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Research
IL&FS Transportation Ltd - High gearings and threat to margins - K R Choksey
Posted On : 2012-05-10 10:30:37( TIMEZONE : IST )
IL&FS Transportation Ltd (ILFT) reported revenue of Rs 1,989 crore (+12.5% vs. est) above our expectations on account of increase in construction income as execution has picked up in the ongoing road projects. Further, the company is able to book substantial Fee Income (Rs 161 mn) from the newly won as well as under construction projects.
ILFT reported EBITDA of Rs 457 crore (+12%, YoY) and margins fell by 166 bps, primarily impacted due to increase in construction revenue in the revenue mix on YoY basis. Interest cost gone up to Rs 231 crore (+24%, QoQ) reveals consolidation of Chinese road project as well as withdrawal of more debt at the consolidated levels. PAT grew to Rs 177 crore (+11%, YoY basis), primarily impacted by lower tax rate in the last quarter.
Substantial risk to margins (+23.1%, FY13E) in the absence of Fee Income
The fee income booked is Rs 557 crore & Rs 573 crore on the average order inflow of Rs 55 bn in FY11 & FY12E respectively that has added 80% of EBITDA to full year financial. We expect margins are at risk in the absence of fee income in case company is unable to sustain order inflow of projects.
Orderbacklog, Rs 120 bn, & Toll revenue reaches to Rs 1.9 crore/ day
ILFT orderbacklog stands at Rs 120 bn (+10.1%, YoY) provide revenue visibility for EPC segment for the next 2-3 years. EPC margins shrink by 500 bps in FY12 and expected a challenge to maintain healthy margins for FY13E. Toll revenue daily gross turnover reaches to Rs 1.9 crore / day (+24.2%, YoY).
View & outlook
We revise consolidated estimates of EPS to Rs 25.6 and Rs 26.3 (from Rs 20.4 and 23.1) for FY12E and FY13E respectively based on higher fee income and construction revenue. We have not valued newly won projects due to non financial closure. We reduced EPC value to Rs 30 (from Rs 46) on account of fall in margins by 400 bps. We rate ILFT to "Accumulate" (TP 203) based on 1.) unexpected increase in fee income 2.) consol D/E is 3.7 beyond comfortable levels 3.) consol margins are at risk in the absence of fee income in future and 4.) aggressive bidding still continue in road sector.
