Strong revenue & cash flow generation visibility: At 4QFY2016-end, IL&FS
Transportation Networks Ltd (ITNL) reported gross Toll & Annuity income of
Rs7.8cr/day (Toll Income at Rs5.4cr/day and Annuity Income at Rs2.9cr/day). 7 BOT
projects (2 Annuity + 5 Toll) are expected to be operational in next few months.
On being fully operational, all 5 Toll projects (BKEL, PSRDCL, BAEL, KNCL, KSEL)
in FY2017E would contribute additional toll of Rs1.5cr/day. Further, there’s strong
visibility on assured revenues from Annuity projects. Of the 3 Annuity projects,
JSEL, has already received provisional completion certificate and other 2, CNTL &
TRDCL P-III are expected to be operational in 1Q/2QFY2017E. Annuity business
insulated from traffic volumes is expected to generate assured gross revenue of
Rs2.2cr/day in FY2017E (~58% of incremental revenues in FY2017E would be
from the assured Annuity business).
Profit to grow 13.6% CAGR during FY2016-18E: Commencement of 7 BOT
projects coupled with ongoing strategic initiatives such as asset sales, debt
re-financing (across project levels), listing of InvITs, in our view would help ITNL
PAT report 13.6% CAGR during FY2016-18E, to Rs915cr.
Attractive Valuation: In the backdrop of strong surge in profitability, ITNL stock
price looks very attractive from valuation point of view. ITNL stock (on consol.
basis) is trading at FY2018E P/E and P/BV multiple of 8.7x and 0.4x, respectively.
Alternatively, we value construction business at EV/EBITDA of 5x FY2018E EBITDA
and domestic Road BOT projects on FCFE basis at Cost of Equity of 14%. Also,
we value Elsamex, YuHe Expressway, Metro and other Infra Projects (other than
road projects) using Investment multiple. On adding up all the projects’ value, we
arrive at SOTP-based target price of Rs93. Given the strong case of improvement
in business outlook, we maintain BUY rating on the stock.
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