IL&FS TRANSPORTATION NETWORKS LTD : PARTNERING GROWTH !!!

Scrip Code: 533177 / IL&FSTRANS

CMP:  Rs. 128.70; Buy at current levels & Accumulate at every dips.

Short term Target: Rs. 143.00, 6 month Target – Rs. 220; STOP LOSS – Rs. 118.40; Market Cap: Rs. 2,500.64 cr; 52 Week High/Low: Rs. 228.90 / Rs. 97.10

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. 109.38; Face Value: Rs. 10.00; EPS: Rs. 12.54; Div: 40.00 % ; P/E: 10.26 times; Ind. P/E: 17.57; EV/EBITDA: 7.99.

Total Debt: 2,753.38 Cr; Enterprise Value: Rs. 16,467.57 Cr.

IL&FS TRANSPORTATION NETWORKS LIMITED: ITNL was incorporated on November 29, 2000 and is based in Mumbai, India. It was formerly known as Consolidated Toll Network Limited and changed its name to IL&FS Transportation Networks Limited in October 18, 2005. IL&FS Transportation Networks Limited operates in the Highway and street construction sector. The company came with an IPO on March 11, 2010 with an issue price of Rs. 258 per share and raise about Rs. 700 Cr with an objective to utilize the proceeds for funding pre-payment of company’s debt and for other general corporate purposes. The shares got listed on Indian brouses on March 30, 2010. 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 locally compared with Simplex Infrastructures Ltd, Jaypee Infratech Limited, Ashoka Buildcon, Irb Infrastructure developers Limited and globally compared with DP World Ltd (Dubai Ports World) of Dubai, Gemadept Corporation of Vietnam, Kuwait and Gulf Link Transport Company of Kuwait, Summit Alliance Port ltd of Bangladesh and NRW Holdings Limited of Australia.

Investment Rationale:

IL&FS Transportation Networks Ltd. (ITNL) is an established ISO 9000:2001 surface transportation infrastructure company & is one of the largest private sector Built Operate Transfer road operators in India. It has established its self as a developer, operator and facilitator of surface transportation infrastructure projects, taking projects from conceptualization through commissioning to operations and maintenance. IL&FS Transportation Network limited is India’s largest road developer. ITNL is from the reputed 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 4,341 SALK under development. In March 2008, IL&FS Transport Networks Ltd commenced international operations through the acquisition of Elsamex S.A. (Elsamex), is a provider of maintenance services primarily for highways and roads in Spain & other countries. IL&FS Transportation Networks Ltd has recently signed a US$ 30 Cr contract to build a six-lane highway. The project will link an eastern industrial zone having heavy-duty traffic to mining districts such as Dhanbad, the nation's coal capital. Meanwhile, NHAI has agreed to facilitate 50 % of the financial assistance to Kerala’s State Government for developing the proposed bypasses in Kollam, Alappuzha and Kozhikode. The Union ministry will grant Rs. 357 crore of financial assistance to the state for developing the five bypass roads. The funds for the same would be disbursed in a phased manner. IL&FS Transportation Networks has signed a MoU with Nippon Expressway Company Ltd (NEXCO East) to work together through a strategic alliance for implementation of PPP road projects. During the quarter, Barwa Adda Expressway Ltd and Khed Sinnar Expressway Ltd have been incorporated as subsidiaries of the company National Highways Authority of India has issued Provisional Completion Certificate to the Pune-Solapur Road project which was awarded to the Company on DBFOT (Toll) basis. The project is on toll basis with a concession period of 19 years and 295 days comprising of Tolling and Operations & Management period of 18 years. IL&FS Transportation Networks Ltd has informed that The Concession Agreements were signed with the concerned Authorities for the following projects: Kiratpur Ner Chowk section of NH 21 of 90.175 kms in the States of Punjab and Himachal Pradesh; Beawar Gomti section of NH 8 of 88 kms of the total 116 kms Capacity augmentation in the State of Rajasthan; Sikar Bikaner section of NH 11 of 237.57 kms in the State of Rajasthan. During the year 2012-13, the group has acquired an additional 38,60,456 equity shares of one of the subsidiaries, viz., North Karnataka Expressway Ltd (NKEL), as result of which the stake of the Group in NKEL has been increased from 87.00% to 93.50%. IL&FS Transportation Networks Ltd has reported its first quarter fiscal 2014 consolidated revenue of Rs. 1,451.11 Cr, a decrease of 8.13 % y-o-y. The company’s net profit jumps to Rs. 124.53 Cr against Rs. 121.72 Cr in the corresponding quarter ending of previous year, an increase of 2.31 %. During the quarter total expenditure declines by 16 % mainly on account of decrease in material consumed cost along with consideration of construction contract expenses. Total expenditure in Q1 FY14 was at Rs. 956.75 Cr as against Rs. 1,137.48 Cr in Q1 FY13. The Company has undertaken international initiatives and has established offices in Dubai and Nigeria through one of its subsidiary based in Singapore. The International office is based out of Dubai & will be responsible for pursuing international mandates. The Company is pursuing in UAE, Nigeria and others parts of the world. The Company is also pursuing an airport expansion project in the UAE. The Company’s Metro Rail project in Gurgaon is nearing completion and is scheduled to commence operations in the coming year.

