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Clearer path for Malaysian contractors in India (AmResearch Construction Sector report Dec 22, 2010)

• The Malaysian and Indian governments signed a Memorandum of Understanding (MoU) in Putrajaya yesterday on technical assistance for road development and management, according to a report by Bernama.

• The Indian government – through the MoU – endeavours to offer Malaysian companies an opportunity to participate in the programme.

• Following the signing, Works Minister Datuk Shaziman Abu Mansor is expected to discuss with India’s Road Transport and Highways Minister Kamal Nath about the details of the MoU – which will be implemented from next month onwards.

• The signing of the MoU preceded an earlier visit by Indian Prime Minister Manmohan Singh to Malaysia in October amid strengthening bilateral ties between the two countries.

• We view positively this development – as it further paves the way for Malaysian contractors to deepen their presence in India, particularly in road projects. This could come in the form of ‘straight’ construction jobs, as well as those offered on a Built-Operate-Transfer (BoT) basis.

• At the moment, Malaysian construction outfits are involved in 74 ongoing projects in India valued at RM14bil. Out of this total, almost half are related to the construction of roads and highways valued at ~RM7bil.

• Via the MoU, Malaysian contractors are given the opportunity to participate in the development of 1,000km of roads estimated to cost approximately RM17.5bil. This comes amid India’s urgent need to ramp up its road infrastructure to support the country’s buoyant economic growth.

• Based on our channel checks, the Indian government has set aside an ambitious budget of US$50bil under its national highway development programme. This would include the construction of 20km/day of new highways (~7,300km/year) and upgrading of existing ones.

• Given its solid operating track record, we believe IJM Corp Bhd could well emerge as a potential beneficiary of these massive road infrastructure opportunities in India. In Malaysia, IJM had also been appointed as one of three local subcontractors working together with India’s Ircon to construct the Seremban-Gemas portion of the National Electrified Double Tracking project (IJM’s effective share of works: RM343mil). We estimate that Indian jobs account for circa 21% of IJM’s outstanding order book of RM3.7bil.

• Apart from IJM, we reckon that PLUS is another front-runner for some of the upcoming BOT jobs under this programme – potentially adding to three existing concessions it already owns in India.
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