Yesterday evening, the Allahabad High Court has passed an order that the DND Toll Will be removed and the commuters moving from Noida to Delhi and vice versa can move freely. It is front page news in all dailies overshadowing the Mistry-Tata wars. The share price has lost 20% in one session and there are no buyers at this level. What is the prognosis?
The judgement of the High Court is binding till it is either stayed by the Supreme Court or is negated by the higher court. Therefore, with effect from 26 Oct 2016 evening, Noida Toll Bridge is a freeway. And since there is no stream of revenue for the company, there are no buyers for the stock. In other words, the company’s business has been stopped by a legal directive and a contract made with the government null and void. The implications are plenty.
First and foremost, it goes to prove that Indians are an unreliable people who can abrogate or breach a contract whenever they desire. Not better than a tin pot dictatorship. No wonder, despite the Prime Minister trying his best, India will not improve its position in Ease of DFoing Business. World Bank has brought out its latest report and India is still 130 in the world. Why would someone put up a business in India? If there is no scope for profit.
The government needs close to 2 trillion dollars in infrastructure for India to grow at the GDP rate which will take our people out of poverty. A business is run for the sole purpose of making money now and forever. The NTBCL was the first business and contract on public private partnership (PPP) basis in 1992 when India was opened. The company was formed and took a huge debt to construct and then earn a toll at an agreed rate of return. Nobody questions Mukesh Ambani at his cost of acquisition of an Oil Block and what he charges the other consumers, here it affects the people. So people protest, and seek freebies. Nobody questions a GMR at Delhi Airport when you pay a Rs 200 toll as User Fee per customer per entry into the airport because it is part of air ticket. This also proves Prospekt Theory right, as part of social psychology, we are loss averse. Daily paying Rs 28 as a toll looks like a loss, because cash goes from pocket. The UDF as part of air ticket does not look like a loss because it is paid by a credit card and part of taxes and fees.
There will be long term implications of this step if upheld in the Supreme Court. The investment in infrastructure is likely to dry up. The company is listed on AIM London, and will have some arbitrage issues from International shareholders.
For all those who have invested in the shares, hold on. Assume that the appeal in Supreme Court by NTBCL is also lost and goes against and the Supreme Court upholds the judgment of Allahabad High Court. It is the worst case scenario. The company winds up. It will sell all its mutual fund and other investments at market price. Currently, the book value of the share is more than the share price. The company is debt free. So, all share holders should get money, equivalent to the book value per share.
Therefore, as of now, do nothing. Wait and watch. Investing further, is like a blind lottery. I wouldn’t advise till some clarity appears. This is not like Satyam, but a myopic decision which hopefully should get reverted albeit with some reduced years of toll from the original agreement. And be rest assured, no company will take urban toll roads within a city premises as a path to earn profit. Our urban roads will remain captive with PWD and CPWD and you will as a citizen suffer equally. Gurgaon toll road was a private company. We removed it. EVEryday there are protests in Navi Mumbai on the toll bridge/road. So companies will only invest on highway projects as there are fewer protests there, urban infrastructure will move at its own pace, Modi or no Modi.