IL&FS Transportation Networks Ltd. - Safe ride on a bumpy road - Antique

We met the management of IL&FS Transportation Networks Ltd. (ITNL) to get an update on the status of projects under construction, recent project awards and issues impacting the industry. Although the new project award for the industry has been below expectation, we remain confident of the company's ability to secure more projects whenever the project awarding resumes. Reiterate BUY!

L1 for two BOT orders in 4QFY13

In 4QFY13, ITNL emerged as L1 for two BOT toll projects namely Barwa - Adda - Panagarh and Khed - Sinnar. While the company had quoted a premium of INR420m for the Barwa - Adda - Panagarh project, it quoted a grant of ~INR3bn for Khed - Sinnar project.

Can participate in 1 more NHAI project till FC on atleast 1 of the above project is achieved

As per NHAI guidelines, a company cannot participate in new bids incase it has more than two projects pending financial closure. Thus, it can participate for one more project from NHAI till it achieves financial closure on atleast one of the above mentioned projects.

Financial closure achieved for Rapid MetroRail (South extension)

The company has achieved financial closure for the Rapid MetroRail Project (south extention) in March 2013. The total project cost of ~INR21.4bn will be funded in the D:E of ~2.3x. The project, in which INTL will hold a ~65% stake, is expected to be operational by FY16e. With respect to the Phase-I of the Rapid MetroRail Project connecting Sikanderpur station to DLF Cyber City, test runs have started and the project will be commissioned in 1QFY14e.

Pending equity requirement of INR13.7bn

ITNL's pending equity requirement, excluding the 2 BOT projects where it has emerged as L1 and MetroRail (south extension), stands at INR13.7bn over the next 2-3 years. While it has a receivable of ~INR5.5-6bn from the SPV's (pertaining to fee income) which will be utilised for equity infusion, balance requirement will be met from internal accruals.

Valuation and outlook

At the CMP of INR184, the stock trades at a PE, PB and EV/EBIDTA of 5.9x, 8x and 1x respectively discounting its FY14e numbers. We maintain our BUY rating and a target price of INR239, providing an upside of 30% from current levels. Our target price is based on SoTP methodology where road projects are valued on DCF basis (INR156/share), EPC business of standalone company on P/E multiple (INR52/share) and non-Road portfolio on P/B multiple (INR31/share).

Source : Equity Bulls

Keywords