MUMBAI (Metro Rail News): Presently just two of the Mumbai Metro projects which are under execution, have a projected Financial Internal Rate of Return (FIRR) of over 10% showing that the govt expects to justify financing prices for most lines through indirect profits from the projects. The FIRR is the return an investor can expect from a project for funds invested. If the FIRR is over the cost of funds, the project is viable.
Of the eight lines presently under execution, 6 have FIRR ranging between 6% to 8.65%. The Complete Project Report of any metro project requires to give at least 8% FIRR to get a nod from the Centre and foreign agencies for loan disbursement.
“Financial internal rate of return is how a private developer would look at a project. It is based on costs and direct benefits. Economic IRR is used by the government or public sector to make decisions as it includes FIRR plus the indirect benefits for the state including the addition to tax revenue due to the project,” senior director, Sachin Gupta said, Crisil Ratings. Incidentally, all Metro projects have a high Economic IRR reaching between 15% to 25%.
“For a private developer, the FIRR is useful in deciding whether to invest in the project. For a project to be viable, FIRR would have to be above 10%, which is a ballpark figure on the cost of debt,” Sachin Gupta said.
Highest FIRR two lines are Metro 4A which is (Kasarvadavali to Gaimukh) and 2B which is (Dn Nagar to Mandale). Metro 4A has a projected FIRR of 12.68% because of the property increase in the region. an official stated, “This route lacks hi-speed public transport and roads in Thane are conducted which people which switch to Metro in large numbers.”It is expected that the 32.5 km Wadala-Kasarwadavali single route will carry more than 12 lakh commuters each day, which will have a cascading effect on the 4A line as well.
A recommended extension—9km from Gaimukh to Shivaji Chowk in Kashimira called Line 10—also has a FIRR of 10.91% as it is assumed to carry 7.5 lakh commuters regularly. This is another important east-west Metro link that will connect western suburbs once it gets linked to Metro 4.
The second most valuable among the Metro lines would be the DN Nagar to Mandale 2B stretch, it is expected to carry 10.5 lakh passengers on its 23.5-kilometre long route. It will have a FIRR of 10.78%. which means every Rs 100 invested in this line will get Rs 110.78 before covering financing charges. “The route is an important east-west connector with links to the suburban railway at Bandra, Kurla and Mankhurd. It will also connect via Bandra-Kurla Complex which is a major hub of economic activity and employment,” MMRDA official said.
High FIRR is also connected to the scope for non-fare revenue through promoting rights and leasing of commercial space. Interestingly, a longer route does not certainly translate into higher ridership. Metro 5 (Thane-Bhiwandi-Kalyan) is 24 km long but will have 3.03 lakh ridership as the population is sparse balanced Thane-Mumbai and there is little scope for non-fare revenue. The FIRR from this route is expected to be lowest at 6%.