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Courts Say No Toll and Noida Toll Bridge Gets Beaten Up


Noida Toll Bridge has just received a shocker from the Allahabad High Court. The court, hearing a PIL from Noida Resident Welfare Associations, has produced a judgement that Noida Toll Bridge Company can no longer charge a toll to users for driving on the bridge.
This is a big problem because this is nearly all of the income the company makes, and the stock is therefore down 20%.

noida-toll-bridge-chartWhat Really Has Happened?

That judgement is a ludicrous 121 pages long and so we have to decode it for you.

  • Noida Toll Bridge is an IL&FS promoted company that wanted to build a bridge between NOIDA and Delhi. In 1992.
  • The deal was to Build, Own, Operate and Transfer (BOOT) to the NOIDA authority, for a period of 30 years.
  • They built it and delivered in 2001, and since then have been charging a toll.
  • They spent approximately 377 cr. in the whole thing including the Ashram Flyover.


  • Note that the cost here is only 325 cr. – the interest charges are 51 cr. This was as of 2001.
  • Since then the company has, till 2014, collected around 800 cr. of toll, with a surplus (pre-interest, but after expenses) of about 577 cr.


  • There is a further Rs. 300 cr. of toll collected since 2014, till Sep 2016. (We think this means the surplus would have gone up by another 200 cr.)
  • There’s a 20% return that was “guaranteed” to the company. The court has decided the 20% applies on the cost of the project i.e 325 cr. so they should get 400 cr. or so.
  • The judge has noted that the company gets full leeway to put whatever costs it wants – auditors, legal, consultants etc. – without any limitation, as part of ongoing project costs, which is basically illegal because they can keep stuffing excessive costs forever. 
  • And, it seems, they have kept adding costs this way. The judges don’t like this.
  • They also say that look, if you say you haven’t recovered the costs so far then why are you paying such high dividends to your shareholders?
  • So the judges have decided that the surplus shows the costs are recovered. Which is likely to be defensible – if the interest costs are Rs. 50 cr. per year, then the 15 year period since would be about Rs. 750 cr. in interest, and that seems to be a realized surplus even after tax.
  • Therefore, the judges say, there will be no more user fees for Noida Toll Bridge. This cuts off nearly all the revenue for the company.
  • There is a “total cost” of the project including some risk premium, which has ballooned to over Rs. 2,000 cr. so far. This is only for the purpose of ensuring the company is paid if NOIDA arbitrarity cancels the company’s contract.
  • If NOIDA Authority should terminate the Noida Toll Bridge company’s contract prematurely for any reason, then it is entitled to recover that cost (2,000 cr.) minus any tolls etc. recovered already. This part still remains valid. So regardless of anything, if NOIDA says we’ll forcibly take over the project, the company will get compensated for the loss.
  • There will be no extension to the concession period (which the company thought would extend beyond 2031). The project will be handed over to NOIDA in 2031.

What Happens to the Company?

For one, they will stop charging any toll on the bridge. That reduces their income substantially. 80% of revenue is from tolls. (They make about 12% from ads, and some other miscellaneous items)
They will also appeal the order, according to their official statement. This will go to the Supreme court, which could overturn the HC order.
They will  have only Ad and other income, which probably add up to only about Rs. 30 cr. or so. That doesn’t pay for much of the expenses they incur so they better find some other way to pay for it (or get NOIDA to reimburse it).
The company, as a dividend paying entity, is in trouble. Unless the Supreme Court gives a stay on this order, it means the company will bleed cash and have nothing more for itself. The assets it currently owns (the bridge) has to be transferred – by contract – in fifteen years, so it has really nothing in terms of assets.
Disclosure: This stock is part of one of the Capital Mind Premium portfolios. Yes, we’ve lost some 20% on it. At the moment, however, even if we assume a loss of 50%, the total portfolio gain would be 17.91%, since other stocks have more than made up such a loss. But yes, a loss is a loss, no two ways about it.

  • Mukul Singh says:

    In India people want just free things. They don’t wanna pay Rs 27 for a good maintained bridge which saves their time and fuel. They will be happy only when they get a poorly maintained highly congested road but for free. They will not go to court for high amount of pollution in the city or the destruction of the yamuna river, they will not even contest why there is such high rate of deforestation and lack of police force !!! But oh the 27 rs hole in their pocket !!! Classic case of human stupidity. Courts and media on the other hand seems motivated the timing could not be better as UP elections are near.

    • It’s not about paying money; people pay a lot more to take highways. But a bridge is built on public land by a company, who takes very little risk – they get compensated for hte full project cost + legal expenses + consultants etc. by NOIDA authority, though at a later date (end of concession period) – if they aren’t able to make it back through tolls. They have made back all the money they wanted to make (except perhaps the 20% return is being confused as one time versus IRR) In any country – India or the rest of the world – bridges with tolls will pay for themselves over time, and then the tolls are removed. The court is just enforcing this.
      Yes, we should complain about others things too, but that doesn’t mean this is okay either….