Outlook and Valuation:

Gurgaon Toll Plaza

IL&FS Transportation Networks Ltd has been adjudged and awarded the "Most Admired Infrastructure Company in Transport" at the 5 KPMG INFRASTRUCTURE AWARDS 2013. India’s road network, spanning across 4.69 million km, is the third-largest road network in the world, next in line only to the US and China. The country relies heavily on its robust road network that carries almost 65 per cent of freight and 80 per cent of passenger traffic. National Highways (NH), under the jurisdiction of National Highways Authority of India (NHAI), constitute for almost 2 per cent of the network but carry about 40 per cent of the total road traffic. The Indian Government is very particular about the development and maintenance of this huge network; more so because number of vehicles in the country has been growing at an average rate of 10.16 per cent per annum over the last five years. Thus a need for efficient and world-class road network becomes inevitable for smooth transitions of goods and services. The administration awarded about 2, 000 km worth of new road construction contracts in FY13. The Company continues to maintain its growth story and the leading position in the Surface Transport Sector with 25 projects in its portfolio in various stages aggregating to 13,161 lane kilometers, of which 6,318 lane kilometers are under operation. 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. 128.70, the stock is trading at a PE of 5.74 x FY14E and 6.91 x FY15E respectively. The company can post Earnings per share (EPS) of Rs. 22.40 in FY14E and Rs. 18.60 in FY15E. One can buy ITNL with a short term target price of Rs. 143.00 for Medium to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 220.00

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (₹ Crs)	5,605.60	6,644.90	5,972.50	7,575.00
NET PROFIT (₹ Cr)	497.00	519.40	434.80	361.40
EPS (₹)	25.60	26.70	22.40	18.60
PE (x)	4.70	4.50	5.40	6.40
P/BV (x)	0.90	0.60	0.60	0.50
EV/EBITDA (x)	8.40	8.90	8.70	8.40
ROE (%)	20.20	16.40	11.40	8.60
ROCE (%)	14.00	11.80	10.50	10.90

I would buy IL&FS TRANSPORTATION NETWORKS LTD for Short term it would be Rs. 143.00 and for the Medium to Long term it would be Rs. 220. 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 ₹ 118.40 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

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RETURN ON CAPITAL

IL&FS TRANSPORTATION NETWORKS LIMITED:CREATING INFRA BY HEART !!!

Scrip Code: 533177 / IL&FSTRANS

CMP:  Rs. 190.85; Buy at Rs.185-190.
Short term Target: Rs. 200, 6 month Target – Rs. 232; STOP LOSS – Rs. 175.58; Market Cap: Rs. 3,707.59 cr; 52 Week High/Low: Rs. 233.95 / Rs. 142.55

Total Shares: 19,42,67,732 shares; Promoters : 14,58,67,769 shares –75.09 %; Total Public holding : 4,83,99,963 shares – 10.00 %; Book Value: Rs. 91.87; Face Value: Rs. 10.00; EPS: Rs. 12.34; Div: 35 % ; P/E: 15.46 times; Ind. P/E: 14.14; EV/EBITDA: 8.99.

