IL&FS TRANSPORTATION NETWORKS LTD : BEST FROM INFRASTRUCTURE SECTOR !!!

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

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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NEW YEAR 2013 !!!

HELLO FRIENDS, 

WISH YOU AND YOUR LOVED ONES A VERY VERY 

HAPPY NEW YEAR 2013 !!!

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

I Thank you all for your unconditional support towards me,

Your such priceless support inspires me to work better towards the best interest of my investor friends.

For me, its been a pleasure helping you all reach your goals in some or other manner, also its been a pleasure discussing stocks and sharing views on topics of stocks or economy & 

I will be my best going forward to bring new stock ideas, my views and surely we will share the same healthy relation that we shared last year.  

  

Lastly, I look forward to serving you all again in 2013, I wish you all peace, happiness, and abundant good health in the new year

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Best Regards,

BHAVIK SHAH 

Email: montyuu@yahoo.com

ASHOK LEYLAND : RUNNING ON STRONG WHEELS !!!

Scrip Code: 500477 / ASHOKLEY

CMP:  Rs. 27.10; Buy at Rs.26.50 - 27.00 levels.
Short term Target: Rs. 30.00; 6 month Target – Rs. 55; STOP LOSS – Rs. 24.95; Market Cap: Rs. 7,210.43 Cr; 52 Week High/Low: Rs. 33.50 / Rs. 18.75

Total Shares: 266,06,76,634 shares; Promoters : 102,72,37,424 shares –38.61 %; Total Public holding : 163,34,39,210 shares – 61.39 %; Book Value: Rs. 10.89; Face Value: Rs. 1.00; EPS: Rs. 2.01; Div: 100 % ; P/E: 13.46 times; Ind. P/E: 40.50; EV/EBITDA: 8.22.

Total Debt: 2,395.53 Cr; Enterprise Value: Rs. 9,605.96 Cr.

ASHOK LEYLAND LTD: The Company was founded in 1948 and is based in Chennai, India. Ashok Leyland limited is a subsidiary of Hinduja Automotive Ltd. It was named after the founder Raghunandan Saran’s son Ashok, the company was renamed ‘ASHOK LEYLAND’ with equity participation from Leyland Motors Ltd in 1955. Ashok Leyland ltd engages in the manufacture and sale of commercial vehicles and related components in India and internationally. India’s first inland made double decker was launched by Ashok Leyland in 1967. The Company's products include Buses – double decker and vestibule buses, CNG buses, Trucks – including multi axle trucks & tractor trailers, diesel engines, defense and special vehicles for Indian army. From 18 seater to 82 seater double-decker buses, from 7.5 ton to 49 ton in haulage vehicles, from numerous special application vehicles to diesel engines for industrial, marine and genset applications, Ashok Leyland offers a range of products. In the year 2006 Ashok Leyland acquired AVIA the Czech Republic based truck manufacturer. In 2007 the company formed a JV with Nissan Motor Company, Japan for the manufacture and marketing of light commercial vehicles, same year Ashok Leyland signed another JV with Continental AG, Germany – for the development of automotive Infotronics. In 2010, the Company acquired 26% stake in Optare plc. a bus manufacturer in the United Kingdom. Ashok Leyland Ltd is compared to: Bajaj Auto Limited, Motherson Sumi Systems Limited in India and Xiamen King Long Motor Company Limited globally.

Investment Rationale:

