IL&FS Transportation - Impacted By Growth Pangs; Result Update Q2FY15 :: Edelweiss, PDF link

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IL&FS Transportation Networks Ltd. (ITNL)|Q2FY15 First Cut Analysis | Reported numbers well above expectations; however, adjusted it with one-off income led to top-line as well as EBITDA miss due to poor execution across construction segment :: India Nivesh

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HSBC Research, Looking at mid-cap themes for 2014

 Mid-caps have underperformed largecaps in the last 6 years. With no easing
in sight we remain selective on them
 Three themes to play in 2014:
insulation from leverage-related stress;
rising utilisation; and strong earnings
momentum with reasonable valuations
 Analysts’ preferred plays: PTCIN, IPCA,
TRP, PEPL, BHFC, LICHF and ILFT

IL&FS Transportation Networks: Buy :: Business Line

IL&FS Transportation Networks: Buy :: Business Line

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.

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

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

IL&FS Transportation Networks: Buy:: Business Line

Angel Broking - IL&FS Transportation Networks - RU2QFY2013 - Result Updates

IL&FS Transportation Networks - RU2QFY2013

52-WEEK FLOP: IL&FS ENGINEERING ::Business Line

IL&FS Transportation - In pole position; visit note; Buy: Edelweiss PDF link

IL&FS Transportation (ILFT IN, INR 175, Buy)

Our meeting with the senior management of IL&FS Transportation (ITNL) reinforces our bullish view on the company. While the award target of 9,500 km in FY13 is good news for the sector, the company sounded a note of caution regarding availability of DPRs for the same. It expects competitive intensity to moderate driven by difficulties in achieving financial closures. ITNL expects the use of innovative financial structures to enhance returns on projects to pick up in future. It believes project buyouts will be driven by lenders’ pressure since high valuation expectation of existing promoters is still a stumbling block. Maintain ‘BUY’.

Investment Focus -IL&FS Transportation Networks: Buy : Business Line

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ITNL ::Sharekhan Top Picks -April 2012

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Remarks: IL&FS Transportation Networks Ltd (ITNL) is India’s largest player in the BOT road segment with 10,269 lane km
in various stages of development, construction or operation. It has a pan-India presence and a diverse project
portfolio consisting of 23 road and bus transportation projects as well as a metro rail project.
Recently it bagged four road BOT projects which form 50% of the existing order book, thus providing good
revenue visibility over the next two to three years. Further, with 8,800km of NHAI’s target for FY2013, ITNL is
well equipped to capitalise on the huge and growing opportunity in the road infrastructure sector due to its
established track record in operating BOT road projects, its execution capabilities and the strong support
from IL&FS.
It has a fair mix of annuity and toll projects in its portfolio which provides revenue comfort. Further, it is
present across the value chain except the civil construction services, which it outsources to the local
contractors. This helps the company to handle a large number of projects at a time and diversify geographically,
reducing the risk of concentration.
Thus, we expect the sales and earnings to grow at CAGR of 10% and 16% respectively over FY2012-14E.
At the current market price, the stock is currently trading at 6.5x its FY2013E earnings and at a P/BV of 0.8x.
We maintain our Buy recommendation with a price target of Rs330.

IL&FS Transportation Networks Ltd Bumpy road ahead; downgrade to Neutral 􀂄 :: BofA Merrill Lynch

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IL&FS Transportation Networks Ltd
Bumpy road ahead; downgrade
to Neutral
􀂄 Cut EPS by 4/13%; revised PO of Rs220, Neutral
We downgrade ITNL from Buy to Neutral with a reduced PO of Rs220 (limited
upside potential of 16%) due to (a) estimate E&C margin at 10-12% (vs earlier 15%)
at parent level in FY13/14E on 3-9m execution delay; biz valued at parent (vs consol
level earlier) and (b) high-margin fee biz revenue to fall 70% YoY in FY13E on
project completion. In addition, we are concerned with intense competition for new
project wins which may potentially push ITNL to grow inorganically (like YuHe
acquisition) and bid aggressively compromising on IRRs (in KNR highway, ITNL’s
Rs1.35bn bid grant was 68% below L2 bid). Cut EPS by 4%/13% in FY13/14E.
Execution delays; value the parent level E&C
ITNL is witnessing 3-9 months delay in 29% (by lane-length) of projects under
execution owing to contractual delay and land acquisition/labor issues. Parent level
E&C margin is estimated at 10-12% on hard project costs. These expand to 21-24%
at consolidated level on a 10-13% mark-up over project cost and interest during
construction period for BOT asset (for annuity).
High-margin fee business contribution to decline
In our view, fee income business @ 3% of project cost is set to drop to Rs1.3bn
(down 70%yoy) in FY13E on completion of Jharkhand/RIDCOR project. Hence, its
contribution to revenue at 10% in FY12E will drop to 2% in FY13E. Likewise, the
EBITDA contribution will likely fall from 23% in FY12E to 5% in FY13E.
Not an U/PF on diversified portfolio, 1.5x jump by FY14E
(a) ITNL has a well-diversified portfolio of annuity + toll projects, spread over 14
states and has multiple sources to win projects. (b) Well poised for 1.5x growth
during FY13-14E. (c) Strong EPC o/bk at 2.1x FY12E sales offers good CF
visibility and drives 2/3rd of sales. (d) EPS growth is 14% over FY12-14E with RoE
of 19%/20% for FY12/13E, well above its peers. (e) YuHe road (operating)
acquisition is EBTIDA accretive by 6% in FY13E and contributes to 4% in SoTP.

IL&FS Transportation Networks: Balanced portfolio offers comfort: MSFL research

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IL&FS Transportation (ITNL) is the only pure asset developer & a management driven company in the road BOT space. IL&FS, parent company of ITNL, having two decades of experience in developing & funding infrastructure projects in India has helped ITNL build organizational capabilities in the infra asset development space. ITNL has followed a disciplined bidding strategy to maintain its hurdle IRR, based on which it has judiciously built a balanced road portfolio comprising a mix of annuity (32%, lane kms) & toll (68%, lane kms) spread across the breadth of the country. While its international acquisition’s may not accrue value in the near term we expect ITNL’s domestic portfolio to help it grow its revenue & net profit at a CAGR of 21% & 4% respectively over FY11-14P. Also, its relative inexpensive valuation & flexibility to withstand business cycles makes it an attractive pick. We initiate coverage on ITNL with a Buy rating.
Flexible business model & superior project management
IL&FS’s more than two decade experience in developing & financing infrastructure projects across sectors within the country has helped ITNL develop superior organizational capabilities in terms of developing, designing, financing & maintaining infrastructure assets. Although, ITNL doesn’t have construction capabilities & misses out on cash flow & IRR from this business we believe this lends flexibility to the business model to withstand business cycles.
Portfolio mix better than peers
ITNL’s Toll/Annuity projects ratio is 59:41 and State/Central projects at 58:42. Within state highways, some projects are annuity-based, allaying investor fears of low-density/low-returns stretches. Also, the concession tail period of its projects is more than 15 years lending support to cashflows & valuation.With a strong order inflow of ` 81bln in last two year, we expect ITNL to post a 21% consolidated revenue CAGR over FY11-FY14E.
Cash flow sufficient for near term equity requirement; lesser risk of dilution
According to our estimates ITNL has an equity requirement of ` 3.73bln over FY12-14E which is expected to be partially met through cumulative free cash flow generation of ` 2.7bln over the same period.
Valuation:
At CMP of ` 209, the company is trading at 1.5x FY12E & 1.3x FY13E P/BV & 9.8x FY12E & 10.2x FY13E EV/EBIDTA respectively. In addition, we believe a BOT portfolio with 32% of annuity projects is less sensitive to traffic growth and provides support to the current valuations. We initiate coverage with a Buy recommendation and a PT of ` 249. Key risks include deterioration in international business.

Goldman Sachs: Buy IL&FS Transportation Networks :Above expectations: strong execution well supported by toll growth

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EARNINGS REVIEW
IL&FS Transportation Networks (ILFT.BO)
Buy Equity Research
Above expectations: strong execution well supported by toll growth
What surprised us
ITNL reported Q3FY12 Net Income of Rs 1bn which came above GS and
Bloomberg consensus expectations - primarily driven by strong revenues
in the construction segment (+125% yoy) and well supported by Elsamex
and other toll based SPVs (+46% yoy). Margin however was lower
primarily due to higher composition of construction revenue in the mix
and increase in construction related costs by 220 bps yoy. Toll collection in
the quarter was up 4% qoq and 15% yoy on like for like projects– with
close to Rs 19mn daily toll collection. The company expects 10-12% traffic
increase on its toll project portfolio for FY12E implying a strong Q4. The
total bid-pipeline for the company is close to Rs 568 bn as of Jan end.
What to do with the stock
Excluding strong bid pipeline of Rs 86bn at RFP stage we expect revenue
growth of 21% over the next 2 years based on the current order book. In
addition, we expect ITNL to be the biggest beneficiary of any interest rate
cut in our coverage as almost 40% of the project portfolio is annuity based
– resulting in increasing project NPV.
We change our FY13/14E EPS by +9%/+16% as we incorporate the recently
won Kiratpur road project in our estimates. As a result of above
expectation results and new project win, our SOTP based 12m TP
increases to Rs 230 (from Rs 215 earlier). The stock is trading at FY13E P/B
of 1.2X vs. long term median of 2X – and generates 20-21% ROE over the
next 2 years – which in our view is attractive. We retain our Buy rating.
Risks: Further increase in interest rates; delays in new contract awards.

IL&FS Transportation Networks Ltd BUY:: KJMC

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IL&FS Transportation Networks Ltd (ITNL) reported better than expected
Q3FY12 results. The consolidated net revenue and PAT after minority interest for
the quarter grew at 73.5% and 42.5% respectively on yoy basis. The company has
current capital work order in hand to the tune of Rs 100.6 bn. In the quarter it was
awarded Rs 19 bn of projects. The company has bid pipeline of Rs 568.25 bn of
road projects which gives visibility on inflow of new projects in future.
Key Highlights
Strong execution supported 73.5% growth in consolidated net revenue: ITNL reported
strong performance at consolidated level in Q3FY12. The consolidated net
revenue for the quarter stood at Rs 12.68 bn which was up 73.5% yoy mainly on
account of strong contribution from construction revenue. In 9MFY12 the
consolidated revenue grew at 51.3% yoy to Rs 23.9 bn driven by 87.2% yoy
growth in construction income and 41.9% yoy growth in Toll/Annuity income.
The nine month revenue included 69% from construction, 14% from Elsamex,
10% from toll and annuity and rest from others. The standalone revenue was up
125.5% yoy to Rs 5.66 bn which included 70% construction revenue, 23% fee
income and balance as O&M income & others. The standalone revenue did not
include the construction revenue in Jharkhand State Road Project as it was
booked at SPV level. The fee income was mainly on account milestone based
upfront fee from Jharkhand projects, advisory income from a group company
and supervision fee from projects under construction.
EBITDA margin declined on contribution from low margin construction segment: In
Q3FY12 the company reported 454 bps decline in EBITDA margin that stood at
25.3%. The decline in EBITDA margin was mainly on account of higher
composition of low margin construction revenue. PAT for the quarter grew at
42.5% yoy to Rs 878 mn.
Added new BOT project in the quarter: In the quarter, ITNL added new project
Kiratpur Ner-Chowk in Himachal Pradesh of Rs 18.18 bn project cost. It is a
BOT Toll project of Rs 327 km length awarded by NHAI. This project is
awarded with a grant of Rs 1.34 bn. The new awarding took ITNL capital
work order in hand to Rs 100.6 bn which would translate into revenue in the next
three years. In addition, it is participating in Rs 568.25 bn of projects including Rs
86 bn of project at RFP stage and Rs 482.25 bn at RFQ stage.

ITNL ::Ambit India Access, December 2011

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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.

IL&FS Transportation (XTPSF, Buy) BofA Merrill Lynch,

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IL&FS Transportation (XTPSF, Buy)
Bear case: What can go wrong?
􀂄 Decline in the toll revenues owing to (a) fall in traffic volume. Assumed 100
bps fall in traffic growth rate and (b) fall in WPI inflation. Assumed 100bps fall
in inflation, to lower toll escalation.
􀂄 Given the continuing high competitive intensity to win new projects from
NHAI, in the bear case, we estimate new order inflow to drop by Rs10bn i.e.
by 33% in FY12E and 29% in FY13E.
􀂄 Fall in E&C margin by 100bps
􀂄 Higher interest rate by 50bps. Leverage is high as ITNL has 8 annuity
projects (25% of portfolio lane length by FY14E) with no revenue risk (as
revenue is assured from NHAI) wherein D:E is as high as 90:10.
􀂄 Consequently, we estimate an earnings decline of 14% in FY13E to Rs5.3bn
(amongst the lowest % decline vs peers).
Base case: Well positioned in infra sector
􀂄 We estimate a 70% jump in the road portfolio over FY12-14E from 1,500km
at present to 2,550 km by FY14E. Accordingly, average BOT revenue would
go up from Rs10mn/day in FY11 to Rs29mn/day by FY14E.
􀂄 Judicious mix of annuity / toll roads (10 operating – 7 toll, 3 annuity; 10
construction – 5 toll, 5 annuity). Annuity + toll auctioning improves revenue
visibility. E&C o/bk at Rs89bn (1.75x FY12E sales) would drive earnings.
New order inflow lowered by 20-25% over FY12-14E. Cut earnings to
Rs6.2bn in FY13E (4% cut). Lower PO to Rs248 (vs Rs257 earlier).
Risk-reward: Favourable
􀂄 In the bear case, we expect the stock to trade at Rs162/share (P/BV of 1x
FY13E and P/E 5x FY13E – amongst the cheapest vs peers). In the base
case, we expect the stock to trade at Rs248/share (P/BV of 1.5xFY13E).
􀂄 Overall, the risk-reward appears favourable on strong in-house execution
capabilities, no pledging, amongst the highest RoE of 19%/21% in FY12/13E
vs peers and an assumption the company will bid on low IRR to bag new
projects.