CERA SANITARYWARE LTD : ADVANTAGE OF BRAND RECALL !!!

Scrip Code: 532443 / CERA

CMP:  Rs. 705.35; Buy at current levels and on Declines.

Short term Target : Rs. 740.00; Medium to Long term Target: Rs. 800; STOP LOSS – Rs. 648.92; Market Cap: Rs. 892.61 Cr; 52 Week High/Low: Rs. 745.00 / Rs. 386.05

Total Shares: 1,26,54,874 shares; Promoters : 70,56,180 shares –55.76 %; Total Public holding : 55,98,694 shares – 44.24 %; Book Value: Rs. 141.85; Face Value: Rs. 5.00; EPS: Rs. 37.72; Div: 80.00 % ; P/E: 18.69 times; Ind. P/E: 14.57; EV/EBITDA: 10.20.

Total Debt: 54.94 Cr; Enterprise Value: Rs. 910.38 Cr.

CERA SANITARYWARE LIMITED: Cera Sanitaryware Limited was incorporated in 1980, and is headquartered in Kadi, India. The company was formerly known as Madhusudan Oils and Fats Limited and changed its name to Cera Sanitaryware Limited in November 2002. Cera Sanitaryware Limited manufactures and sells sanitary ware and faucet ware products in India. The company offers sanitary ware products, including EWC’s, kids range products, wash basins, urinals, cisterns, seat covers, sensors, and bath accessories; special needs products consisting of cranes, shower chairs, wall mounted and U shaped rails, wall mounted inverted rails, and corner and wall mounted grab bars; and faucets, such as fittings, basin mixers, showers, bath tub spouts, flush valves and cocks, angle cocks, taps, and accessories. It also provides wellness products comprising steam shower rooms, shower rooms and cubicles, shower partitions, indoor swimming pools, bath tubs, shower panels, and pressure pumps; kitchen sinks and mirrors; and personal care products comprising hand dryers, perfume sprayers with remote control, automatic soap dispensers, and hair dryers, as well as wall and floor tiles. Cera has emerged as the third largest player in the sanitary ware industry in India. The company enjoys 24 % market share in the organised segment. It has installed manufacturing capacity of 2.7 mn pieces p.a. in sanitary ware and 2,500 pieces per day in faucet ware in Kadi (Gujarat). As of May 2013, Cera has 1,000 distributors - dealers, 10,000 retailers and 12 major stock points across India. CERA’s subsidiary includes Madhusudan Industries Ltd; Madhusudan Holdings Ltd; Madhusudan Fiscal Ltd; Vikram Investment Co. Ltd; Cera Foundation; Swadeshi Fan Ind. Ltd. The company is locally compared with Kisan mouldings Ltd, HSIL, Kajaria Ceramics Ltd, Somany Ceramics Ltd, Bell Ceramics Ltd, Everest Industries Ltd, NITCO Ltd, Asian Granito India Ltd, Regency Ceramics Ltd, Responsive Industries Ltd and globally compared with Asahi-Seiki Manufacturing Company Ltd of Japan, Onex Corporaion of Japan, Sapura Industrial Berhad of Malaysia, Nansin Company Ltd of Japan, Masonite International Corp of USA, Owens Corning of USA, Nci Building Systems Inc of New York, Masco Corp of USA.

Investment Rationale:

