economically stabilized projects; whereas, the Private InvIT is a development platform for the company & the company intends to execute BOT and TOT Projects through this platform. This brings down the equity contribution of the company to these projects and further increases the appetite for more projects.

2.2 Business Overview

2.2.1 Construction and development (EPC)

Over the period of two and half decades IRB has successfully managed more than 17,200 Lane Kms of highways on BOT, TOT and HAM basis, which include lane kms constructed, operated, maintained and tolled and handed over back to the nodal agency on concluding the stipulated concession period.

Ofthese 17,200 Lane Kms, 13,739 Lane Kms are currently under Execution, O&M and Tolling and rest 3,461 Lane Kms were handed over back to the respective nodal agencies on successful completion of the respective Concession. Company has successfully completed and handed over back to the nodal agency, 12 BOT Concessions in last two and half decades, the largest by any Indian private highways infrastructure developer.

Out of the 13,739 Lane Kms, 7,156 Lane Kms are operational and 1,706 Lane Kms are under development in Private InvIT Assets portfolio; 2,421 Lane Kms are being operated under Public InvIT Assets on BOT and HAM basis. IRB acts as a project manager for both the InvITs. Balance 2,456 Lane Kms are under the parent Company on BOT, TOT and HAM basis. Out of which, 2001 Lane Kms are operational and 455 Lane Kms are under development phase.

The portfolio comprises approximate 20% share in India?s prestigious Golden Quadrilateral Project that connects India?s four key megapolis, Viz. Delhi, Mumbai, Chennai and Kolkatta.

The Company has an integrated approach towards project execution and involves development, in-house construction, as well as O&M activities through the concession life. It owns a range of advanced equipment and skilled workforce that enables it to complete projects within set time and budget. The expert talent pool also helps the organization manage its entire tolling and maintenance functions in-house. Besides, it?s state-of- the-art IT infrastructure strengthens its integrated business model.

Taking forward the growth momentum, Company bagged two projects , i.e., the upgradation project for 6 laning of NH27 from Samakhiyali to Santalpur having a project cost ofRs 2,132 crores and concession life of 20 years on BOT basis from NHAI in the state of Gujarat. The project will be funded by debt of approximately ofRs 1,400 crores and balance through equity and internal accruals (IRBs share of equity is less than Rs 350 crores).

The second award is for a prestigious project in the state of Telangana. The scope encompasses TOT for the Hyderabad Outer Ring Road (ORR) project comprising an 8-lane highway, starting at kilometer 0 at Narsingi junction and ending at kilometer 158 at Gachibowli in Hyderabad, in the state of Telangana on upfront payment of Rs 7,380 crores for a concession period of 30 years. The total Project cost will be around Rs 8,362 crores which will be funded by debt of Rs 5,500 crores and balance through equity of Rs 2,862 crores. Since the project is to be executed through the Private InvIT, IRBs share will be close toRs 1,460 crores and the balance will be contributed by our financial partner (GIC).

The aggregate enterprise value of assets managed by the Parent Company and its two InvITs is around Rs 70,000 Crores.

IRB expects to earn a robust construction EBITDA margin from execution of these projects. IRB strengthened its order book to end FY 2023 atRs 205,723 million. Of this, the construction EPC order book of Rs 88,050 million would be executed over the next two or three years.

During the financial year, IRB received the Appointed Date for Pathankot Mandi HAM project in Himachal Pradesh, Chittoor Thachur HAM project in Tamil Nadu and Meerut Budaun Expressway BOT project that parts Ganga Expressway Group 1 project, an eight lane greenfield expressway in Uttar Pradesh and has commenced construction on all these projects.

On the project completion front, the Company has successfully achieved completion for all the nine projects which were transferred to the Private InvIT in the initial phase. Following completion of the Kishangarh-Gulabpura and Hapur-Moradabad projects, the toll rates for these SPVs have seen an increase of 78% and 65% respectively. Further, the Vadodara Kim HAM Project was one of the first projects to achieve completion which is the part of the prestigious upcoming Delhi Mumbai Greenfield Expressway. As part of our asset monetization stretgy for HAM Projects, we have concluded the sale of VK1 project during this financial year and we have received consideration of Rs 342 crores for equity which is close to

1.2 times of equity invested.

