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IL&FS Transportation Networks Ltd.
IL&FS Transportation Networks (ITNL’s) revenue fell 17% QoQ to ` 7,336.5 million and
net profit decreased by 43% to ` 616.3 million in 3Q FY11. The company’s operating
profit margin was at 30%. The company has projects worth ` 172 billion and ` 757
billion in RFP and RFQ stage respectively.
Key Highlights
• ITNL’s revenue fell by 17%, from ` 8832.9 million in 2Q FY11 to ` 7,336.5 million in 3Q
FY11 due to fall in construction revenue over September quarter. Construction revenue
has reduced mainly due to reduction in construction income as two projects, which had
contributed to construction revenue during earlier period namely Beawer Gomti Road
Project and Hyderabad Outer Ring Road have achieved completion.
• Operating profit of the company decreased by 16% to ` 2,207.2 mn in 3Q FY11 from `
2614.8 mn in 2Q FY11.
• The company’s operating margin was higher by 50-basis point due to decrease in
revenue from construction business.
• Net profit fell 43% to ` 616.3 mn in 3Q FY11 against ` 1,074.5 mn in 2Q FY11. Net
profit margin has decreased by 3.8% to 8.4% in 3Q FY11 on account of higher interest
cost. The interest payable on annuity projects during construction is expensed out
through the P&L unlike for the toll projects it is capitalized.
Business Update
• ITNL has achieved financial closure of project awarded by Andhra Pradesh Road
Development Corporation (APRDC), Narketpally - Addanki - Medarametla Road
(SH-2), for which the Concession Agreement was signed on July 23, 2010.
• Project Update:
o Construction of Chenani – Nashria, Jorabat Shillong and Narketpally - Addanki -
Medarametla road projects had started in last quarter. However, there is no
contribution from these projects as it started in later part of December.
o Chandrapur Warora Road Project is expected to start construction in Q4 FY11
• Emerged as the lowest bidder for outdoor stadium project in
Thiruvananthapuram in Kerala
ITNL has emerged as the lowest bidder for outdoor stadium project in
Thiruvananthapuram in Kerala. Project carries concession period 15 years including
two years of construction and is based on annuity. Total project cost will be around `
1600 million. The stadium would allow them to operate, maintain and earn out of
commercial leases for the stadium and advertising.
• ITNL has EPC order book of ` 127 bn (ITNL’s proportionate share) as on 31st
December 2010
EPC work remaining to be executed (ITNL proportionate share) (` million )
Projects awarded till last quarter 112,000
Projects where ITNL have emerged as L1 (not including Almatty to
Horgos project)
15,000
Total of EPC order remaining to be executed 127,000
Source: Company.
• ITNL has 23 projects of worth ` 172 billion in RFP stage and 88 projects of worth
` 757 billion
Difficult phase for infrastructure sector is cause of worry –
sector may continue to be in status quo for next six months
Overall sector has seen difficult phase in last quarter due to rising interest rates, raw
material costs and slowdown in order flow from government. The problems arising due to
land acquisition and environmental concerns has also led foreign investors to avoid
investments in road infrastructure sector. Slow down in award of road projects from NHAI
has resulted in no order for players like IRB and ITNL in their portfolio for last quarter. On
other hand, scam, inflation and political issues has distracted the focus from government for
infrastructure spending. We believe, this phase will continue for infrastructure segment for
next five - six months. However, we expect order inflow will be resumed from government
after next important event “Budget 2011-12”. We believe budget will bring government’s
focus to infrastructure segment. For road segment, we have observed that few financial bids
are scheduled by NHAI in next couple of months. This may result few projects being
awarded in last quarter of FY11.
Valuation and recommendation
ITNL has seen 16% fall in revenue and 4% fall in net profit margin due to lower construction
revenue and high interest cost over September quarter. However, start of construction of
three projects in later part of December quarter is expected to gradually increase
construction revenue for coming quarters. On margin front, we have already factored higher
interest cost and we have estimated profit margin of 11% in FY11 in our valuation. Hence,
as per 9 months ended December 2010, margins are in line with our expectation. We have
maintain our “BUY” recommendation on the stock with a price target of ` 321.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IL&FS Transportation Networks Ltd.
