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ITNL
ITNL is the only management-driven company in the road BOT space and
has more than 10 years of experience in developing and constructing
highways and bridges in India. ITNL has diversified geographical
presence and balanced revenue mix with about 48% of revenue
contribution of about `6.7bn from annuity projects, offering high visibility
and stability to earnings. Strong in-house project management team,
financial support from parent for funding BOT projects and strong cost
structure place ITNL ahead of the other road developers.
Company Background
IL&FS Transportation Networks Ltd. (ITNL) is a surface transportation infrastructure
company, and is one of the largest private sector BOT road operators in India
(9,500 lane kms). ITNL was incorporated in 2000 by IL&FS (an infrastructure
development and finance company) for consolidating their existing road
infrastructure projects and for pursuing various new projects. In March 2008, ITNL
also commenced international operations by acquiring Elsamex S.A. ("Elsamex"), a
provider of roads maintenance services in Spain and other countries.
Recent Financial Performance
In 1HFY12, consolidated revenues grew by 42% YoY mainly driven by growth in
the construction income (71% YoY revenue growth) and in the Toll/Annuity income
(55% YoY revenue growth). Decline in the EBITDA margin (222bps YoY decline)
due to higher raw material expenses in construction segment coupled with high
interest costs (53% YoY increase) resulted in a PAT margin of 9.9% in 1HFY12
(12.8% in 1HFY11). Consolidated debt:equity marginally increased to 2.7x at end
of Sept -11 from 2.4x at the end of Mar-11.
Outlook
Experience of constructing and operating more than 20 road projects, well funded
financial positioning (from the parent IL&FS which is a financing company),
balanced mix of national/state road projects and limited additional equity
commitments will help ITNL in capturing the Indian road BOT opportunity. On
FY13 basis, ITNL is trading at 1x P/B, which is at a discount of 35% to IRB. As per
the company, incremental equity commitment for projects is around `2bn, which
we believe can be managed by internal accruals.
Conference Meeting Notes
IL&FS Transportation Networks represented by Mr Danny Samuel,
Senior Manager, Investor Relations
Analyst:
Nitin Bhasin, nitinbhasin@ambitcapital.com, Tel: +91 22 3043 3241
1. Developers bid very aggressively for road projects: Management
highlighted most of the road developers are not bidding in a sensible manner
and considering the bids and present high interest rates, the most likely equity
IRRs on recently announced projects could be less than ~15%. Given that the
minimum equity IRR expected by ITNL on its BOT projects is ~18%-19%, the
company has not won a single BOT project in FY12. Management further
mentioned that at the time of bidding, road developers take highly optimistic
assumptions for base traffic, traffic growth etc. For most of the projects actual
base traffic (in the first year of operations) is significantly lower than the base
traffic estimates (at the time of bidding). ITNL highlighted the example of their
own Beawar Gomati project (which became operational in FY11) on which the
actual traffic was 60% lower than their projected estimates at the time of
bidding.
2. Lending norms are becoming more stringent in the roads sector:
Management highlighted that banks have become more cautious and are
tightening their lending norms for the roads sector by: (a) demanding higher
guarantees from the companies/promoters, (b) refusing to finance the
premium that developers have promised to pay NHAI, (c) willing to finance
only ~60%-70% of the total project cost compared to earlier 80%-90% of the
finance provided, and (d) considering toll collection as one of the sources of
financing, if the toll was to be collected during construction. Management
further highlighted that whilst the road developers have not yet started
defaulting, a large number of small developers are facing challenges in
servicing their existing debts. In another meeting, Sadbhav highlighted that
there is already a road asset approaching substitution wherein a bank may be
taking over the asset.
3. China highway project is not a strategic investment, but an
opportunistic investment: Management highlighted that going forward, ITNL
plans to make secondary acquisitions both in India and in the international
markets. Whilst in the long run ITNL will always prefer to acquire assets in
India, international markets are offering better opportunities. In the recently
won China highway project, ITNL is expecting equity IRR of ~20% which is
significantly higher than equity IRRs in the Indian projects. Moreover, in India,
sellers (road developers) are demanding significantly higher premium to the
equity investments for their poor-performing assets.
4. Elsamex exploring other regions such as Middle East: Management
highlighted that with the acquisition of Elsamex, ITNL has gained additional
technological strength and capabilities in operation and maintenance utility
assets. Whilst the current economic scenario in Spain will keep operations in
Spain under pressure, the company is exploring operations and maintenance
options in Middle East, where a lot of new infrastructure has been created. The
main purpose of Elsamex acquisition was to utilise its technology for winning
road operation and maintenance contracts in India as the company had
expected NHAI to award large road OMT (operation, maintenance and tolling
contracts). However, contrary to ITNL’s expectations, NHAI has not yet
awarded large OMT contracts. Therefore, presently ITNL is considering utilising
Elsamex capacities to enter new markets.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ITNL
ITNL is the only management-driven company in the road BOT space and
has more than 10 years of experience in developing and constructing
highways and bridges in India. ITNL has diversified geographical
presence and balanced revenue mix with about 48% of revenue
contribution of about `6.7bn from annuity projects, offering high visibility
and stability to earnings. Strong in-house project management team,
financial support from parent for funding BOT projects and strong cost
structure place ITNL ahead of the other road developers.
