About Afcons Infrastructure Limited

Afcons Infrastructure is the flagship infrastructure, engineering and construction company of the Shapoorji Pallonji group (i.e., the group’s leading engineering and construction company), a diversified Indian conglomerate, and have a legacy of over six decades. They have a strong track record of executing numerous complex, challenging and unique engineering, procurement and construction (“EPC”) projects both within India and internationally. According to the Fitch Report, they are one of India’s largest international infrastructure companies, as per the 2023 ENR (Engineering News-Record, US) Top International Contractors rankings, based on International Revenue for the Financial Year 2023. During the period comprising the last eleven financial years and the three-month period ended June 30, 2024, they have successfully completed 79 projects across 17 countries with a total historic executed contract value of ₹563.05 billion. As of June 30, 2024, they have 65 active projects (i.e., ongoing projects) across 12 countries, aggregating to an order book of ₹317.47 billion. 

Further, they maintain a strategic equipment base comprising a wide range of heavy machinery and specialized equipment. This equipment base, along with the ability to source other high-tech equipment and their in-house capabilities in managing specialized equipment, has been instrumental in winning several complex projects, such as the Atal tunnel, the High Speed Railway Project, the Delhi – Meerut regional rapid transit system, Delhi Metro Phase IV projects, and the second liquid cargo berth at Dahej, Gujarat for Gujarat Chemical Port Limited. The Shapoorji Pallonji Group has a legacy of over 150 years, and its strong reputation, global presence and extensive industry experience assists them in the growth of the business and operations. 

The total number of permanent employees  is 3,972 as of June 30, 2024. The Bankers of the Afcons Infrastructure Limited are State Bank of India.

Indian Construction Infrastructure Industry Overview
As per Fitch Solutions, the Indian Construction industry value stood at INR 23,978.0 billion as of FY2023, having grown at a CAGR of 12.1% from INR 13,521.2 billion as of FY2018. Growth in India’s construction industry will be supported by high levels of urbanization, an expanding middle class, rising infrastructure investments, surging power demand and strong industrial growth.

The breakdown of different categories forming part of the overall Indian construction industry is given in the table below. As of FY2023, Infrastructure industry forms 37.4% of the total construction industry, residential building industry forms 15.2% of the total construction industry and non-residential building industry forms 47.4% of the total construction industry in India.

FSIAPL forecasts India's construction industry to grow at a CAGR of 9.5%-10.0% from INR 23,978.0 billion in FY2023 to INR 38,508.9 billion in FY2028 driven by stable government support for infrastructure development and expanded private involvement in key sectors and public–private partnerships. Near-term growth will be supported by strong Government push in the form of infrastructure development projects such as National Infrastructure Pipeline, Smart Cities Mission, Gati Shakti, UDAN, Bharatmala Pariyojana, Sagarmala and the Atal Mission for Rejuvenation and Urban Transformation (AMRUT). These government programmes aim to enhance connectivity, upgrade urban infrastructure, develop transportation networks, and foster overall construction sector of India.

The FY2025 budget includes an increase of capital investment with a focus on improving transport and logistics infrastructure that is embedded in a wider push to increase manufacturing capacity, especially across higher valueadd supply chain segments. The government has rightly announced coming out with a market-based financing framework and viability gap funding to spur private sector investment. For the road sector, PM Gram Sadak Yojana 4.0 has been announced that will help in providing all weather connectivity to 25,000 rural habitations.

Out of the core 8 infrastructure ministries, the ministries which have been allocated higher share for capital expenditure in FY2025 are Ministry of Jal Shakti - Department of Water Resources, River Development and Ganga Rejuvenation (23.7% higher than FY2024RE), Ministry of Power (772.9% higher than FY2024RE), Ministry of Housing and Urban Affairs (7.9% higher than FY2024RE), Ministry of Railways (5.0% higher than FY2024RE) and Ministry of Road Transport and Highways (2.9% higher than FY2024RE). 

Hydro-electric Power
Considering the unique advantages of hydropower (including Pump Storage Projects - PSP) and the increasing need of hydropower for grid stability/ balancing, the Government has envisaged to add 69 number of hydro schemes with an aggregate Installed capacity of around 55.65 GW (including 31 number of Pumped Storage Schemes of 42.92 GW).

According to projects tracked by India Infrastructure Research, as of May 2024, India has more than 1,470 completed and operational tunnels spanning over 3,400 km. A sector-wise analysis indicates that the hydropower sector has the highest share of completed tunnels with over 1,100 km, followed by metro rail (more than 840 km), irrigation (more than 550 km), railways (more than 500 km), water and sewerage (more than 260 km) and roads (more than 120 km). 
As of May 2024, according to India Infrastructure Research, the tunnelling segment presents a promising pipeline with over 1,140 tunnels covering approximately 1,750 km, including both planned and under-bidding projects. Of these tunnels, 89% are categorized as planned, while the remaining 11% are under bidding. In terms of length, about 10% are under bidding, and 90% are in the planning stage. The sector is estimated to require an investment of around Rs 3.5 trillion, as per India Infrastructure Research. 

According to India Infrastructure Research, an analysis of the distribution of upcoming tunnels across various sectors reveals that the hydropower sector holds the largest share at approximately 42.0%. This is followed by the irrigation sector with 24.0%, roads with 17.0%, water and sewerage with 10.0%, metro rail with 6.0%, and railways with 1.0%.

Oil and Gas Construction Segment Overview
The capital outlay for the MoPNG has exhibited a fluctuating trend over the past five years. The actual capital expenditure rose from INR 11.3 billion in FY2018 to INR 19.1 billion in FY2019. It further increased to INR 23.1 billion in FY2021, up from INR 5.7 billion in FY2020. However, the capital outlay then dropped to INR 3.5 billion in FY2022 and reached INR 0.0 in FY2023. According to FSIAPL’s analysis, the capital outlay for the MoPNG is projected to grow at an average CAGR of approximately 4.0%, reaching INR 12.7 billion by FY2028.