      • FB says:

        As far as I understand, the Rs 578 crore surplus number is before interest costs. Shouldn’t the HC have considered the interest cost as well?

        • Yes, though I think that wouldn’t help that much. The collective dividends could easily have paid off the debt, and that could have been made a priority. Choosing to pay interest while paying out dividend is not going to be an easy sell….

      • FB says:

        If you are implying that the NTB didn’t have traffic risk, I could not disagree more. In fact, it is often held up as a case study for gross under-estimation of traffic risk in PPP projects.
        It is abundantly clear that the concept of adding unrecovered returns to the Total Project Cost (@20% IRR) was an unusual clause. However, as things stand, the Total Project Cost has little bearing on the toll being charged. In fact, the annualized toll increases have been lower than inflation (the original contract allowed them to increase tolls linked to inflation). NTBCL had already proposed amending the Concession Agreement and handing over the bridge to the authorities at zero cost in 2031.
        Lastly, I can’t understand how a court can comment on what is reasonable return. Does the fact that NTBCL pays a dividend mean that it is making unreasonable returns?? Are PPP infrastructure projects expected to be like non-profit Trusts like those imposed for schools? If so, does the government seriously believe that private investors will be lining up to take risks for funding infrastructure projects?

        • The original contract said that if there was an underrecovery from traffic the contract cost would be increased until such time as the full costs are recovered, even if this meant extending hte concession period. So at best it’s a liquidity risk, one would think.
          The toll increases should not even be linked to inflation. They should be linked to actual returns and cost inflation – costs have not actually gone up as much as inflation either. But yes they did get the allowance to increase linked to inflation. NTBCL’s latest amendment would have extended teh contract above, I think. The judgement clearly strikes out any chance of a transition beyond 2031.
          Indian courts can comment about anything. We have a major issue with judicial overreach but that is a different subject – and having seen the judgement and teh case I don’t think it’s overreach. Though it may be a bad idea to have a judge decide how to calculate an IRR. PPP projects should have a decent IRR but the IRR is definied in the contracts, so a higher IRR will be frowned upon I imagine.
          Btw, private folks no longer want to do BOT contracts anyhow. In L&Ts case in Gujarat their tolled highway got screwed because the GJ govt built an alternate road without tolls. L&Ts subsidiary has defaulted stating that as the reason. Ha!

        • FB says:

          Thanks for patiently responding. Don’t want to prolong the discussion too much and hog the entire comments section. So I will keep it brief to only one point.
          Given that NTBCL already proposed an amendment stating that they would handover the bridge to the Govt. on Apr 1 2031 at zero cost, do you think the HC was right to intervene at this point? Is this not judicial overreach? I have gone through the entire judgment but didn’t find any reference to the IRR returns made by the company/original shareholders anywhere. Without having that figure in hand, how can reasonable return be defined?
          My own view is that the courts can overturn the entire Total Project Cost calculation if they feel that way but to squash the authority to collect toll seems to clear over reach.
          Finally, if we show such scant respect for contracts, we shouldn’t be surprised at being ranked low in Doing Business rankings.

        • So apparently, according to the judgement, the amendment allowed for the bridge handover to extend BEYOND 2031 no? The court has now limited the amendment to 2031 only.
          There is a return mentioned of 20% right through. IN fact that’s how they came up with 80 cr. (approx 20% of the 400 cr, that was initially deemed to have been spent)
          I think you might have a bias as you’re a shareholder (about overturning entire project cost so they will be entitled to compensation). Not accusing, just saying – but I think the judge has maintained teh contract saying these costs are what you have incurrred. The judge hasnt come up with the costs – he used a figure that NTBCL itself gave in2001 for reference. So it’s not an overthrow of the judgement – it’s that the fee recovery is over as per the contract so shut the tolls down)
          Oh I think this is perfectly fair from a business perspective – courts all over the world will overrule such things routinely; you cannot have an agreement go against established law. HOwever, lets see what the SC says.

      • Mukul Singh says:

        If only the interpretation of 20% figure is the issue …. Well than everything is contestable in this world , isn’t it !! Court could have also said that 20% figure is too high !!! They say that paying dividend over interest was not fair but since when courts are into running companies !!!! If courts are so sensitive here coz of common people involved than they should also do better things like asking lawyers to charge modest money as they of course charge well more than their life costs , god that would be such a favor to humanity ! But tell me will you get quality legal advice … Of course no ! Quality has a premium and courts are poor judges of quality !!

