The biggest contract winners were large companies such as Dilip Buildcon Ltd (Rs18,770 crore), IRB Infrastructure Developers Ltd (Rs8,900 crore) and Ashoka Buildcon Ltd (Rs5,500 crore). However, a bunch of nearly 90 other small developers, including HG Infra Engineering Ltd, Madhucon Projects Ltd, JKumar Infraprojects Ltd, Gammon India Ltd and a host of joint ventures by Monte Carlo Ltd and PNC Infratech Ltd mopped up 48% of bids awarded in the year.

In a report, Equirus Securities analyst Pranav Mehta said bidding in the smaller project segment (contracts under Rs200 crore) saw participation from 10-15 bidders. In projects over Rs200 crore, this number fell to 6-10.

Besides giving out smaller projects that the smaller developers can take up, the government also introduced the hybrid annuity model (HAM) in 2016, where the developer gets 40% of the project cost in five instalments linked to the project’s progress. The rest is borne by the developer, but can be recovered from NHAI as annuity. HAM reduces the financial risk of developers, with their revenue linked to the project’s progress.

“With the introduction of HAM, what we’re seeing is that many developers who used to be sub-contractors of formerly large developers now find they can bid for and win their own projects,” said Alok Deora, associate vice-president (research), IIFL Wealth Management.

“The change from the BOT (build-operate-transfer) model to the hybrid annuity model has helped medium-sized contractors and a new set of developers to come through. NHAI’s good order book has also contributed to this resurgence,” said Jagannarayan Padmanabhan, practice lead and director (transport and logistics), Crisil Infrastructure Advisory.

“With newer developers bidding for smaller projects, the 4-5 big ones can afford to be choosier about which projects they want to bid for. Overall, this is good for the sector as it gives everyone enough elbow room while additional capacity is getting built,” Padmanabhan said.

Under the BOT model, till early 2016, big projects went to those who could put up large amounts of money to finance these projects. Today, both NHAI and the ministry of road transport and highways put out smaller projects and have changed the chief bidding models from BOT to the less capital-intensive EPC (engineering, procurement and construction) and HAM.

According to Equirus, the share of mid-sized projects (in the Rs500-1,000 crore bracket) made up 15% of all contracts in FY14. In FY18, this figure was 40%. Over the same period, projects in the Rs1,000-2,000 crore category rose from the same 15% base to 22% of all contracts.

A report on the highways sector by Bank of America-Merrill Lynch believes that funding for NHAI is not an issue.

“NHAI spent more than Rs8,000 crore in FY18, which was funded by a mix of budgetary support, market borrowings, toll plough-back and cess receipts. Going forward, NHAI is due to receive Rs9,700 crore from the sale of its first Toll Operate Transfer (TOT) bundle in May. With another Rs10,000 crore worth of TOT bundles lined up for bids in FY19, recycling of road assets could itself fund 18-20% of NHAI’s FY19 capex of Rs1,10,000 crore. Market borrowings could fund approximately 50% of this total while the rest would come from budgetary support.”

In FY18, NHAI awarded 150 road projects of 7,397km, a record high. HAM projects formed the bulk of the total value of awards last year at 63%, followed by pure EPC contracts at 35% and BOT projects the remaining.

However, the government would be wise to bring back BOT models into the fray, Padmanabhan of Crisil cautioned. “I think road developers have turned the curve now. In the next few years, the government should focus more on better risk allocation by creating a healthier mix of BOT, HAM and EPC projects,” he said. “There were only two BOT projects last year. I think BOT should account for maybe 30% of all projects awarded. This balances out capital risks between the government and industry.”