Irrigation Projects in India
In 2023, the National Mission for Clean Ganga completed 38 projects, bringing the total number of completed projects to 270. Additionally, 45 new projects worth INR 54.7 billion were sanctioned, raising the cumulative total to 454 sanctioned projects valued at INR 383.9 billion. In terms of sewerage infrastructure, 21 projects aimed at creating or rehabilitating 938 MLD (Megalitres per Day) of sewage treatment capacity were approved between January and December 2023. During the same period, 10 projects were completed, resulting in the creation or rehabilitation of 821 MLD of sewage treatment capacity. To date, 197 sewerage infrastructure projects have been sanctioned in the Ganga Basin, aimed at creating 6,208 MLD of sewage treatment capacity and laying 5,272 km of sewer network. 

The Pradhan Mantri Krishi Sinchayee Yojana – Accelerated Irrigation Benefit Programme (PMKSY-AIBP), including Command Area Development & Water Management (CAD&WM), has been approved for implementation with a budget of INR 239.2 billion (central assistance) for the period FY2021-26. This funding aims to complete 60 ongoing AIBP and 85 ongoing CAD&WM projects, as well as provide financial assistance for new major and medium irrigation projects. Additionally, the funding for National Projects, including the Renuka and Lakhwar Projects, has also been approved. 

Technology in the irrigation sector has evolved significantly over the past 10 years regarding construction equipment, water transfer techniques and types of irrigation systems. Innovative technology-led irrigation systems such as solar-powered lift micro-irrigation are gaining prominence over conventional flooding methods of irrigation. Greater thrust is also being given to drip and sprinkler irrigation systems, and efficient water-use mechanisms. With all these developments, the sector certainly offers significant opportunities for EPC contractors, and technology and equipment suppliers. 

According to the Department for Promotion of Industry and Internal Trade under the Ministry of Commerce and Industry, India’s public irrigation sector ranks among the largest globally. As of September 4, 2024, the National Infrastructure Pipeline (NIP) has expanded to encompass over 673 projects within the irrigation sector, with a total project value of USD 158.2 billion.

India is projected to remain the fastest-growing major economy, with a real GDP growth rate forecasted at 6.8% for FY2026-27. Global construction industry growth will largely be driven by expanding construction investment in emerging markets, which are expected to achieve an annual average real growth of 3.9% y-o-y between CY2024 and CY2033, contributing to the global construction industry’s expansion from USD 5.7 trillion in CY2023 to an anticipated USD 7.8 trillion by CY2029, with India, Indonesia, Vietnam, the Philippines, and Bangladesh among the markets experiencing the highest growth rates in the region over the coming decade. With an average annual growth rate of 4.9% y-o-y from CY2024 to CY2033. Sub-Saharan Africa (SSA) is poised to achieve the fastest construction industry growth globally. This growth is propelled by favourable demographic trends, an expanding middle class, and substantial infrastructure investments in certain markets relative to their construction industry value. As per Fitch Solutions, the Indian Construction industry value stood at INR 23,978.0 billion as of FY2023. It is projected to be the fastest growing construction market in the world growing at a CAGR of 9.5% to 10% between FY2023-FY2028 to reach INR 38,508.9 billion market size by FY2028. The key driver for growth being stable government’s support for infrastructure development and expanded private capex in key sectors and publicprivate partnerships.

AFCONS INFRASTRUCTURE LIMITED COMPETITIVE STRENGTHS
1. Strong Track Record of Timely Execution of Large-Scale, Complex and High-Value Projects
2. Diversified Order Book across Geographies, Clients, and Business Verticals, Longstanding Relationships with Clients Globally, and Strong Financial Performance
3. Collaboration among Internal Teams and with JV counterparties, and a Strategic Equipment Base leading to Strong Execution Capabilities
4. Knowledge Management and Innovation Practices
5. Experienced Leadership Team with Shapoorji Pallonji Group parentage
6. Strong Risk Management, Project Selection and Dispute Resolution Processes

AFCONS INFRASTRUCTURE LIMITED STRATEGIES
1. Selectively Pursue Large Value and Complex Projects
2. Maximizing Opportunities in Existing Markets and Expanding Footprint in Overseas Markets
3. Focus on Cost Management
4. Optimizing Project Execution and Management
5. Growing a highly skilled and motivated workforce and strengthening their equipment base

AFCONS INFRASTRUCTURE LIMITED RISK FACTORS & CONCERNS
1. The business significantly depends on projects awarded by government or government-owned customers, which subjects them to a variety of risks.
2. A significant portion of the Order Book is attributable to certain large customers and to projects located in India.
3. They depend significantly on contract labour and an inability to access contract labour at reasonable costs at their project sites may adversely affect their business.
4. The failure of a JV counterparty or consortium member to perform its obligations could impose additional financial and performance obligations resulting in reduced profits.
5. They are subject to anti-bribery, anti-corruption and sanctions laws and regulations.
6. The strength of the “Afcons” brand is crucial to the success, and they may not succeed in continuing to maintain and develop the brand.
7. One of their group companies and a member of the Promoter Group, Shapoorji Pallonji Finance Private Limited (“SPFPL”) is registered as a non-banking financial company not accepting public deposits with the RBI.
8. The SP Group relies on dividends from the Company as a source of income and cash flows.
9. Certain government authorities are seeking royalties / penalty payments from the company for the alleged illegal use of minerals (Murrum) in the construction of a project.