2.2.2 Toll O&M

In FY23, the aggregate toll revenue of IRB Infra and its two InvITs is Rs 5,230 Crores versus Rs 4,762 Crores in FY22; thus registering a robust growth of 10%. It needs to be appreciated that in today?s scenario, Toll Revenue is one of the parameters to determine and measure the trend of economic growth of the region, as it reflects the Traffic Growth on the particular highway corridor in that region. In view of this, Company?s toll revenue across all projects have witnessed and reflected the continued traffic growth, which is in line with the macro-economic indicators and demonstrates that its projects part India?s prime economic corridors. Further, In general, WPI linked toll tariffs provides a natural hedge against interest rate hikes (e.g., Tarrif for Ahmedabad Vadodara & 9 assets of Private Invit increased by 10% from April 2022).

2.2.3 Sponsor of IRB InvIT Fund

IRB launched India?s first public InvIT, IRB InvIT Fund, in May 2017 and continues to act as the sponsor and the project manager.

Initially, it transferred six assets at the time of IPO in May 2017 and seventh asset in September 2017. IRB owns 16% stake in the Trust, as on March 31,2023. During the fiscal, Company received total distribution of Rs 80.2 Crores, of which Rs 50.1 Crores were received as interest and Rs 30.1 Crores as return on capital. During the year, we have added a new HAM asset to the portfolio, Viz., Vadodara Kim (VK1), which parts the upcoming Delhi Mumbai Greenfield Expressway and was first to be commissioned on the stretch.

2.2.4 Sponsor of IRB Infrastructure Trust

IRB sponsored a private InvIT viz. IRB Infrastructure Trust in August 2019 and continues to act as the sponsor and the project manager.

IRB had initially transferred nine of its BOT assets into the Private InvIT in which IRB continues to hold stake of 51% while GIC affiliates hold balance 49% stake and infused more than Rs 4,000 crores for initial 9 assets. We have added 10^th BOT asset later to the portfolio. As on today, the portfolio spans across 8,862 Lane Kms, of which 7,156 Lane Kms are operational and 1,706 Lane Kms are under development phase in the States of Haryana, Uttar Pradesh, Rajasthan, Maharashtra, West Bengal and Karnataka. All 10 assets in the portfolio are revenue-generating assets.

Further, the private InvIT got itself listed on the National Stock Exchange in line with SEBI InvIT Regulations, which mandates listing of all InvITs. With listing, it became the first Private InvIT listed on the National Stock Exchange after the regulator SEBI?s guidelines on listing framework for the non-listed InvITs came into force during the fiscal. The listing made Trust, the third entity of the Company to get listed on the Stock Exchange. The idea behind listing of the Trust was to have better disclosure norms and bring more transparency and achieve highest standards of the Corporate Governance. In the last 4 years the project portfolio of the Trust has made stupendous progress and has achieved a size of almost 28,734 Crores Enterprise Value for 10 assets as on March 31,2023 with balance concession life of ~21 years. The valuation of trust units was determined basis third party independent valuer and further endorsed by Trusts? investors as well.

3 Financial Analysis

Debt from project lenders are the major source of funding for BOT Projects. These projects are funded normally in the ratio of 70:30 debt to equity. The project lenders have reposed trust in the Company?s financial strength, demonstrated by healthy growth in internal accruals and net worth. Besides, they have also shown faith in the Company?s project execution capabilities. This trust of the project lenders has played a primary role in helping IRB achieve the required financial closures ahead of the schedule.

The total consolidated income for FY23 stood at Rs 67,033 million as against Rs 63,554 million in FY22 registering a growth of 5%. The consolidated toll revenues for FY23 has increased to Rs 21,229 million from Rs 18,768 million FY22 registering a growth of 13%. The consolidated construction revenues for FY23 has increased to Rs 45,804 million as against Rs 44,786 million in FY22 registering a growth of 2%.

