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IL&FS Transportation Networks Ltd Research Report - 15th Sep 2016

Infrastructure | Published on Sep 15th 2016


IL&FS Transportation Networks (ITNL) in 1QFY2017 has not reported consol. numbers as it is in process of migrating to Ind-AS. Despite strong execution, sharp decline in yoy Fee and O&M income led ITNL report 3.6% increase in standalone revenues. High contribution of low margin construction business was seen during in 1QFY2017 (construction/ material expenses reported 19.5/11% yoy increase). As a result, yoy EBITDA margins contracted 302bps to 3.2%. Despite 47% yoy EBITDA decline, reported PAT turned-around on yoy basis to Rs18cr profit in 1QFY2017, owing to strong other income (up 75.9% yoy to Rs344cr). Other income benefitted from Rs102cr of profit booked from 15% stake sale in Gujarat Road & Infrastructure Company Ltd. (GRICL). ITNL reported order backlog of Rs13,758cr at 1QFY2017-end, which gives construction segment revenue visibility for 36+ months. Consolidated debt in our view stood at Rs28,650cr, reflecting D/E of 4.4x. ITNL’s equity requirement towards BOT projects for FY2017-18E stands at ~Rs673cr. 3 BOT projects are to report Date of Completion (CoD) in next few months, in-turn contributing FY2017-18E Toll/ Annuity Income. Outlook and Valuation: In recent time we have seen management offloading stake in 2 operational BOT projects. ITNL management announced that they intend to offload 3-4 BOT projects, worth Rs5,000cr in to an Infrastructure Investment Trust (InvIT). As per a recent board meeting outcome, ITNL would issue Rs5,000cr of Non-Convertible Debentures (NCDs), where current 12% debt cost would be re-financed sub-10% levels, thereby saving ~300bps on interest expenses level. All these initiatives would de-leverage Balance sheet and improve the profitability. We earlier upgraded ITNL to BUY with price target of Rs93, in anticipation of lowering of consol. BS stress and likely improvement in interest coverage ratio. Since our BUY recommendation, ITNL stock has run-up and our price target is attained. In absence of ITNL’s consolidated financials, we downgrade to NEUTRAL view on the stock.

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CMP 91
Target Price
Investment Period12 Months

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Shareholding Pattern (%)

Public & Others14.0
Grand Total100.0

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