Cera Style Studio : Indiranagar, Bengaluru

Cera Sanitaryware incorporated in the year 1998 is a pioneer in the sanitary ware segment in India. It’s also the first sanitary ware company to use natural gas, for its commercial needs, Cera has been on the forefront of launching a new and versatile colour range and introducing the bath suite concept. It also launched innovative designs and water-saving products. Cera Sanitaryware Ltd was awarded as Power Brand for 2012, this award is instituted by IIPM Think Tank and Planman Media in association with the Indian Council for Market Research. Cera launched India’s very first twin-flush model, which reduces the water needs of households considerably. Cera’s WCs are designed to flush in just 4 liters of water is another notable innovation by the company. The Sanitary ware industry is around Rs. 1,050 crore in India and is going through a metamorphosis, with several foreign brands eyeing India as a potential market and developers and traders looking at China as a source for cheaper Sanitaryware. Some of the foreign brands have commenced production in India, while some are establishing offices in India, apart from those who have already got well-established in this country in the past few years. Added to this is innumerable small scale industries located mainly in Gujarat, manufacturing low-end Sanitaryware. The Company’s brand CERA, with its impeccable legacy of over three decades, continues to grow, much above the industry rate, despite the competition from peer brands-both domestic and international. The Company’s well entrenched and loyal distribution network, nation-wide sales and service teams, immaculate product quality and continuous advertising and promotional activities through television, print, OOH and POP have helped place CERA in an enviable platform in the minds of the customers. The Company’s brand extension to other related categories like showers, faucets, PVC cisterns and seat covers, etc. has also helped in accelerating the growth. During the year 2012-13, the Company forayed into tiles in a modest way and launched digital wall and floor tiles, vitrified tiles in both soluble salt and double charge and also regular porcelain tiles. Management is optimistic on such brand extensions and are positive that this will continue in the coming years as well, which will help CERA to establish itself as a total home solutions brand. The industry structure remains unchanged with domestic and International brands continuing their efforts to gain the larger share of the pie of Indian market. Some of them have even set up their manufacturing bases. CERA has launched a wide range of bath suite concept. Cera Sanitaryware sells its products through Cera Bath Studios, which provides consumers, architects and interior designers a full view of ranges of wash basins, shower panels, shower cubicles, bath tubs, shower temples, whirlpools, cp fittings etc. Cera Bath Studios has pan-India presence, are located at Ahmedabad, Bangalore, Chandigarh, Kolkata, Cochin and Hyderabad, Mumbai. Manufacturing Unit Cera Sanitaryware manufacturing facilities are located at Kadi, Gujarat.The achieving the growth in the rapidly changing retail market in the country, Cera, has launched its one of a kind Cera Bath Studios in Ahmadabad, Bangalore, Chandigarh, Kolkata, Cochin and Hyderabad, Mumbai. With the opening of the Cera Bath Studios, the discerning consumers, architects and interior designers can have full view of the Cera’s premium ranges of WC’s, Wash Basins, Shower Panels, Shower Cubicles, Bath Tubs, Shower Temples, Whirlpools, CP fittings etc. Cera Bath Studios will complement its existing network of 600 dealers and 5000 retailers. Several Bathrooms are displayed live, so that the customers can get a feel of Cera’s vast range of products.

Outlook and Valuation:

Cera Sanitaryware Ltd is a pioneer of the first sanitary ware segments in India launching innovative designs & water saving products. Cera has added other products like kitchen sinks, mirrors and sensor products to its range under Bathware. India accounted for 8 % of the world's sanitary ware production. The market size is estimated to be Rs. 1050 Cr. The branded segment accounts for a larger share of 60 % and is growing at a rate of 15 % - 17 %, whereas the market share of the non-branded segment has shrunk to 40 %, growing at a slower pace of 8 % - 9 %. The organized sector, comprising nine units, reported a production of 108,000 TPA against a total capacity of 118,000 TPA; the 250 units in the unorganized sector produced about 180,000 TPA against a total capacity of 220,000 TPA. The outlook for the tile industry appears to be positive over the medium term. This optimism stems from the likelihood of robust demand over the medium term. The real estate market is expected to grow at CAGR 15 % to 16 % over 2010 to 2015. Estimates suggests a shortage of an approximate 2.5 crore housing units in the middle and low income groups at the beginning of the Eleventh Plan. It is also expected that the medium housing segment will record around 25 % CAGR while luxury housing will experience a 33 % CAGR during 2009-13. The residence owners are looking for value-added products and the retail market is expected to grow from present 5 % to 10.4 % by 2012. The CAGR of company during last Five years has remained much more than industry growth rate. Together, the CERA Style Studios and CERA Style Galleries have made a great impact in improving the retail experience for prospective customers, institutional buyers and influencers of CERA. The growth also reflects CERA’s focused endeavors to retain its status as complete bathroom solutions provider to its customer base across India. The strategic planning in terms of product optimization and leveraging on Cera’s strong brand image with well supported penetrating distribution network continues to drive company’s high growth and carving out new standards for itself. CERA has expanded its production capacity to 2.7 million pieces per annum from 2.0 million pieces. Cera's entry into the Faucet ware business is a positive as it provides a significant scalable opportunity. Cera's faucet business is expected to grow at 29 % CAGR and is expected to be profitable durning FY13-15. The Company has also added other products like kitchen sinks, mirrors and sensor products to its range under Bathware. The CERA Style Galleries opened in several cities in collaboration with CERA dealers have been a success, with many more dealers coming forward for opening such Galleries. Already 50 CERA Style Galleries are functional all over the country. Together, the CERA Style Studios and CERA Style Galleries have made a great impact in improving the retail experience for prospective customers, institutional buyers and influencers of CERA. At the current market price of Rs. 705.35, the stock is trading at a PE of 16.99 x FY14E and 13.30 x FY15E respectively. The company can post Earnings per share (EPS) of Rs. 41.50 in FY14E and Rs. 53.00 in FY15E. CERA’s Net sales and PAT are expected to grow at a CAGR of 30 % and 24 % over 2012 to 2015E. CERA is confident of sustaining its growth in coming years with its business strategies of continuously upgrading product basket, leveraging on strong brand image, optimizing product potential capacity utilization and distribution network with all backed up by well structured sales & marketing plans. One can buy CERA with a target price of Rs. 740.00 for shorter term and for Medium to Long term investment it should be Rs. 800.00.