Ashok Leyland management expects M&HCV industry volumes to revive in H2 mostly back ended but still decline 5 – 10 % in FY13. Ashok Lay land with the launch of new products believes to achieve market share of 26 % in FY13. While Ashok Lay land was able to maintain its leadership in South, it was able to increase its market share in West to 25% from 22% earlier, East to 14% from 10% earlier and Central to 24% from 20% earlier. The company’s Export environment remains challenging as both Sri Lanka and Bangladesh which accounted for 70% of export volumes have seen demand contraction and targets 10,000 unit exports in FY13. Ashok Lay land’s new launch LCV Dost has very well received good response and the current order book stands at 2 months and management expects volumes of around 36,000 to 50,000 units in FY13/FY14 & expects that 70% of volumes sales to be from outside Tamil Nadu in H1FY13. Other segments have seen strong growth in Q2/H1 – like spare part sales were up to 27% in H1, Engines were up at 25% in H1 and defense continues to see steady growth as well. Company targets to have spare part revenues of Rs 1,000 Cr in FY13. Ashok lay Land has increased its customer touch points to 425 by Sep end with relatively more additions in North and West regions. Company’s input costs have remained largely flattish in H1 and is expected to have a marginal reduction in selected pockets like steel and tyres due to Subdued demand environment pushing up discounts to Rs 80,000 per vehicle in Q2 against 50,000 – 60,000 earlier. This has effectively neutralized all price hikes taken from the beginning of the year. The production from Pantnagar plant stood at 7,607 units in Q2 and should comfortably reach 40,000 units in FY13. This should benefit margins as the plant enjoys excise savings of Rs 60,000 per vehicle – the company plans to further increase this benefit to Rs. 65,000 led by higher localisation and increased sourcing. Due to High warranty charges (AMC) margins in H1 were impacted, company has suspended all its AMC contracts currently and this is under review. The company’s working capital has decreased by Rs. 700 Cr to Rs. 1700 Cr QoQ and maintains its target of lowering this to Rs. 1,000 Cr by FY13 end. Ashok Layland has incurred a capex of Rs. 350 Cr in H1 and targets capex of Rs. 650 Cr in FY13. Most of this is to be utilized for optimization of facilities, engines and on Pantnagar plant for next-gen cab. It also plans to spend another Rs. 150 Cr on product development expense. The company has new products in pipeline which is very healthy and which includes 10X2 5 axle 37 ton truck, entire MAV series with Neptune engine, 5 new models in ICV and the Jan-bus. Ashok Lay land targets to increase its investments to Rs. 7oo Cr primarily due to a Rs. 350 Cr investment in Hinduja Foundries. John Deere is expected to come out with a backhoe loader variant and a new wheel loader. Company’s debt levels are expected to increase by Rs. 700 Cr by FY13 to take care of the capex and investment plans. Management also plans to restructure investment companies and come out with the consolidated financials for FY13

Outlook and Valuation:

Ashok Leyland reported growth of 5.8 % YoY in its top-line at Rs. 329 Cr. Volume for the quarter grew by 26.1% YoY which is 10.5% decline excl. LCV sales, whereas average realisation de-grew by 16.1% YoY, mainly hinting towards higher discounting on account of slowdown in demand and higher contribution of LCV ‘Dost’. Spare parts sale grew by 27% YoY to Rs. 260 Cr coupled with richer product mix in the export market restricted the decline in average realisation / vehicle. Other expenses increased by 29.7% YoY on account of increase in the marketing and brand building expenses as well as higher power expenses. However, on a QoQ basis, other expenses declined by 70bps on account of Rs. 12 Cr saving in power cost and Rs. 15 Cr in reduction in ad spends. At the same time, due to one-time incentives and benefits to employees in Q1FY13, Q2FY13 employee expenses declined by 90 bps QoQ. As a result, EBITDA margins improved by 160 bps QoQ to 9.8%. EBITDA declined by 2.7% YoY to Rs. 320 Cr higher than our estimate of Rs. 270 Cr. On account of higher working capital requirement, interest cost grew by 57.4 % YoY to Rs. 100 Cr, thereby, leading to a 19.2 % YoY de-growth in PBT. On account of lower tax rate at 8.5 % due to higher production at Pantnagar and R&D spend, PAT (adj. for forex) decline was restricted to 15.3% YoY at Rs.130 Cr. Ashok Leyland an ideal buy at current price as well as at declines with a stop loss placing at Rs. 24.95 for a target of Rs. 30.00. The stock trades at 11.88x/9.54x P/E on FY12/13 estimates with the target price of Rs. 30/ share. Uncertainty with respect to demand for Ashok Leyland (due to regional disparity) continues to be a concern on the volume front. However, price hikes and lower Raw Material cost can provide cushion against the drop in earnings due to lower volumes.

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (Rs. Crs)	12,842.00	13,476.70	14,836.40	17,156.20
NET PROFIT (Rs. Crs)	566.00	530.50	606.90	754.40
EPS (Rs.)	2.12	1.99	2.28	2.84
PE (x)	12.10	12.90	11.30	9.10
P/BV (x)	1.60	1.50	1.40	1.40
EV/EBITDA (x)	7.80	7.90	7.10	6.30
ROE (%)	13.90	12.20	13.00	15.30
ROCE (%)	8.20	8.00	8.40	9.30

I would buy ASHOK LEYLAND with a price target of Rs. 30.00 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. 24.95 on your every purchase.

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