ITNL – Initiating Coverage
IL&FS Transportation Networks (ITNL), an established surface transportation player, is a
pure play on the emerging opportunities in the road segment.
Market leader with diversified presence: ITNL has the highest coverage among peers with
~7,500 lane km (22 projects) with a project capitalisation of ~`14,673cr (adjusted for its
share), which we believe gives it an edge in bidding for new projects in terms of technical
capability and experience. Moreover, these projects are geographically spread out and
bifurcated into toll and annuity, which cushions its revenue due to limited exposure to any
one region or project.
ITNL in sweet spot to capitalise on emerging opportunities: ITNL is well poised to leverage
on the growing opportunities in the road segment owing to its: 1) strong parentage; 2)
experienced management; 3) unique business model; and 4) favourable developments at
NHAI.
Favourable industry dynamics: We expect NHAI to award ~33,500km over FY2011–15, in
line with its set target of constructing 20km/day. The expressways and mega highway
projects also offer opportunity to the tune of `62,600cr.
We expect ITNL to post a 59% CAGR in consolidated top line over FY2010–12, owing to
its recent order winning spree and bidding pipeline. However, given the increasing share
of low-margin C&EPC in consolidated top line, we expect EBITDA margins to normalise to
19.8% in FY2012 from 33.1% in FY2010. During the mentioned period, we estimate the
company’s bottom line to log a 21% CAGR. We have valued ITNL on an SOTP basis,
wherein we have assigned 7.5x EV/EBITDA to its standalone business and its investments
have been valued on DCF/Mcap/BV basis. Our Target Price works out to `358, implying
an upside of 13.4% from current levels. On a relative basis, we prefer ITNL over IRB on
account of cheaper valuation and diversified portfolio. We Initiate Coverage on ITNL with
an Accumulate recommendation.
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