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (₹ Crs)	320.90	489.30	646.30	790.00
NET PROFIT (₹ Cr)	30.80	43.40	52.60	67.00
EPS (₹)	24.30	34.30	41.50	53.00
PE (x)	23.70	16.80	13.30	10.40
P/BV (x)	5.20	4.10	3.10	2.40
EV/EBITDA (x)	13.30	9.50	7.60	5.90
ROE (%)	24.50	27.30	26.00	26.20
ROCE (%)	28.80	32.70	29.80	32.00

I would buy CERA SANITARYWARE LTD for the short term would be Rs. 740 and for the Medium to Long term for target of Rs. 800. 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 ₹ 648.92 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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MARUTI SUZUKI INDIA LTD: WILL ZOOM ZOOM UPWARDS !!!

Scrip Code: 532500 / MARUTI

CMP:  Rs. 1768.40; Buy at current levels.
Medium to Long term Target: Rs. 1850.00; STOP LOSS – Rs. 1626.92; Market Cap: Rs. 53,419.83 Cr; 52 Week High/Low: Rs. 1830.00 / Rs. 1215.00

Total Shares: 30,20,80,060 shares; Promoters : 16,97,88,440 shares – 56.21 %; Total Public holding : 13,22,91,620 shares – 43.79 %; Book Value: Rs. 615.03; Face Value: Rs. 5.00; EPS: Rs. 100.73; Div: 160.00 % ; P/E: 17.55 times; Ind. P/E: 19.43; EV/EBITDA: 8.70.

Total Debt: 1,389.20 Cr; Enterprise Value: Rs. 54,554.64 Cr.

MARUTI SUZUKI INDIA LTD: The Company was founded in 1981 and is based in New Delhi, India. The company was formerly known as Maruti Udyog Limited and changed its name to Maruti Suzuki India Limited in 2007. The company is the subsidiary of Suzuki Motor Corporation. Maruti Suzuki India Limited manufactures, purchases, and sells motor vehicles and spare parts primarily in India. The company offers 15 brands and approximately 200 variants of passenger cars, multi utility vehicles, and multipurpose vehicles. The Company’s portfolio includes the Maruti 800, Alto 800, Alto K10, A-star, Estilo, WagonR, Ritz, Swift, Swift DZire, SX4, Omni, Eeco, Kizashi, Grand Vitara, Gypsy, Ertiga and Stingray. It is also involved in the facilitation of pre-owned car sales, fleet management, and car financing. In addition, the company provides motor insurance products, accessories, auto card, and driving school services. It exports its products worldwide. The company operates through a sales network of 1,204 outlets in 874 cities; and 2,965 service outlets in 1,423 cities in India. The other activities of the Company consist of facilitation of pre-owned car sales, fleet management and car financing. The Company’s services include Finance, Insurance, Maruti Genuine Accessories, Maruti Genuine Parts, Maruti Driving School and Autocard. The Company’s subsidiaries include Maruti Insurance Business Agency Limited, Maruti Insurance Distribution Services Limited, True Value Solutions Limited, Maruti Insurance Agency Network Limited, Maruti Insurance Agency Solutions Limited, Maruti Insurance Agency Services Limited, Maruti Insurance Logistic Limited and Maruti Insurance Broker Limited. The company is locally compared with Mahindra & Mahindra ltd, Ashok Leylamd Ltd, Hindustan Motors Ltd, TVS Motors Company, TATA Motors Ltd, SML Isuzu Ltd, Eicher Motors Ltd, LML Ltd, Hero Motocorp Ltd, Bajaj Auto ltd and globally compared with Bayerische Motoren Werke Ag (BMW) of Germany, Hyundai Motor Co of South Korea, Audi Ag of Germany, Renault Sa of France, AB Volvo  of Sweden, Suzuki Motor Corp of Japan, Mitsubishi Corp of Japan, Daimler AG of Germany, Honda Motor Co of Japan, General Motors of USA, Ford Motor Co of USA, Toyota Motor Corp of Japan , Volkswagen AG of Germany, Nissan Motor Co Ltd of Japan and DRB-Hicom Berhad of Malaysia. 