EBITDA for FY23 increased to Rs 35,307 million from Rs 33,492 million in FY22 registering a growth of 5%.

Interest costs has decreased to Rs 15,146 million in FY23 from Rs 18,906 million in FY22 decreased by 20 %.

Depreciation has increase to Rs 8,321 million in FY23 as against Rs 6,828 million in FY22 increased by 22%.

PBT has increased to Rs 11,840 million in FY23 from Rs 7,759 million in FY22, registering a growth by 53%.

PAT after share of loss from JV has increased to Rs 7,200 million in FY23 from Rs 3,614 million in FY22, registering a growth by 99%.

Earnings per share on basic and diluted basis excluding extraordinary income increased to Rs 1.19 for FY23 from Rs 0.87 in FY22, registering a growth of 37%.

Key Financial Ratios

Particulars	2022-23	2021-22
Return on Net Worth (%)	5%	3%
Return on Capital Employed (%)	9%	9%
Debtor turnover ratio	2.86	4.25
Inventory turnover ratio	1.36	1.47
Interest coverage ratio (in times)	2.79	2.01
Current ratio (in times)	1.62	1.78
Debt Equity ratio	0.99	1.11
Net Debt to Equity ratio	0.75	0.90
Operating Profit Margin (%)	50%	48%
Net profit margin (%)	11%	6%

4 Key Competitive Advantage

IRB?s competitive edge stems from the following:

• Proven track record of completing all phases of BOT projects in the highway sector within timeline

• Robust order book ofRs 205,723 million as on March 31, 2023

• Market leader with the largest domestic portfolios in the roads and highways sector

• Strong financial track record; healthy relationships with leading banks/financial institutions

• Integrated and efficient project execution, supported by a comprehensive equipment pool

• Professionally managed Company with a qualified and skilled employee base

• One of the few infrastructure companies to have successfully implemented SAP

• One of the leading global sovereign funds as a long-term partner for 49% stake in Pvt InvIT

5 Risks and Challenges

The Company?s ability to foresee and manage business

risks is crucial to its efforts to achieve favourable results.

Although management is positive about the Company?s

long-term outlook, it is subject to a few risks and

uncertainties, as discussed below:

1. Competition risk

Attractive growth opportunities exist in the road construction sector, especially with the government going full throttle on infrastructure development with the Bharatmala Pariyojana. This may increase the number of players operating in the industry. However, the Company is confident about retaining its competitive edge, backed by its industry-leading experience in the roads and highways sector. Further, the Company has carved out a niche in the BOT segment. Higher competencies including financial strength required for this segment create entry barriers, thereby limiting competition. As a prudent strategic initiative, IRB will continue to bid for projects based on their financial, operational and execution viability.

2. Availability of capital and interest rate risk

Infrastructure projects are typically capital intensive and require high levels of long-term debt financing. IRB intends to pursue a strategy of continued investments in infrastructure development projects. In the past, the Company has been able to infuse equity and arrange for debt financing on acceptable terms for the projects. However, IRB believes that its ability to continue to arrange capital requirements depends on various factors. These factors include

timing and internal accruals, timing and size of the projects awarded, credit availability from banks and financial institutions, and the success of its current infrastructure development projects. Besides, there are several other factors outside its control.

The Company?s strong track record has enabled it to raise funds at competitive rates thus far. In addition, the credit rating outlook has improved from Stable to Positive, which has helped maintain the average cost of debt at ~8.90% per annum.

3. Traffic growth risk

Toll revenue is a function of toll rates and traffic growth.

Toll rates: The Government plans to link toll rate increases to changes in the Wholesale Price Index (WPI). Toll rates of the Company?s projects awarded after 2008 are decided based on a formula, which is 3% fixed plus 40% of WPI. On 4 to 6 lanning projects, toll collection starts from the appointed date with a 75% tariff and rate revision happens on completion of the asset. The Company?s other projects including state highway projects have annual revision linked with WPI or periodical increase clause in their concession agreement.

