IL&FS Transportation Networks Ltd - Result Update - KJMC

CMP - Rs.209
Target Price - Rs.258

IL&FS Transportation Networks Ltd (ITNL) reported better than expected Q3FY12 results. The consolidated net revenue and PAT after minority interest for the quarter grew at 73.5% and 42.5% respectively on yoy basis. The company has current capital work order in hand to the tune of Rs 100.6 bn. In the quarter it was awarded Rs 19 bn of projects. The company has bid pipeline of Rs 568.25 bn of road projects which gives visibility on inflow of new projects in future.

Key Highlights

Strong execution supported 73.5% growth in consolidated net revenue: ITNL reported strong performance at consolidated level in Q3FY12. The consolidated net revenue for the quarter stood at Rs 12.68 bn which was up 73.5% yoy mainly on account of strong contribution from construction revenue. In 9MFY12 the consolidated revenue grew at 51.3% yoy to Rs 23.9 bn driven by 87.2% yoy growth in construction income and 41.9% yoy growth in Toll/Annuity income. The nine month revenue included 69% from construction, 14% from Elsamex, 10% from toll and annuity and rest from others. The standalone revenue was up 125.5% yoy to Rs 5.66 bn which included 70% construction revenue, 23% fee income and balance as O&M income & others. The standalone revenue did not include the construction revenue in Jharkhand State Road Project as it was booked at SPV level. The fee income was mainly on account milestone based upfront fee from Jharkhand projects, advisory income from a group company and supervision fee from projects under construction.

EBITDA margin declined on contribution from low margin construction segment: In Q3FY12 the company reported 454 bps decline in EBITDA margin that stood at 25.3%. The decline in EBITDA margin was mainly on account of higher composition of low margin construction revenue. PAT for the quarter grew at 42.5% yoy to Rs 878 mn.

Added new BOT project in the quarter: In the quarter, ITNL added new project Kiratpur Ner-Chowk in Himachal Pradesh of Rs 18.18 bn project cost. It is a BOT Toll project of Rs 327 km length awarded by NHAI. This project is awarded with a grant of Rs 1.34 bn. The new awarding took ITNL capital work order in hand to Rs 100.6 bn which would translate into revenue in the next three years. In addition, it is participating in Rs 568.25 bn of projects including Rs 86 bn of project at RFP stage and Rs 482.25 bn at RFQ stage.

Acquired 49% stake in Yu He Expressway in China: ITNL through its 100% subsidiary ITNL International Pte Ltd (IIPL) (Singapore based) acquired 49% stake in Yu He Expressway in China. The balance 51% stake is retained by Chinese state owned enterprise CEG. The total cost of acquiring 49% stake is USD 160 mn which is funded through mix of borrowing of USD 140 mn (Cost of debt at 5%) and Equity of USD 20 mn. The acquisition is priced at ~1x BV. The length of the expressway is 58.72 km (4 lanes) with 30 years of concession period. The residual period of concession agreement is 20.5 years. The company expects 16% equity IRR 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

We are positive on the prospects of the company. The company expects 10-12% traffic growth in its toll projects. Further construction revenue is expected to remain strong on robust order backlog. We maintain our BUY recommendation on the stock with the target price of Rs 258 per share.

Source : Equity Bulls

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