IL&FS Transportation Networks: Target Rs. 306:: Spark

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Diversified play on the large US$ 150bn opportunity expected to unfold in the roads sector over the next 4-5
years. Despite lacking construction capabilities, ITNL captures a lion’s share of the road development value
chain by generating project management fees, generating strong cash flows to the parent. Initiate with
Add/Underperform rating.

 Massive sector opportunity of US$ 150bn opportunity is expected to unfold in the roads & bridges sector (toll / annuity
roads and cash contracts) over the next 4-5 years and ITNL with its integrated development model is capable of
capitalizing on the same.
 Ownership interest in 22 different road projects with the potential to generate strong cash flows over the medium term
– Over FY12-15E, we expect the roads segment to generate cumulative EBITDA of ~Rs. 57bn with corresponding
PBT of Rs. 4.9bn.
 Although track record of winning NHAI projects is inferior to IRB, we take comfort from the fact that 5 out of 12
projects under construction come from the authority, reflected in the ~5% overall market share with NHAI projects
during the period FY08-10. Also, the company is prequalified for large NHAI projects of >Rs. 40bn project cost.
 Unlike IRB, we think ITNL is booked adequately till FY14E with projects worth >Rs. 120bn in the pipeline and will
likely focus on achieving financial closure of the 3 projects that have not yet achieved that milestone.
 EBITDA margins of the construction arm (~15% for FY12E) is highly sensitive to the upfront fees, without which the
margins will tend towards the ~11% mark. Any change in stance from on booking the upfront fees could pose risks to
our estimates. However, we take comfort from our low-balled profitability estimates.
 Likely to be aided by the cash flow generation from the EPC arm and in a comfortable position to fund equity
investments into BOT assets. However we forecast only modest consolidated financials with EBITDA and PAT
expected to stagnate over FY10-12E, driven by lower booking of upfront fees on BOT projects.
We value ITNL as an integrated developer and hence value both the asset owning segment as well as the EPC
arm using DCF (FCFE). On that basis, our per share valuation splits as Rs. 167 for the EPC segment, Rs. 58 for
operational roads, Rs. 49 for roads where FC has been achieved, Rs. 8 for roads where FC not achieved, Rs. 24
for others including cash and investments. This translates to an target price of Rs. 306 per share. Initiate with
Add/Underperform.