        • This only matters because of the public nature of the project (the land underlying the project was not bought but given to build the proejct for public good). Therefore the private lawyer fee thing or anything else doesn’t matter. The court has kept the 20% sacrosanct and not questioned why 20% etc. Just saying.

        • Mukul Singh says:

          Anyways I think it would be difficult for shareholders to get back anything , selling too will be difficult. They let mallya go to UK when there was a clear case .. do courts , govt even think about small shareholders ??

        • Why should they? Courts address a question of law; they can’t care about shareholders in such circumstances.

      • Vyas says:

        How about the small retail investors in the public that bought the shares of this company a month ago, on the basis of the book value of the company. How will they get their investment back if they close the income abruptly? Will they or someone (govt/noida authority) buyback these shares at the rate of book value.

  • Ajay says:

    Dear Deepak,
    I dis-agree, whether right or wrong there is an agreement/contract with a government authority and that should be respected. If the court wants to make it free they should put a arbitrator to value the bridge cost and insist the government to pay for it and takeover the bridge to make it free for public.
    Because the company is making profits court cannot say that it should make it free. Alternatively, Governement can come up with a free way next to this brdige.
    If this is the case we should get oil (Petrol & diesel for free). There is no logic in the arguement to simply make it free based on a PIL. If thats the case all roads and tolls to be made free all over india and can NHAI afford it.
    We are not in a Banana republic. We should respect contract terms and agreement. No wonder why we are so low on index of ease of doing business.
    Hope sense prevails in Supreme Court… otherwise this will be a set back for infrastructre development in India. You will find MNS, DYFI and other petty political group staging dharna everywehere.
    Court should at the best direct noida authority to cancel the contract, settle the dues as per terms and conditions and then ask noida authority to make it free for public. Free just by a order !!!

    • Ajay – The contract itself states that the idea is to recover costs. The judge has decided that the costs have been recovered – and it’s not a shooting by the hip judgement, the judge has explained in detail why he is interfering in the contract in public interest, and why the contract itself is not being cancelled. The bridge is supposed to be transferred to the government after the costs plus the 20% was recovered.
      The point of all public tollways are that the land is not transferred unconditionally, the toll operator owns the bridge only until his cost + IRR are recovered, then it becomes public property and he has no further ownership. This is how BOOT contracts were always created here. Otherwise it would be asale and noida toll bridge company would have had to pay a massive amount of money to acquired the land rights from the government. It didnt’ have that money so it took the land for free and built the bridge, and signed a contract saying I willrecover cost + return and give back the bridge. The contours of this agreement are being discussed – that they had unlimited rights to add costs which the judge says is illegal (this has been done in other such contracts too – unlimited and unquestioned additions are always frowned upon)
      The contract terms was actually being renegotiated by the authorities and the company – even that amendment has been addressed and the court has struck off specific things that it decided are not in the public interest.
      Free not just by an order. Free because the court has said they have recovered the cost + interest according to the terms of the contract, which therefore doesn’t allow any further fees to be levied. India has seen cost stuffing by contractors for ages, and we think it’s perfectly okay to do so, but courts are doing what authorities should be doing: questioning illegitimate costs.

      • Gaurav says:

        Hi Deepak,
        At the outset, let me clarify that I have not read the order and I shall try to put forth my arguments on a economic basis.
        While calculating the returns at 80 crs per annum you are calculating simple interest on the project cost (i.e. 80 crs every year will make up the 20% IRR). That means the profits (including interest) should be 80 cr from Year 1, however the profits in FY16 were only 80 crs. So that profits would have to increase substantially from the current levels to meet the threshold returns.
        Dividends are just a method to distribute returns to shareholders and they should not have any bearing on the returns of the projects. At the very least the dividend amount should be 80 crores less any interest.
        As far as the assured returns goes the interest rates in 1999-2000 were 15%+. Hence while the assured return of 20% seems high, the returns were likely reasonable when the concession agreement was signed.
        On the cost recovery, it should include only the costs related to the project and the Company including audit fee etc which have been incurred solely by the company for O&M, audit, protecting its rights etc. The Company was formed solely for the purpose of implementing the project and all costs associated with the project and the company should be deductible. However, it should probably not be added to the project costs, but deducted from the revenues each year (you should not get returns on yearly expenses).
        On your point regarding L&T – when a private developer chooses to abandon a BOOT project, it looses a substantial sum of money including its investment into the project. In all likelihood, since L&T did not want to keep infusing money to service debt (which the lenders had taken a risk on) they chose to abandon the project. The debt providers are usually protected (to a some extent of the debt provided) by the concessioning authority in such a case. Apart from its investment, given that they have likely defaulted on debt, the L&T name is no longer the favored name amongst the lenders.

