"The equity IRR (internal rate of return) of the first bundle of highways being auctioned under the toll-operate-transfer (TOT) model would range between 12% and 13%, based on NHAI's initial estimated concession value, an analysis by CRISIL Research shows. The level of bidding intensity will drive the final returns earned by the concessionaire," Crisil Research report said.

The bundle comprises nine highway stretches in Andhra Pradesh, Odisha and Gujarat.

The report said, a cluster of manufacturing industries and ports in Vishakhapatnam, Kakinada, Kandla and Mundra are expected to be the drivers of transportation demand. The economic corridor on the east coast is also expected to improve traffic potential in Andhra Pradesh.

"But the highway stretches in Gujarat are more attractive than those in Andhra Pradesh because of the presence of industrial clusters and consumption centres in the periphery. Importantly, there are no major alternate routes either, which could have upended the revenue calculus," Prasad Koparkar, Senior Director, CRISIL Research said.

The key risks to the bundle are the impact of Goods and Services Tax and alternate routes.

"For example, the four-laning of Gundugolanu-Kovur Road (over the Godavari Bridge) in Andhra Pradesh would divert considerable freight traffic from Gundugolanu to Diwancheruvu. Also, factors such as latent defects and severe economic slowdown, which are difficult to anticipate, can increase the maintenance cost and substantially reduce traffic. But the dedicated freight corridor in Gujarat does not pose a threat to any of the three stretches in the state," Binaifer Jehani, Director, CRISIL Research said.

Overall, the bundle of 9 highway stretches has good inbuilt hedges in terms of geography, traffic mix and returns.

Some stretches are more attractive because of reduced risk from alternate routes, better support originating from industrial corridors, and complementary, planned infrastructure, the report added.

The Cabinet Committee on Economic Affairs, on August 3rd last year, authorized NHAI to monetize 111 publicly funded projects and a list of 75 operational projects was prepared for potential monetization using the TOT model. The proceeds from these projects would be utilized for development, and operations & maintenance of highways.

A tentative list of 67 projects has been prepared that would be monetized post the completion of exercise for the first eight contracts.