IL&FS Transportation- Leading player in surface transportation for bet BUY --KRChoksey,

IL&FS Transportation Network Ltd (BO.ILFT) is the largest developer, operator and investor of surface transportation infrastructure projects in India. We expect revenue CAGR of 15% over the period of FY11-15E primarily led by increase in Construction and Fee income. The high EBITDA margins of ~20%-22% in construction division and ~85% in toll division will provide higher returns~16% of RoEs in FY13E-14E.
Strong Revenue CAGR 15% & PAT CAGR 12.4% from FY11-15E
We forecast strong revenue CAGR of 15% over the period of FY11-FY15E, primarily led by strong Fee and construction income. Further, ILFT collects Rs 1.83 crore gross average toll per day from 10 operational road projects which we expect to increase by 4.7x up to Rs 8.53 crore per day in FY15E primarily will be led by functional of 14 new road projects. The increase in toll revenue by 4.7x will leave enough free cash flow in the system.
Project Capital Works worth of Rs 1,08 bn remaining to be executed
ILFT has Rs 108 bn worth of project capital works remaining to be executed in over the period of 3-4 years. ILFT receives ~3% of total project cost (TPC) as upfront charges and further ~8%-9% as consulting charges from its subsidiaries. Further, the team of 400 engineers who designs supervises and outsources construction work to local subcontractors. This model allows it to focus on the core activities which optimizes leverage and maximizes the returns on assets and return on net worth.
NHAI’s Plan to award 9,300 km road projects in FY13E
National Highway Authority of India (NHAI) has planned to award ~9300 km of road projects with total worth of ~Rs 600-700 bn in current financial year. Consequently, we expect over ~22,000 km of hew highway projects to awarded in the next four years. ILFT maintained 5% market share in FY12 and a naturally beneficiary to grab the above opportunities.
Valuation
We have valued ILFT on a SOTP method and arrived at a target price of Rs 282. We have valued the standalone business, in which the company derives its revenues from advisory fees and EPC work at Rs 100 based on the 5x its FY13E EPS of Rs 20. We have valued the existing BOT projects of ILFT at Rs 150, investment at Rs 17, Elsamex at Rs 11.3/share and ILFT’s stake in Noida Toll Bridge at Rs 4/ share.

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