Investment Rationale:

Maruti Suzuki India Limited (MSIL, formerly known as Maruti Udyog Limited) is a subsidiary of Suzuki Motor Corporation, Japan. Maruti Suzuki has been the leader of the Indian car market for over two and a half decades. The company has two manufacturing facilities located at Gurgaon and Manesar, south of New Delhi, India. Both the facilities have a combined capability to produce over a 15 lakhs vehicles annually. The company plans to expand its manufacturing capacity to 17.5 lakhs by 2014. Maruti Suzuki India Limited announced the launch of the CNG variant of Ertiga, 7-seater utility vehicle coinciding with Environment month in June 2013. The capital investment proposed for this year by the company is approximately Rs. 3,500 Cr. Suzuki Japan has decided that India will now be responsible for the export markets of Africa, the Middle East and its neighboring countries. The Company will continue to introduce new range of products and variants in automobiles to meet growing customers’ expectations. The company will take initiative step to introduce alternate fuel options like LPG and CNG in the company’s vehicles. In the long term, the company will focus on enhancing the capability in the field of EV-HEV (Electric Vehicle – Hybrid Electric Vehicle) and other environment friendly initiatives. Maruti Suzuki’s Q2FY14 operating performance was ahead of market estimates, with EBITDA for the quarter at Rs. 1,320 Cr. On account of higher export realisation which was up 8 % YoY, increased localisation of raw materials and favourable currency benefit, material cost was down 260 bps QoQ. Management indicated cost cutting initiatives are likely to compensate higher discounting in the market. The company maintained their volume guidance of flat growth in the domestic market for FY14E with exports also likely to be flattish. Management maintained its guidance of flat growth in the domestic market for FY14E, with export volumes also likely to be flattish. Growth during the festive season of Navratri and Onam has improved by 5-6% YoY. Diesel accounted for 30% of overall volumes in Q2FY14 as against 34% in Q1FY14. Rural sales accounted for 32-33% of the volumes in Q2FY14, with the growth in H1FY14 pegged at 24%. Discount/vehicle increased by 30% QoQ to Rs. 17,500 mainly on account of higher discounts on petrol vehicle and the full impact of diesel vehicle discounting started in the month of June’13. At the same time, management indicated that the indirect imports are likely to cost more as they need to be compensated for depreciation in Rupee in Q3FY14 with a quarter lag; vendor imports in Q2FY14 reflected Q1FY14 rates of Rs. 55/$. And higher export realisation which stood at Rs. 61/$ v/s Rs. 55/$ in Q1FY14. This was slightly negated by 60 bps increase in other expenses on account of higher royalty payment as well as higher discounts which stood at Rs. 17,500/ vehicle v/s 13,500/ vehicle. At the same time, employee cost increased by Rs. 77 Cr majority attributed to one-time impact of hikes/incentives to employees, as a result, EBITDA margins improved by a whopping 1.2 % QoQ to 12.6 %. EBITDA for the quarter came in at Rs. 1,320. The positive surprise on EBITDA front percolated down to PAT level which came in Rs. 670 Cr. As looking at the Bank of Japan's balance sheet expansion with weak current account and with a big outbound in FDI and with an unwind of a massive post GFC Capital inflows, it is expected that japanese yen could be around 106 to $1 in Q1 and around 109 in Q2 and a 112 in Q3 and in Q4 of around 115, this means if yen touches 120 to $1 then Maruti will zoom. as conviction in Abenomics deepens and local househols, domestic institutions and foreign real money investors embark on a structural shift in portfolio allocations, it will benefit both local equities and USD/JPY making YEN to zoom.

Outlook and Valuation:

