| On a fast lane |
| Ram Prasad Sahu / Mumbai March 15, 2010, 0:56 IST |
Excellent growth prospects, an experienced management, strong parentage and reasonable valuations makes the ITNL IPO attractive.
IL&FS Transportation Networks (ITNL), which undertakes road projects on a build-operate-transfer (BOT) model, is raising Rs 700 crore from the primary market. Of this, about Rs 103-110 crore is an offer for sale by an existing investor Trinity Capital, while the balance will accrue to ITNL which plans to use the funds to prepay part of its debt. ITNL has so far been involved in 21 projects of which 19 are in the road sector. The company started operations in 2000 when its parent IL&FS spun it off into a separate company with a focus on surface transportation projects.
Projects
Of the total 9,397 lane kilometres it has taken up for execution (see table), the company has completed 4,081 kilometres. These include the Noida Toll Bridge, the first road toll company to be listed. Its biggest project till date is in Rajasthan where it is developing multiple stretches under the Mega Highways Project with a total length at 2,106 lane kilometres. In addition to eight projects under operation, the company is developing 10 other road projects across the country, which are in various stages of implementation.
These projects are expected to be completed in the next two and a half years. The company is also the preferred bidder for two projects - the 888 lane kilometre Narketpalli-Medarmetla road project in Andhra Pradesh and Almaty-Hargos stretch in CIS (former Soviet Union) with a size of 1,212 lane kilometres. Further, it is pre-qualified in 23 projects of 2,500 lane kilometres with estimated project cost of about Rs 21,000 crore.
The key risk for the company is the level of traffic flow through a route which will decide the viability of a project. The Noida Toll Project for example, where ITNL currently holds 25 per cent, did not meet the requisite targets (commercial operations started in 2001) and is only now able to generate healthy traffic flow. The management, however, says that projects it is implementing are in areas where alternative routes are not likely to come up and should fetch it reasonable traffic.
| FAIRLY PRICED | ||||
| IL&FS Transportation |
IRB Infra | |||
| in Rs crore | FY2008* | FY2009 | FY10** | FY10E |
| Revenues | 437 | 1,332 | 1,960 | 1,800 |
| Ebidta | 249 | 263 | 714 | 633 |
| Net profit | 93 | 28 | 236 | 346 |
| P/E (x) | — | 158.3 | 21.7 | 24.2 |
| P/BV (x) | — | 4.3 | 3.0 | 4.2 |
| * Acquired Elsamex in March 2008* Annualised Valuation at Rs 258, the higher end of the price band Source: Company, E:Analyst estimates | ||||
Revenue flow
The company generates its revenues primarily through annuities and toll charges. While annuities are assured payments for the duration of the project, toll charges are fees collected from users of the project. A majority (65 per cent) of the company’s projects are in the toll collection category while the rest is annuity based. The management is not looking at projects below 14 per cent IRR (internal rate of return) and expects the current projects to give it an IRR in the range of 16-17 per cent.
For future projects, what will act in favour of ITNL are NHAI norms which forbid developers from bidding for projects if three or more of their projects are awaiting financial closure. Having a parent such as IL&FS, which has proven skills at raising capital and financial closure, is expected to be a major positive for ITNL. Further, 35 per cent of the projects being annuity give stability to cash flows.
In addition, to reduce revenue volatility it has auctioned toll collections to third parties for a period of one year in exchange for a fixed fee.
| PROJECT PORTFOLIO | |||
| Key road projects | Format | Length ^ | Type |
| Under development | |||
| Mega Highways, Rajasthan | PPP | 476 | Toll |
| Multiple stretches, Chattisgarh | BOT | 1,368 | Annuity |
| Multiple stretches, Jharkhand | BOT | 1,002 | Annuity |
| Hyderabad city | BOT | 173 | Annuity |
| Trivandrum city | BOT | 107 | Annuity |
| Beawer to Gomati | DBFOT | 248 | Toll |
| Chandrapur-Warora-Bamni | DBFOT | 275 | Toll |
| Hazaribagh-Ranchi, | BOT | 319 | Annuity |
| Pune to Sholapur | DBFOT | 571 | Toll |
| Moradabad to Bareilly, | DBFOT | 522 | Toll |
| Madrid Highway Stretch | - | 255 | Toll |
| Total | - | 5316 | - |
| Key road projects | Format | Length ^ | Type |
| Under operation | |||
| Maharashtra to Belgaum | BOT | 472 | Annuity |
| Baroda-Halol, Ahmed.-Mehsana | BOT | 523 | Toll |
| Delhi to Noida | BOT | 60 | Toll |
| Jetpur to Rajkot, Gujarat | BOT | 389 | Toll |
| Mega Highways, Rajasthan | PPP | 2106 | Toll |
| Trivandrum city | BOT | 51 | Annuity |
| Kotakatta to Kurnool | BOT | 328 | Annuity |
| Outer Ring Road, Hyderabad | |||