Total Debt: 1,894.09; Enterprise Value: Rs. 5,588.11 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) and is poised for 18 % CAGR (FY08-14E) in operational portfolio with fair mix of toll & annuity projects and BOT stake adjusted with average daily toll collection of Rs. 70 lakhs per day in FY11 and is expected to clock around 49 % CAGR (FY11-16E). Company has order backlog at Rs. 8,900 Cr at 3.3X FY11 revenue excluding Rs. 2,500 Cr order inflow in Q4FY12 and the recent wins of Rs. 2,500 Cr could restrict ITNL’s participation in next round of bidding at NHAI. ITNL is already sitting on 2 projects which are yet to achieve its financial closure and its SOTP value comes at Rs. 222 it implies a 13 % upside, but ITNL is highly sensitive to interest rates so a cut of 100 bps (1 %) in interest rate (0.50% is cut already and 0.50% more is expected) will lead to 26 % increase in SOTP value. 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 two projects over the last couple of months. Recently ITNL acquired 49 % stake in Yu He Expressway in China through its 100 % subsidiary International Pte Ltd (IIPL) based in Singapore. The balance 51 % stake is retained by Chinese state owned enterprise CEG. The total cost of acquiring 49 % stake is USD 160 million which is funded through mix of borrowing of USD 140 mn at cost of debt of 5 % and Equity of US$ 20 mn. The acquisition is priced at 1x the Book Value. The length of the expressway is 58.72 km of 4 lanes with 30 years of concession period. The residual period of concession agreement is 20.5 years. The company expects 16 % equity Internal Rate of Return in the project. The benefits for ITNL from the acquisition include sustained revenue from toll/annuity, improvement in EBITDA margin, enhancement in ITNL’s experience and qualification, etc.

Outlook and Valuation:

Recent wins could restrict ITNL’s participation in new projects, Although ITNL can win further projects but it is believed that with ITNL already sitting on two projects which are yet to achieve financial closure they would be extremely selective in bidding for the third project. Structurally ITNL would digest the two wins the Kiratpur Ner chowk & Kharagpur Baleshwar worth Rs. 2,500 Cr. Unlike past where ITNL use to recognize significant chunk of margins upfront as consulting fee, a larger proportion of 75 % is now recognized more rationally over the entire construction phase which also means lower internal surplus to fund new projects. Highly sensitive to interest rate, 100 basis points correction in the risk free interest rate (0.50% is cut already and 0.50% more is expected) will leads to 26 % increase in fair value of ITNL which 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. High financial leverage as suggested by consolidated debt: equity of 3.5 x makes ITNL the prime beneficiary in the correcting interest rate scenario. The valuation of ITNL’s road BOT portfolio comes at Rs. 185/share with Cost of Equity of 12 % ; operational projects at 13 %, 14 % for under construction project & 15 % for under development projects, the valuation of E&C business comes at Rs. 140/share with 6 x FY13E EBITDA and valuation of other subsidiaries comes at Rs. 30/share. Net debt works out to Rs-123/share at parent level. At the current market price of Rs. 190.85, the stock is trading at a PE of 9.26 x FY12E and 9.68 x FY13E respectively. The company can post Earnings per share (EPS) of Rs. 20.60 in FY12E and Rs. 19.70 in FY13E. One can buy ITNL with a target price of Rs. 232.00 for Medium to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 200.00

KEY FINANCIALS	FY10	FY11	FY12E	FY13E
SALES (Rs. Crs)	2,407.90	4,048.20	5,308.40	6,930.50
NET PROFIT (Rs. Crs)	353.60	457.90	400.20	382.10
EPS (Rs.)	18.20	23.60	20.60	19.70
PE (x)	11.70	9.00	10.30	10.80
P/BV (x)	2.50	1.80	1.80	1.50
EV/EBITDA (x)	8.60	7.80	9.80	9.80
ROE (%)	27.70	23.40	16.80	14.40

I would buy IL&FS TRANSPORTATION NETWORKS INDIA LTD with a price target of Rs. 232 for Medium to Long term and Rs. 200 for the Short term players. 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. 175.58 on every purchase.
READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE