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IL&FS Transportation Networks Limited – Subscribe Long Term

March 9, 2010

IL&FS has been engaged in road sector projects since 1993 as a sponsor, developer or investor. For consolidating its project portfolio in the surface transportation sector, ITNL was promoted by IL&FS in 2000. IL&FS Group currently holds 87.5% in ITNL. Over the years, ITNL has been encouraged to operate as an independent entity and expand its presence in the infrastructure space. ITNL is currently among the largest operators in the BOT roads segment, with over 9,300 lane km commissioned or currently under implementation.

Road Industry Overview – Roads are the dominant mode of transportation in India today, and carry almost 85% of the total passenger traffic and 70% of the total freight traffic. The highway network is large but most of the highways are narrow with poor surface quality, and 40% of India’s villages do not have access to all-weather roads.

Growth of Indian Road Industry – Vehicle traffic has grown at a CAGR of 10% over past 5 years. Target of laying 35,000 km of roads by 2014 set by Mr. Kamal Nath. 100% FDI allowed under the automatic route in all road development projects
100% tax exemption for 5 years and 30% relief for next 5 years, which may be availed of in 20 years. In BOT projects, entrepreneur are allowed to collect and retain tolls. Land Acquisition Hurdle Solved – NHAI has decided to award a project only after it has acquired 80% of the land v/s 50% being the threshold earlier. The remaining 20% will be handed over within 90 days of the project award.

ITNL – an established player with strong track record. Among India’s largest players in the BOT road segment and has a VERY STRONG BRAND Value. Diversified portfolio basket – 9 annuity and 8 toll road projects. Development & operation of National and State highways, flyovers, bridges and roads in various parts of India. Pan-India presence and a diverse project portfolio consisting of 17 road projects.

ITNL Business Strategy – Focus on maintaining market position in the Indian road infrastructure sector by. Improve performance and enhance returns from core business. Leverage IL&FS’s track record in expanding other businesses within and outside India. Diversify into new sub-sectors within the surface transportation infrastructure industry.

Financials of ITNL:It has been a profit making company for the last 3 financial years and Revenue has grown from 198 cr in FY2007 to 13320 cr in FY 2009. For H1 FY2010, Revenues were 979 cr and PAT of Rs 118 cr. Annualizing the same, ITNL is expected to report an PAT of Rs 240 cr for FY 2010.

Post IPO, the fully diluted equity will be around 20 cr shares [17.14 + 2.89 – refer here] So for FY 2010, the EPS is likely to be Rs 12.

Recommendation: Post-IPO, IL&FS Transportation Networks Limited will quote at a P/E between 20.1 and 21.5 which is comparable to IRB Infra and Noida Toll Bridge. However, extensive and advanced execution capabilities providing end to end solutions along with strong parentage commands a premium over other listed companies for sure 🙂

We would recommend investors to subscribe and HOLD for Long Term to reap better returns. Listing Gains is not ruled out.

Disclosure: We are personally skipping the NMDC IPO, which appears to be somewhat steeply priced on the basis of fundamentals and INVEST in IL&FS Transporation IPO.

Comments

2 Responses to “IL&FS Transportation Networks Limited – Subscribe Long Term”

  1. CP on March 9th, 2010 8:00 PM

    You should also note that, in March 2008, the company did a Preferential Issue at Rs 133 / share. Considering the Equity then – 16.2 cr shares and PAT of Rs 93 cr, the Preferential Issue was done at a P/E of 23 comparable to current offering.

    This speaks of Strong Management Practices. Had Mr. Deepak Parekh, been on the iL&FS board, we would have recommended a BLIND SUBSCRIBE 🙂

  2. CP on March 15th, 2010 8:59 PM

    The IPO has been subscribed 33.32 times with the FII portion seeing the highest demand – 52 times their reserved quota while HNIs bid 40 times higher and Retail was subscribed 4.5 times.

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