        • Thanks – I think you should read the judgement, because the nuances will help address some of your concerns. I share your concern that 80 cr. is a little arbitrary we need
          For Dividends I don’t think we can make an economic argument that there is debt to be paid for and I will still pay dividend (and dividend tax). This inflates interest costs needlessly, and the judge has therefore not considered interest costs as part of the cost.
          THe L&T debt has sadly no protection from the concessioning authority though they can take it over and run it if they like….

      • Ajay says:

        Dear Deepak,
        Thanks for your detailed response.
        I m not a expert on the subject matter or have gone through the judgment. I m probably biased because I’m a investor also in the stock.
        No self funded ppp infra project will have investor interest if condition is to simply construct and take the construction cost + simple 20% interest. I hope it’s IRR and not simple interest over construction cost.
        What about the dues pending with authority will NT get it? In that case, is there still a book value in the stock?

        • 20% will likely be interest over the invested amount period (there’s no concept of reinvestment in a bridge, so it has to be repeated interest on the same amount….)

        • Neeraj says:

          NTBCL would outsource the construction, toll collection and maintenance, and then claim their own 20% return over the aforesaid costs (one time or recurring).
          Imagine a construction company who also performs their own survey, feasibility study, toll collection, O&M and uses their own money, then, you may say that the company would rightly expect nearly 30% annual return after all the expense.
          But, in the case of NTBCL, the commuters are not paying just the 20% return, but also the O&M cost and the debt servicing cost.
          Did these facts really not occur to you?
          so, you don’t think that 20% over the project cost (

  • Krish says:

    what would be the next step if SC judgement is similar High court?

    • Rough. Unless they can get teh NOIDA folks to pay up 2000 cr. and forcibly cancel, this company will be toast. But there is some ad revenue and some lease revenue possible. 10-20 cr. per year. Won’t pay for even the maintenance tho.

  • Krish says:

    I have 20000 share at 29 . what do you suggest?

    • Ajay says:

      Dear Deepak,
      It seems like even experts like you and value investors like PPFAS team have gone wrong in the selection of this stock.
      As a no-voice investor, I invested in the stock looking at the ROE, Debt Equity Ratio, Dividend Yield, and Raising revenues / EPS, monopoly business model and so on.
      All the bad news about how this company was promoted and how the system was manipulated etc. come out only during the bad times like this (read the first post article on this further).
      All investors seem to have completely ignored the risk that its a single asset based company and there is no the other revenues available.
      It a lesson learned, should move on further. If one has risk taking ability can wait for the SC decision and take a call otherwise should quit as soon as you get a exit.
      I personally will wait for better exit point with a hope that SC will put a stay on the order and allow the CAG or others to audit the company… But its a high risk play…. But shouldn’t cry if loss is more..

    • Neeraj says:

      why didn’t you sell the day after the high court order? i did, after i went through 100 pages of the order the same night.

  • Ajay says:

    PPFAS MF has sold their entire holdings on NTBCL on Friday….

  • Sanjay Kohli says:

    The sanctity of the contract should be followed. Investors were guaranteed a certain return. Contracts in different times. would always have differences. This was built in the backdrop of sanctions on India post Pokhran 2. Foreign investment has also gone in. There was currency risk where there were no assurances. This was never such a bad contract that Allahabad HC needed to mull over it for years, then a lengthy 100 order which was is anti infrastructure, anti private capital. Shows in my opinion a lack of clarity, confidence & expertise as also the imposition of a leftist, populist value judgement in a Country which needs contracts to hold in the eyes of investors. Also, since when do companies have to fully pay back debt, bring down interest to zero before paying dividend. Maybe in some kind of .medical system.

    • I disagree, this was a lousy contract. Having gone through the details of the judgement and the contract, this one was blatantly unfair, but the judge has still honoured the terms. The basis of them readding costs to the project was silly and stupid, so they have removed it demonstrated that teh compensation continues. Nothing about this is leftist of any sort, or anti-private capital. The fact is that Noida Toll bridge was built on public land without them paying for the land, therefore the cause of the public good will apply.
      Overll, if you make the exceuse that you haven’t been paid back your cost, and you still field large loans (the company went through a debt restructuring earlier) then paying of dividend is sheer nonsense because you will keep adding the interest back as cost and then claiming further 20% on them.

  • Ramanathan says:

    This sets a precedence for rest of the toll companies & poor investors in india. NHAI / state bodies are building toll roads/bridges across India on PPP model and I think in future no company will come forward to invest for the government which may go haywire due PIL in any part of the country

  • Vyas says:

    Recently we have purchased huge number of shares to benefit from the high dividend they are paying. Now we are duped. God only save us who invest in Indian companies.