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Research
L&T - IDPL asset sale signals get clearer - Edelweiss
Posted On : 2013-09-29 00:13:30( TIMEZONE : IST )
The L&T IDPL analyst meet was held on September 23 represented by its Managing Director, Mr. K Venkatesh and the CFO, Mr. Karthikeyan TV. The overall sense we got was that of an increasing chance of a stake sale to improve cash flows. Below are the key takeaways:
New road projects hit IDPL profitability
The 3 new road projects in Gujarat that got commercialised in FY13, incurred losses of ~INR3bn, the management said this was due to poor traffic growth (which is expected to stabilise in FY14), revenue leakages due to law and order problem and illegal bypasses built before the toll plaza. Of the total INR216bn road project cost, the company infused INR20bn equity so far and has further committed INR40bn over the next 5 years.
Dhamra port stake sale on anvil; company in active discussion
The company is in active talks with various players and is looking to exit Dhamra Port at equity value of ~INR9bn. L&T has invested ~INR4.3bn equity (INR3.5bn through IDPL and INR0.9bn through subscribing preference shares) in the project. The company expects 16mt (11mt in FY13) of cargo handling in FY14E and expects losses to reduce from INR3.25bn in FY13 to INR1.25bn in FY14E.
Construction of Hyderabad metro project on track
The management mentioned that the project cost was under control and does not expect the cost of Hyderabad metro project to escalate substantially. On the imported components, the INR depreciation did not impact the cost since most of the imports were either INR denominated or currency-hedged. The unhedged component remains at ~USD75mn. It expects revenues to trickle in from March 15 and expects the project to be fully commissioned by December 16 as against the target date of July 2017.
Outlook and valuations: Asset sale on cards; maintain 'BUY'
Rising losses will trigger stake sale in a few assets. This we believe will reduce overall burden on L&T's cash flow given that the company already has equity commitments worth INR81bn over the next five years in all the IDPL projects. Maintain 'BUY/Sector Outperformer' with a SOTP of INR 1,023.
