IL&FS Transportation Networks - Diwali Picks 2012 - Microsec

We rate IL&FS Transportation Networks (ITNL) a BUY. IL&FS Transportation Networks (ITNL), a leading road infrastructure company, with an illustrious parentage (IL&FS), a sharply focused business model and comfortable funding position, is all set to ride benefits emanating from the robust momentum in NHAI road project awards.ITNL has followed a disciplined bidding strategy to maintain its IRR. ITNL's domestic portfolio to help it grow its revenue & net profit at a CAGR of 19% & 10% respectively over FY11-14E. Its relative inexpensive valuation & flexibility to withstand business cycles makes it an attractive pick.

Leading road BOT asset player: ITNL is a pioneer in the road BOT space and has been involved in the development and operation of roads and highways for the past two decades. ITNL has a portfolio of 23 projects spanning over 11,860 lane km spread across 16 states. Of these, 12 projects comprising 5,453 lane km of roads are operational. Moreover, these projects are geographically spread out and bi-furcated into toll and annuity, which cushions its revenues due to limited exposure to any one region or project.

Parentage helps in qualifying for large projects: ITNL's parent, the IL&FS Group, has been a prominent player in promoting and financing public infrastructure projects in India for over 22 years and a pioneer of public private partnership projects.

Unique business model compared to peers: ITNL undertakes complete project management from bid evaluation to designing to O&M post construction. However, as it does not have inhouse construction expertise, company only does designing and project management services.

New road projects boost order book: ITNL has a robust order book of Rs14,000cr (or 2.5x FY2012 revenues), which provides high revenue visibility over the next few years with an average execution period of 30 months

Outlook: Declining competition for road BOT projects due to tight liquidity conditions is likely to benefit financially sound companies like ITNL which can win USD1bn worth of new projects every year without any equity dilution. Likely completion of under development projects ahead of schedule and steady growth in toll collections underpins our bullish stance on the company. The likely decline in interest rates will provide a further fillip to the stock.

Source : Equity Bulls

Keywords