Recommendations » India

IL&FS Transportation Networks 3QFY2012 performance highlights and results update

Contributed by Angel Broking

For 3QFY2012, on a consolidated basis, IL&FS Transportation Networks (ITNL) posted a good set of numbers, though below our expectations. The company reported strong growth on the top-line front; however, the fall in EBITDAM and high interest cost prevented top-line growth to flow to the bottom-line level. On account of 3QFY2012 performance, we are tweaking our FY2012 estimates and toll collection revenue numbers for operational BOT projects. Owing to the recent run-up in the stock price, we recommend Accumulate on the stock.

Robust performance, albeit lower than expected: For 3QFY2012, ITNL’s revenue came in at Rs.1,268cr (Rs.734cr), registering 72.9% yoy/1.0% qoq growth, marginally lower than our estimate of Rs.1,306cr. This was on account of higher revenue from the E&C segment and toll collection. EBITDA margin for the quarter stood at 25.3% vs. 30.1% in 3QFY2011, down 480bp and 310bp on a yoy and qoq basis, respectively, against our estimate of a 280bp decline on a yoy basis. This was mainly on account of increased contribution from the relatively low-margin E&C segment. ITNL’s interest cost during the quarter grew by 60.9% yoy/9.5% qoq to Rs.185cr, above our expectation of Rs.178cr. On the earnings front, ITNL reported 42.5% yoy growth to Rs.87.8cr, below our estimate of Rs.119.7cr on the back of lower EBITDAM and higher interest cost.

Outlook and valuation: During the quarter, ITNL bagged a road BOT project worth Rs.1,819cr, taking its order book to Rs.10,060cr (OB of 5.9x FY2011 standalone revenue), thus putting the concern on order inflow to rest. However, viability of the project remains under doubt due to the huge difference in bidding between ITNL and other players. We have valued ITNL on an SOTP basis by assigning 5.0x EV/EBITDA to its standalone business and have valued its investments on DCF/Mcap/BV basis on FY2013E to arrive at a revised target price of Rs.235/share (Rs.227), implying an upside of 11.8% from current levels. Hence, we recommend Accumulate on the stock with a target price of Rs.235