4. Traffic

Rapid economic development increases traffic growth while low economic activity has a negative impact on traffic volume. Most of the Company?s projects are part of India?s GQ corridor or are key connectors between India?s busiest highways or economic/social hubs and carries long distance freight - spread across the length of the country.

This includes the Ahmedabad-Vadodara, Kishangarh-Gulabpura, Gulabpura-Chittorgarh, Udaipur-Rajasthan/Gujarat border road projects, among others. For their strategic connectivity, industrial growth and development of the Delhi-Mumbai industrial corridor along these projects are expected to boost the traffic growth momentum in the coming years, partially offsetting the risk of a slowdown in traffic growth. Further, adding a large high growth urban corridor through Hyderabad Outer Ring Road project diversifies company?s revenue stream while providing significant stability. A pickup in economic activity and the implementation of Bharatmala Pariyojana, as planned, will lead to higher traffic growth in the roads sector. With the passage of time, even road projects that have been witnessing muted traffic growth could benefit from the uptick in economic growth.

5. Input cost risk

Raw materials, such as bitumen, stone aggregates, cement and steel need to be supplied continuously to complete projects. There is also a risk of cost escalations or raw material shortages. The Company?s extensive experience, its industry position and bulk purchases have helped it procure raw materials at competitive rates. Moreover, the Company procures stone aggregates from its leased mines, which ensures quality and lowers costs, as compared to buying aggregates from open markets. Captive sourcing also minimises supply disruptions or price escalations.

6. Labour risk

Timely availability of skilled and technical personnel is one of the key industry challenges. The Company maintains a healthy and motivating work environment through various initiatives. This has helped it recruit and retain skilled workforce and, in turn, complete projects in time.

7. Cybersecurity risk

With the increase in frequency of cyberattacks on vital digital infrastructure occurring globally, our IT function has proactively implemented substantial measures to safeguard the organization against potential threats. Critical information is protected from unauthorized access, use, disclosure, modification, and disposal, whether intentional or unintentional. To safeguard the integrity of data and guarantee its uninterrupted and on demand availability to the users, suitable measures are in place for recovery of data. Thus, in event of any manmade or natural disaster, cyberattack, malfunctioning or failure of hardware at central location, our IT Team remain available with least amount of downtime or data loss. Additionally, we implement Vulnerability Assessment and Penetration Testing (VAPT) from third party to proactively identify and address potential cybersecurity risks, fortifying our highway construction and maintenance systems against cyber-attacks, data manipulation, and service disruptions.

8. Climate change risk

At IRB, we recognize the pressing challenges posed by climate change and the imperative need to transition towards a low carbon economy. Our commitment to environmental stewardship drives us to take proactive steps in reducing our carbon footprint and promoting sustainable practices across our operations. As part of our dedication to responsible business practices, we actively embrace additional regulatory changes and best practices prevailing in industry. We understand that compliance with these evolving regulations is crucial in creating a greener and more sustainable future. By adhering to these guidelines, we ensure our contributions to a collective effort in combatting climate change and safeguarding the planet for future generations. In our journey towards sustainability, we have adopted the Science-Based Targets initiative (SBTi) and embraced the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) as part of adopting best industrial practices.

9. Health and Safety risk

The nature of business involves construction and maintenance of highways & toll plaza operations. The presence of heavy machinery, moving vehicles, and other construction activities exposes employees and workers to potential hazards, increasing the likelihood of injuries and accidents that could potentially lead to loss of human life. Implementation of robust health & safety measures, provision of adequate training, and adherence to safety protocols are ensured to safeguard the well-being of workers and to prevent potential catastrophic consequences associated with the construction and maintenance activities.

6. Human Resource Management

IRB has a large pool of experienced and skilled technical manpower, with which IRB executes world-class projects and delivers excellent quality. IRB aims to keep its employees abreast of the latest technical developments and emerging technologies related to the construction of roads and structures, toll operations, collection processes and road maintenance activities. The Company encourages its executives to attend seminars and symposiums conducted by professional bodies of global repute. Employees are also nominated to attend other professional skill-building programmes.