Maruti Suzuki is India’s largest passenger vehicle company with a market share close to 40% which offers 15 models with over 200 variants across the Industry segments like Passenger cars, Utility vehicles and Vans. The contribution of automotive sector in the gross domestic product (GDP) is expected to double, reaching a turnover worth US$ 145 billion in 2016, with special focus on export of small cars, MUVs, two & three wheelers and auto components, as per the Automotive Mission Plan (AMP) 2006-2016. The favourable Indian market conditions are acting as a catalyst for luxury and premium carmakers, which are receiving impetus from new launches. India is emerging as an export hub for sports utility vehicles (SUVs). Global automobile majors are looking to leverage India's cost-competitive manufacturing practices and are assessing opportunities to export SUVs to Europe, South Africa and Southeast Asia too. India is also one of the key markets for hybrid and electric medium heavy- duty trucks and buses. Ford Motor Company is staking big on Asia-Pacific (APAC) markets, especially India and China. Ford will export Figo and EcoSport models out of India. The Indian plants would support the market here, as well as other global markets. The production of passenger vehicles in India was recorded at 3.23 million in 2012-13 and is expected to grow at a compound annual growth rate (CAGR) of 13 per cent during 2012-2021, as per data published by Automotive Component Manufacturers Association of India (ACMA). Maruti Suzuki India Ltd’s Japanese Yen-denominated imported content (direct + indirect) stands at 18 % of net sales. The company has targeted a savings of 150-200 bps every year by increasing localisation and thereby, bringing the imported content down to 14-15 % of net sales by FY15E end. For FY14, it is assumed that a cross-currency rate of INR/JPY to be at 0.62 v/s 0.66 in FY13. As a result of both the above reasons, it is expected that the gross margins can improve by 250 bps YoY in FY14E. The company can witness earnings CAGR of 20.90 % with strong EBITDA margins of 11-12 % over the next few quarters with the increased discounts being offset by a stable currency. Maruti is the best play on the recovery in the macroeconomic situation and is expected a rebound in volumes in FY15E by around 13.00 %. At current price of Rs. 1768.40, the stock is trading at P/E of 18.81 x on FY14E estimates & 16.19 x on FY15E estimates. In my view Maruti Suzuki India Ltd could post EPS of Rs. 94 for FY14E & Rs. 109.20 for FY15E and one can ACCUMULATE the stock and would advise investors to use declines in the stock to buy with a long term view with a target price of Rs. 1850.00 for Medium to Long term investment.

SOTP Valuation :-

Standalone Business FY15E	Value Per Share (in ₹.)
EPS FY15E (₹./sh)	109.20
Multiple (x)	16.80
Standalone Business Value (₹./sh)	1834.56
Investmetn per Share (₹./sh)	18.00
TOTAL	1852.56

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (₹ Crs)	34,705.90	42,612.60	44,254.70	51,966.10
NET PROFIT (₹ Cr)	1,635.10	2,392.10	2,838.50	3,298.30
EPS (₹)	56.60	79.20	94.00	109.20
PE (x)	26.40	18.90	15.90	13.70
P/BV (x)	2.90	2.50	2.20	1.90
EV/EBITDA (x)	16.90	10.80	8.60	7.00
ROE (%)	11.30	14.20	14.30	14.60
ROCE (%)	10.70	13.60	13.50	13.80

I would buy MARUTI SUZUKI INDIA LTD for Medium to Long term for target of Rs. 1850. 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 ₹ 1626.92 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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WISHING YOU ALL A VERY HAPPY NEW YEAR 2014 !!!

HAPPY NEW YEAR 2014 !!!

              

HELLO FRIENDS, 

WISH YOU AND YOUR LOVED ONES A VERY VERY 

HAPPY NEW YEAR 2014 !!!

I Thank you all for being a regular reader at BHAVIKK SHAH's BLOG.

I Thank you all for your unconditional support towards me, Your such priceless support, inspires me to work better towards for my investor friends. Its been a great pleasure helping you all reach your goals, also its been a pleasure discussing stocks and sharing views on topics like stocks or economics or politics... 

Its been a wonderful year gone by, with my ROCE presentation crossing 600 views on author stream; with ur support the blog posts crossed more than 230 posts with more than 3,47,400 pageviews and proud to have 355 followers on the blog.....

With such, I still believe its long way to go and I again thank you all for your unconditional support and do continue to pour in ur valuable support...I take ur support as an moral responsibility and it will be my endeavour to be at my best and to bring best fundamental stocks on board....

As markets moves into New Year of 2014, with nation facing its over exaggerated General Election falling this May of 2014, with major people expecting BJP to come to an power. Now this General election will have new 130 million new voters and these new voters can cause an upset..leaving politics aside, lets me share few views of mine on markets - We will need nearly 9-11% growth in IIP to get back to atleast 8% of GDP growth, we will need corporates to invest heavliy and just not sit on huge pile of cash..We need Infra projects to get cleared off as early as possible...Friends, VALUATION ARE THE SLAVES OF THE EARNINGS - and I feel this 2014 will be dismal year in terms of the earnings expecting Index Stocks EPS to show mere growth of 8-10% in their earnigs and Lets hope that SENSEX & NIFTY tp perform at least 15% in the year 2014.  

  

Lastly, I look forward to serving you better all again in 2014, I wish you all Peace, Happiness, and Good health in coming new year !!!

ONCE AGAIN WISHING YOU ALL A VERY VERY

HAPPY NEW YEAR 2014 !!!

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Best Regards,

BHAVIKK SHAH 

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

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