IL&FS Transportation Networks (ITNL’s) revenue fell 17% QoQ to ` 7,336.5 million and
net profit decreased by 43% to ` 616.3 million in 3Q FY11. The company’s operating
profit margin was at 30%. The company has projects worth ` 172 billion and ` 757
billion in RFP and RFQ stage respectively.
Key Highlights
• ITNL’s revenue fell by 17%, from ` 8832.9 million in 2Q FY11 to ` 7,336.5 million in 3Q
FY11 due to fall in construction revenue over September quarter. Construction revenue
has reduced mainly due to reduction in construction income as two projects, which had
contributed to construction revenue during earlier period namely Beawer Gomti Road
Project and Hyderabad Outer Ring Road have achieved completion.
• Operating profit of the company decreased by 16% to ` 2,207.2 mn in 3Q FY11 from `
2614.8 mn in 2Q FY11.
• The company’s operating margin was higher by 50-basis point due to decrease in
revenue from construction business.
• Net profit fell 43% to ` 616.3 mn in 3Q FY11 against ` 1,074.5 mn in 2Q FY11. Net
profit margin has decreased by 3.8% to 8.4% in 3Q FY11 on account of higher interest
cost. The interest payable on annuity projects during construction is expensed out
through the P&L unlike for the toll projects it is capitalized.
Business Update
• ITNL has achieved financial closure of project awarded by Andhra Pradesh Road
Development Corporation (APRDC), Narketpally - Addanki - Medarametla Road
(SH-2), for which the Concession Agreement was signed on July 23, 2010.
• Project Update:
o Construction of Chenani – Nashria, Jorabat Shillong and Narketpally - Addanki -
Medarametla road projects had started in last quarter. However, there is no
contribution from these projects as it started in later part of December.
o Chandrapur Warora Road Project is expected to start construction in Q4 FY11
• Emerged as the lowest bidder for outdoor stadium project in
Thiruvananthapuram in Kerala
ITNL has emerged as the lowest bidder for outdoor stadium project in
Thiruvananthapuram in Kerala. Project carries concession period 15 years including
two years of construction and is based on annuity. Total project cost will be around `
1600 million. The stadium would allow them to operate, maintain and earn out of
commercial leases for the stadium and advertising.
• ITNL has EPC order book of ` 127 bn (ITNL’s proportionate share) as on 31st
December 2010
EPC work remaining to be executed (ITNL proportionate share) (` million )
Projects awarded till last quarter 112,000
Projects where ITNL have emerged as L1 (not including Almatty to
Horgos project)
15,000
Total of EPC order remaining to be executed 127,000
Source: Company.
• ITNL has 23 projects of worth ` 172 billion in RFP stage and 88 projects of worth
` 757 billion
Difficult phase for infrastructure sector is cause of worry –
sector may continue to be in status quo for next six months
Overall sector has seen difficult phase in last quarter due to rising interest rates, raw
material costs and slowdown in order flow from government. The problems arising due to
land acquisition and environmental concerns has also led foreign investors to avoid
investments in road infrastructure sector. Slow down in award of road projects from NHAI
has resulted in no order for players like IRB and ITNL in their portfolio for last quarter. On
other hand, scam, inflation and political issues has distracted the focus from government for
infrastructure spending. We believe, this phase will continue for infrastructure segment for
next five - six months. However, we expect order inflow will be resumed from government
after next important event “Budget 2011-12”. We believe budget will bring government’s
focus to infrastructure segment. For road segment, we have observed that few financial bids
are scheduled by NHAI in next couple of months. This may result few projects being
awarded in last quarter of FY11.
Valuation and recommendation
ITNL has seen 16% fall in revenue and 4% fall in net profit margin due to lower construction
revenue and high interest cost over September quarter. However, start of construction of
three projects in later part of December quarter is expected to gradually increase
construction revenue for coming quarters. On margin front, we have already factored higher
interest cost and we have estimated profit margin of 11% in FY11 in our valuation. Hence,
as per 9 months ended December 2010, margins are in line with our expectation. We have
maintain our “BUY” recommendation on the stock with a price target of ` 321.
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