IRB?s reputation of providing a congenial work environment that respects individuality and encourages professional growth, innovation and performance, acts as a strong pull to attract new industry talent. Human resources continue to be one of the core focus areas. Open work culture, effective communications, fair and equitable treatment and welfare of employees are significant value propositions, which help IRB to retain its highly engaged talent pool and generate trust among its employees. IRB remains the ‘employer of choice? with one of the lowest attrition rates in the infrastructure sector and has won many awards like Dream Companies to work in construction Sector in India. Probably, that?s the reason that even in the Covid pandemic situation, our attrition rates remained low and we were not only maintain the pace of project construction, but also able to recruit manpower for new projects of the company.

7. Internal Control Systems

IRB has now become a SAP-complied organisation across all business functions - tolling as well as construction. IRB maintains adequate internal control systems, including internal financial control systems, which provide, among other things, reasonable assurance of recording transactions of its operations in all material aspects. This system also protects against significant misuse or loss of Company assets. IRB has a strong and independent internal audit function. The Internal Auditor reports directly to the Chairman of the Audit Committee. Periodic audits by professionally qualified, technical and financial personnel of the internal audit function ensure that the Company?s internal control systems are adequateand are complied with.

8. Cautionary Statement

‘IRB?, ‘the Company?, ‘IRB Group? and ‘the Group? are interchangeably used and mean IRB Group or IRB Infrastructure Developers Limited as may be applicable.

This Annual Report contains certain forward-looking statements, and may contain certain projections. These forward-looking statements generally can be identified by words or phrases such as ‘aim?, ‘anticipate?, ‘believe?, ‘expect?, ‘estimate?, ‘intend?, ‘objective?, ‘plan?, ‘project?, ‘will?, ‘will continue?, ‘will pursue?, ‘seek to? or other words or phrases of similar import. Similarly, statements that describe strategies, objectives, plans or goals are also forward-looking statements.

All forward-looking statements and projections are subject to risks, uncertainties and assumptions.

Actual results may differ materially from those suggested by forward-looking statements or projections due to risks or uncertainties associated without expectations with respect to, but not limited to, regulatory changes pertaining to the infrastructure sector in India and the Company?s ability to respond to them, the Company?s ability to successfully implement its strategy and objectives, the Company?s growth and expansion plans, technological changes, the Company?s exposure to market risks, general economic and political conditions in India that have an impact on the Company?s business activities or investments, the monetary and fiscal policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices, the performance of the financial markets in India and globally, changes in domestic laws, regulations and taxes and changes in competition in the infrastructure sector. Certain important factors that could cause the Company?s actual results to differ materially from expectations include, but are not limited to, the following:

• The business and investment strategy of the Company

• Expiry or termination of the project Special Purpose Vehicles (SPVs) respective concession Agreements

• Future earnings, cash flow and liquidity

• Potential growth opportunities

• Financing plans

• The competitive position and the effects of competition on the Company?s investments

• The general transportation industry environment and traffic growth

• Regulatory changes and future government policy relating to the transportation industry in India

By their nature, certain market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual gains or losses could materially differ from those that have been estimated. Forward-looking statements and projections reflect current views as of the date hereof and are not a guarantee of future performance or returns to investors. These statements and projections are based on certain beliefs and assumptions, which in turn are based on currently available information. Although the Company believes the assumptions upon which these forward-looking statements and projections are based are reasonable, any of these assumptions could prove to be inaccurate, and the forward-looking statements and projections based on these assumptions could be incorrect. The Company and their respective affiliates/ advisors do not have any obligation to update or otherwise revise any statements reflecting circumstances arising after the date hereof or to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition. There can be no assurance that the expectations reflected in the forward-looking statements and projections will prove to be correct. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements and projections and not to regard such statements to be a guarantee or assurance of the Company?s future performance or returns to investors.