IL&FS Transportation Networks Limited - Profitability impacted by high interest costs - Antique

IL&FS Transportation Networks Ltd. (ITNL) results for 4QFY13 were below our estimates with the company reporting revenues, EBIDTA and PBT of INR19.3bn, INR4.7bn and INR1.7bn against our estimates of INR20.7bn, INR4.9bn and INR2.2bn respectively. With competition intensity moderating, companies like ITNL, which have a proven execution track record and financial strength, can benefit from rationale bidding helping it achieve reasonable IRRs. We reiterate our BUY rating with a target price of INR221.

Results highlights

Consolidated revenues decline by 3%

ITNL reported a 3% YoY decline in consolidated revenues to INR19.3bn, largely due to 4% decline in construction revenues. Elsamex and BOT segment continued to report healthy revenue growth of 23% and 27% to INR3.3bn and INR2.3bn, respectively.

Margins expand by 140bps to 24.4%

A stable revenue mix coupled with higher margins from the construction segment resulted in EBIDTA margins expanding by 140bps to 24.4%. Accordingly, EBIDTA rose by 3% to INR4.7bn (our estimate of INR4.9bn). A 31% surge in interest charges led to PBT declining by 30% to INR1.7bn. Net profit remained flat at INR1.8bn on account of tax write back.

Order backlog at INR146.6bn

As on March 2013, ITNL's order backlog stood at INR146.6bn against INR119bn in December 2012. The order book coverage of 3.2x its TTM construction revenues provides revenue visibility for the next two years.

Valuation and outlook

At the CMP of INR180, the stock trades at a PE and EV/EBIDTA of 6.7x and 9.4x discounting its FY14e numbers. We reiterate a BUY rating with a target price of INR221, providing an upside of 23% from current levels. Our target price is based on SoTP methodology where road projects are valued on DCF basis (INR148/share), EPC business of standalone company on P/E multiple (INR42/share) and non-Road portfolio on P/B multiple (INR31/share).

Source : Equity Bulls

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