Company Background
IL&FS Transportation Networks Ltd. (ITNL) is a surface transportation infrastructure
company, and is one of the largest private sector BOT road operators in India
(9,500 lane kms). ITNL was incorporated in 2000 by IL&FS (an infrastructure
development and finance company) for consolidating their existing road
infrastructure projects and for pursuing various new projects. In March 2008, ITNL
also commenced international operations by acquiring Elsamex S.A. ("Elsamex"), a
provider of roads maintenance services in Spain and other countries.
Recent Financial Performance
In 1HFY12, consolidated revenues grew by 42% YoY mainly driven by growth in
the construction income (71% YoY revenue growth) and in the Toll/Annuity income
(55% YoY revenue growth). Decline in the EBITDA margin (222bps YoY decline)
due to higher raw material expenses in construction segment coupled with high
interest costs (53% YoY increase) resulted in a PAT margin of 9.9% in 1HFY12
(12.8% in 1HFY11). Consolidated debt:equity marginally increased to 2.7x at end
of Sept -11 from 2.4x at the end of Mar-11.
Outlook
Experience of constructing and operating more than 20 road projects, well funded
financial positioning (from the parent IL&FS which is a financing company),
balanced mix of national/state road projects and limited additional equity
commitments will help ITNL in capturing the Indian road BOT opportunity. On
FY13 basis, ITNL is trading at 1x P/B, which is at a discount of 35% to IRB. As per
the company, incremental equity commitment for projects is around `2bn, which
we believe can be managed by internal accruals.
Conference Meeting Notes
IL&FS Transportation Networks represented by Mr Danny Samuel,
Senior Manager, Investor Relations
Analyst:
Nitin Bhasin, nitinbhasin@ambitcapital.com, Tel: +91 22 3043 3241
1. Developers bid very aggressively for road projects: Management
highlighted most of the road developers are not bidding in a sensible manner
and considering the bids and present high interest rates, the most likely equity
IRRs on recently announced projects could be less than ~15%. Given that the
minimum equity IRR expected by ITNL on its BOT projects is ~18%-19%, the
company has not won a single BOT project in FY12. Management further
mentioned that at the time of bidding, road developers take highly optimistic
assumptions for base traffic, traffic growth etc. For most of the projects actual
base traffic (in the first year of operations) is significantly lower than the base
traffic estimates (at the time of bidding). ITNL highlighted the example of their
own Beawar Gomati project (which became operational in FY11) on which the
actual traffic was 60% lower than their projected estimates at the time of
bidding.
2. Lending norms are becoming more stringent in the roads sector:
Management highlighted that banks have become more cautious and are
tightening their lending norms for the roads sector by: (a) demanding higher
guarantees from the companies/promoters, (b) refusing to finance the
premium that developers have promised to pay NHAI, (c) willing to finance
only ~60%-70% of the total project cost compared to earlier 80%-90% of the
finance provided, and (d) considering toll collection as one of the sources of
financing, if the toll was to be collected during construction. Management
further highlighted that whilst the road developers have not yet started
defaulting, a large number of small developers are facing challenges in
servicing their existing debts. In another meeting, Sadbhav highlighted that
there is already a road asset approaching substitution wherein a bank may be
taking over the asset.
3. China highway project is not a strategic investment, but an
opportunistic investment: Management highlighted that going forward, ITNL
plans to make secondary acquisitions both in India and in the international
markets. Whilst in the long run ITNL will always prefer to acquire assets in
India, international markets are offering better opportunities. In the recently
won China highway project, ITNL is expecting equity IRR of ~20% which is
significantly higher than equity IRRs in the Indian projects. Moreover, in India,
sellers (road developers) are demanding significantly higher premium to the
equity investments for their poor-performing assets.
4. Elsamex exploring other regions such as Middle East: Management
highlighted that with the acquisition of Elsamex, ITNL has gained additional
technological strength and capabilities in operation and maintenance utility
assets. Whilst the current economic scenario in Spain will keep operations in
Spain under pressure, the company is exploring operations and maintenance
options in Middle East, where a lot of new infrastructure has been created. The
main purpose of Elsamex acquisition was to utilise its technology for winning
road operation and maintenance contracts in India as the company had
expected NHAI to award large road OMT (operation, maintenance and tolling
contracts). However, contrary to ITNL’s expectations, NHAI has not yet
awarded large OMT contracts. Therefore, presently ITNL is considering utilising
Elsamex capacities to enter new markets.
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