However, a couple of quarters ago, this note in the quarterly result caught my attention.
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It was quite odd that the Noida authorities were negotiating to modify certain conditions of the agreement. However, the company has not disclosed the details of the same.
Then came the news about 10 odd days ago that the company had hiked the toll rates for the DND flyover. This was completely legal and within the terms of the agreement that the company had with the Government. However, this decision did not go down well with the masses. (Yes, the same thing has happened before too.) There were mass scale agitations (news article) against the company by the Federation of Noida Residents Welfare Association. Other bodies have joined in the agitation too. They have also filed a PIL against the company. Broadly they think that the original MOU (agreement) which the company had with the Government itself is unfair and needs to be scrapped!!! They have "also written to the UP Chief Minister to review the MOU and take back the DND Flyover and make it free" !!!
So can the Government do this? Apparently, yes, its very much possible!! The Government can review and modify terms of an existing project like this 'in public interest'. Please go through this article in which the authors have stated that this is a common practice internationally and they have given examples of the same being done too! (To be fair, I have not come across anything like this being done in India so far.)
In the meantime, the company has succumbed to the public pressure and has rolled back the hike in toll rates.
How does this affect the investors in Noida Toll Bridge? The shareholders have waited for an awfully long time to get any sort of returns on their investment. The report that I posted in the beginning talks about the really hard time that the company went through in the initial phases. Now that good times could start for the company and its shareholders, these new developments have popped in. Few things that could happen..
- There could be massive hue and cry about the 'unjust' and 'unfair' levy of toll on the DND Flyover with demands that the toll be scrapped. The Government could indeed play its 'in public interest' card and modify the MOU or scrap it completely. The company could then go to court, etc etc. (I think chance of this happening is remote)
- Also, the company has rights to develop a large parcel of land near the flyover, which could be objected to for a variety of reasons by a variety of parties! :-) (I think chance of this happening is high)
- Or of course, nothing of the above might happen. However, given the massive publicity and media coverage given to this, the company will find it extremely difficult, if not impossible to raise toll rates in future. (I think the chance of this happening is very high)
- Of course, the Government might do some minor modifications to the MOU to appease the parties involved and then it could be life as usual for the company. (I think the chance of this happening is fairly high).
The shareholders today do face a terminal risk to their investment in the company. Even though one may argue that the possibility of this happening is remote and probability is small, the risk is such that if it materialises, the entire company and its business model will be finished. Low probability, super high risk event!! I am not at all saying that the company is a surely bad investment (whether it is good or bad is every individual investors' decision), but anyone making investment in the company's shares should keep this risk in mind for sure. The stock is surely 'cheap' and its DCF looks great in an excel sheet, but then these out-of-excel risks are also very material to note and consider in the investment decision making process.
Let us all hope for a proper and fair resolution to this whole Do Not Disturb Flyover issue!
Cheers and happy investing!!
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