Company Overview

The National Highways Authority of India (NHAI) is constituted by an act of Parliament, the National Highways Authority of India Act, 1988. It is responsible for development, maintenance and management of National Highways (NH) entrusted to it and for any matter connected or incidental thereto. The Authority was operationalized in February, 1995 with the appointment of full time Chairman and other Members.

Business Analysis

NHAI’s core business involves include survey, development, maintenance and management of the NH and inter alia to construct offices or workshops, to establish and maintain hotels, restaurants and rest rooms at or near the highways vested in or entrusted to it, to regulate and control plying of vehicles, to develop and provide consultancy and construction services and to collect fees for services and benefits rendered in accordance with Section 16 of NHAI Act.

NHAI’s business model relies on outsourcing of a number of activities including design, construction, supervision, operation and maintenance of NH, rather than undertaking all such activities through its own employees. This has thus helped NHAI in maintaining a lean organisational structure to facilitate faster operational decision-making. NHAI is nodal agency for development of NH Projects under National Highway Development Programme (NHDP) and allied programmes approved by Government of India (GoI).

Company’s total income for the year ended March 31, 2011 stands Rs 3,781.39 lacs as against Rs 12,706 .86 lacs as on March 31, 2007. The reduced income is mainly on account of high input costs faced by the company (rising prices of raw materials over the same period).

  The details of the offering (Tax free bonds) are as follows:

Note: PAN card is mandatory for subscribing to these bonds. A self attested copy shall be enclosed along with the application form.

 

Investors (across all categories) will also have the following options available at the time of subscribing to the issue:

 

(Source: Draft prospectus registered with SEBI & PersonalFN Research)

 

Well, after reading the details of the tax free bonds (as provided above), there may be still some more questions cropping up, which are answered hereunder:

 

• Is there a lock-in period for these bonds?
  
  No, these bonds do not have any lock-in period. The bonds would be traded onto recognised stock exchange and thus can be purchased and sold at the prevailing market prices on the exchange. If one wish to hold until maturity, then the redemption would be made by the issuer.
   
• Is interest on these bonds Tax Free?
  
  Yes, the interest which one will earn would be exempt from tax.
   
• Will TDS be deducted from the interest payment?
  
  These bonds are tax free and hence not subject to TDS.
   
• Is demat account mandatory to invest in tax free bonds?
  
  The bonds can be held either in demat or physical form. But if one wishes to trade onto the exchange, then it can happen only via demat mode.
   
• Are investments in these bonds eligible for deduction u/s 80C?
  
  The sum invested in these bonds is not eligible for any deduction under section 80C, 80CCF or 54EC. Hence, no deduction benefit is avail while one invests money into these bonds. However, as mentioned earlier the interest which you enjoy will be fully exempt from tax, and therefore no TDS will apply as well. However, capital gains on these bonds are taxable like normal corporate bonds.
   
• Thus, if the bonds are sold within one year of the date of purchase, the short-term capital gains arising would be subject to tax at slab rates. Similarly, if the capital gains are made after a holding period of one year, long term capital gains will be applicable at 20% with indexation benefit or 10% without any indexation benefit.



 
• Can a minor apply to these bonds?
  
  Yes, a minor can apply for these bonds, but only and only through a guardian.
   
• Can one apply in joint names?
   
• Yes, one may apply in a joint name. However, the demat account will also be required to be held in joint name and the order of applicant shall be the same as appearing in the demat account. Moreover, all payments will be made out in favour of the first applicant as well as all communications will be addressed to the first named applicant whose name appears in the application form and at the address mentioned therein.



 
• Who will get the interest in case of joint application?
  
  In case of joint application, interest will be accounted to the first holder only.
   
• My demat account is in joint name, but I want to apply is a single name?
  
  In case of a single application, demat account of the same single applicant would be necessary. Joint demat account would not do.
   
• If I’m an NRI can I invest in these bonds?
  
  Yes, NRIs are eligible to invest in these bonds.
   
• Whether an applicant applying in the first day of opening of the issue is assured of allotment?
  
  The issue will remain open for at least 3 days. If the issue is over-subscribed within this period, the applicants will receive allotment on pro rata basis. Thus investors who have applied during this period will receive at least some allotment. If issue extends beyond 3 days, the applicant in first 3 days will receive full allotment.
   
• In whose favour the cheque is to be made?
  
  Cheques/Drafts have to be made in the favour of "Escrow Account NHAI - Tranche-I" and crossed "A/C PAYEE ONLY".
   

OUR VIEW:

In our opinion these tax-free interest bonds provide an excellent investment opportunity as the coupon offered under both the series is quite attractive. Moreover, highest rating of AAA from CRISIL and ICRA, makes it a safe investment avenue. Also the listing and trading of the bond (on BSE and NSE), facilitates a liquidity window to investors as one can exit even before the maturity / redemption date of these bonds, but as said earlier one need to hold these bonds in a demat mode.

However the ticket size of these bonds being slightly high (i.e.Rs 50,000), may preclude aggressive retail participation.

 

In case you wish to invest in the above instrument, you can email us at info@personalfn.com or contact us on 022-6136 1200

 

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