Scrip Code: 533177 / IL&FSTRANS
CMP: Rs. 205.40; Accumulate at every Dips.
Short term Target: Rs. 215, 6 month Target – Rs. 250; STOP LOSS – Rs. 189.00; Market Cap: Rs. 3,990.25 Cr; 52 Week High/Low: Rs. 223.90 / Rs. 142.55
Short term Target: Rs. 215, 6 month Target – Rs. 250; STOP LOSS – Rs. 189.00; Market Cap: Rs. 3,990.25 Cr; 52 Week High/Low: Rs. 223.90 / Rs. 142.55
Total Shares: 19,42,67,732 shares;
Promoters : 14,07,63,003 shares –72.46 %; Total Public holding : 5,35,04,729
shares – 27.54 %; Book Value: Rs. 100.06;
Face Value: Rs. 10.00; EPS: Rs. 16.45; Div: 40.00 % ; P/E: 12.48 times; Ind. P/E: 20.67; EV/EBITDA: 9.28.
Total Debt: 2,726.06 Cr; Enterprise Value: Rs. 6,716.32 Cr.
IL&FS TRANSPORTATION NETWORKS LIMITED: ITNL was incorporated in 2000 and is
based in Mumbai, India. It was formerly known as Consolidated Transportation
Networks Limited and changed its name to IL&FS Transportation Networks
Limited in September 2005. IL&FS Transportation Networks Limited operates in
the Highway and street construction sector. IL&FS Transportation Networks
(ITNL) is a surface transportation infrastructure company. ITNL is the builder,
operator and transfer (BOT) road operators engaged in developing, designing,
operating, maintaining and facilitating surface transportation infrastructure
projects. ITNL’s services include advisory and management services, supervisory
services, operation and maintenance services, toll collection services for toll
road projects. ITNL provides maintenance services primarily for highways and
roads in Spain, Portugal and Latin America, and advisory and project management
for BOT road projects, trades in materials used in the maintenance of roads
& undertakes construction contracts. On May 31,2010, it acquired Area De Servicio Coiros S.L.U. On September
1, 2010, it acquired Conservacion De Infraestructuras De Mexico S.A. De C.V. On
December 17, 2010, it acquired Alcantarilla Fotovoltaica, S.L.U. and Area De
Servicio Punta Umbria, S.L.U. IL&FS Transportation Networks
Limited is a subsidiary of Infrastructure Leasing & Financial Services
Limited.
The company is compared to NRW Holdings Limited globally & locally with
Cummins India Limited and Walchandnagar Industries Limited.
Investment Rationale:
IL&FS Transportation Network limited
is India’s largest road developer (7,621 lane kms). ITNL is the largest private
sector Built Operate Transfer road operator from IL&FS Group , with a
portfolio of 22 domestic road projects and 1 international projects aggregating
to 7,621 stake adjusted lane in km
(SALK) in its portfolio. ITNL has 11 operational projects with 3,281 SALK and
remaining 12 projects or 4341 SALK under development. After a long dry patch ITNL has won couple of
projects over the last couple of quarters. Company's
order book stands at Rs. 10,900 Cr and it has also received LOA for Kharagpur-Baleshwar
project during Oct, 2012 and has also achieved financial closure for the same.
ITNL was also awarded a project worth Rs. 2,143 Cr from HUDA for developing the
6.5 km rail Metro Link Extension from Sikanderpur Station to Sector 56, Gurgaon
on a DBFOT basis. ITNL has a stake of 65 % in this project and is expected to
commission by 2015-16. With an order book of Rs.10,9oo Cr, it is expected that
the construction division revenues can grow at a CAGR of 11 % between
FY12-FY14. This is likely to be led by construction of Jharkhand roads, Hazaribagh
Ranchi project, Chenani-Nashri project and Shillong Jorbat project on the
annuity side and Chandrapur-Warora project, Moradabad Bareilly project, Narkatpally
Addanki project and Pune Sholapur project coupled with recently awarded
Kiratput NerChowk, Kharagpur Baleshwar project and Sikar Bikaner project on the
toll side. Built Operate and Transfer revenues are expected to grow at a CAGR
of 37 % between the FY12 FY14 led by improvement in toll collection on
operational projects. Overall consolidated revenues are expected to grow at a
CAGR of 13.5 % between FY12-FY14. Margins of ITNL stood strong at 33 % led by
higher proportion of toll - annuity revenues as well as strong fee income seen
during the quarter. Toll/Annuity revenues as proportion of total revenues moved
up to 15.4 % in Q2FY13 as against 10.7% in Q2FY12 further the margins are expected
to be in range of 28 % and 29.6 % for FY13 and FY14 respectively. ITNL’s Consolidated
EBITDA stood at Rs. 450 Cr a raise of 27 %. Revenue stood at Rs. 1370 Cr a
raise of 9.2 % yoy. ITNL’s Net
profit was flat YoY for Q2FY13 and was impacted by increase in overall interest
outgo. Standalone PAT stood at Rs. 94.1 Cr a raise
of 54.6 % yoy, EBITDA stood at Rs. 193 Cr a rasie of 45 % yoy & E&C
revenues declined by 24 % yoy to Rs. 390 Cr. Consolidated APAT Stood at Rs 116
Cr flat yoy led by higher than expected fee income at Rs. 210 Cr. Interest cost moved up to Rs. 280 Cr from
Rs. 169 Cr in Q2FY12 due to higher debt availed for the under construction
projects. Company's current consolidated debt stands at Rs. 12,070 Cr with a
consolidated Debt Equity of 3.8x v/s 3.7 x in FY12. Overall standalone debt is
at Rs. 3140 Cr. Standalone Debt to Equity is pegged at 1.5x, although ILFT has
the already sought the borrowing limit till Rs. 5000 Cr at the Parent level, it
is believed that the standalone balance appears too levered vis a vis other
peers in the industry. Along with
this, with increase in execution of annuity projects, interest cost also jumps
significantly since these are expensed for under construction annuity projects
as against being capitalized for toll projects. Further the consolidated E&C margin also came
in ahead of exp. at 33 %, however execution came in lower than expected. ILFT
won the metro extension project during the quarter from Haryana Urban
Development Authority (HUDA) for developing 6.5km rail metro link stretching
from Sikandarpur station to Sector 56 (Gurgaon) worth Rs 21bn under DBFOT for
98 year concession period. The project is an extension to the existing metro
rail under development by IL&FS transportation led consortium. IL&FS
has also received the LOA for Kharagpur Baleshwar project in the state of
Orissa and has tied up 60% of the project cost under the financial tie up from
State Bank of Patiala. Since the competition is significantly down, ILFS
transportation will be a key beneficiary in the next round of bidding. Higher
margins were owing to higher fee income during the quarter. ILFT is executing projects
at a rampant pace resulting in growing leverage at both the consolidated and
parent level.
Outlook and Valuation:
The construction
backlog of ITNL is at Rs.10,900 Cr or 2.7x FY12 construction revenues, which
provides significant visibility to the growth prospects for the construction
vertical, however the overall profitability is also driven by fee income which
is majorly recognized on new project wins. With the lack of new wins at a time
when the competitive intensity was seemingly high at NHAI & this will be
beneficial for the company. And the pipeline now indicates that the couple of
projects which are lined up in the next round of bidding will provide IL&FS
transportation an edge over the other bidders as the projects are in nearby
territory to the projects which are already operated by IL&FS
transportation. ITNL’s Average daily toll & annuity collection witnessed
marginal increase of 2.6% qoq led by 6.9% qoq growth in RIDCOR project &
17.9% qoq increase in Rajkot – Jetpur stretch. Two mature operational assets
i.e Ahmedabad Mehsana & Vadodara Halol were flat sequentially owing to toll
collection getting outsourced to third party, however they continue to witness
5.6%yoy growth. The annuity projects continue to witness Rs. 81 lakhs/day collection
in line with expectation. The overall growth in average daily collection stood
at 1.7% qoq to 2.45 Cr/day. The Construction
business of the company is valued at 5x earnings, lower than other construction
peers since the construction work is outsourced and higher margins are also
contributed by advisory fee. This translates into value of Rs. 128 per share. The
value of BOT projects comes at Rs. 173 per share arrived by using FCFE approach
using cost of equity of 13.4 %. E&C business valuation comes at Rs177 per share
(4.5X FY14E EBITDA) and value of other subsidiaries comes at Rs 37 per share.
Net debt works out to Rs.167 per share at parent level. ITNL is highly sensitive to interest rate, 100 basis
points correction in the risk free interest rate leads to 26 % increase in fair
value of ITNL, & this remains a key beneficiary of reduction in risk free
rate of project financing. ITNL has the highest leverage in the road sectors
making it highly interest rate sensitive. At the current market price of Rs. 205.40,
the stock is trading at a PE of 8.15 x FY13E and 8.93 x FY14E respectively. The
company can post Earnings per share (EPS) of Rs. 25.20 in FY13E and Rs. 23.00
in FY14E. One can buy ITNL with a target price of Rs. 220.00 for Medium to Long
term investment.
KEY FINANCIALS | FY11 | FY12 | FY13E | FY14E |
---|---|---|---|---|
SALES (Rs. Crs) | 4,048.20 | 5,605.60 | 7,009.30 | 6,932.40 |
NET PROFIT (Rs. Crs) | 432.90 | 497.00 | 490.30 | 447.10 |
EPS (Rs.) | 22.30 | 25.60 | 25.20 | 23.00 |
PE (x) | 8.50 | 7.40 | 7.50 | 8.20 |
P/BV (x) | 1.60 | 1.40 | 1.20 | 1.10 |
EV/EBITDA (x) | 7.50 | 9.30 | 8.70 | 8.10 |
ROE (%) | 22.20 | 20.20 | 17.00 | 13.70 |
ROCE (%) | 17.60 | 14.00 | 12.40 | 11.90 |
I would buy IL&FS TRANSPORT with a price target of Rs. 250.00 for the 6 month target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 189.00 on your every purchase.
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