How asset-rich ITNL can help parent IL&FS with its financial troubles

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26 Aug, 2025 12:21

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Jitendra Kumar GuptaMoneycontrol Research

Shares of IL&FS’ listed subsidiaries, such as ITNL, heaved a sigh of relief after the government took over the board of their beleaguered parent firm. The group’s listed companies have seen shares get hammered after IL&FS and some of its subsidiaries defaulted on payments.

Infrastructure companies such as IL&FS Transports Networks Ltd (ITNL), which hold hard assets such as operational build-operate-transfer (BOT) road assets have a decent chance at raising money through monetisation of such assets. This contrasts against other types of infrastructure companies, which focus on engineering, procurement and construction (EPC) companies, which did not come out well out of the last economic downcycle.

Financially speaking, though, ITNL is going through a tough phase, with debt to equity reaching a level of 7.21 times in FY18, as against 6.75 times in FY17. In June 2018, ITNL’s six SPVs had reported default in servicing debt.

Asset monetisation

ITNL has 28 BOT road assets including 21 operational projects with a total road lane network of close to 13493 km. This is huge by any parameter and cannot disappear all of a sudden.

On top of this, it is also sitting on an order book of close to Rs 16,402 crore, which is about 2 times its FY18 revenue. In the interim, it is expected that the company might monetise some of these assets to raise some money to tide over its liquidity crisis both at the subsidiary level as well as parent level.

However, in the current economic environment, where there is a very little appetite for owning assets, this would mean offering a deep discount to buyers. The acquirer would definitely look for high internal rate of return -- perhaps as high as 18-20 percent as seen in the case of some assets that have been sold in the recent past.

While any sale would improve the liquidity position, it doesn’t bode well for equity investor . Today, the company has a balance sheet size of about Rs 41,000 crore and equity net worth accounts for merely 12 percent of this entire capital.

Any equity write-off relating to these projects would lead to further reduction in equity, which is one of the risks that investors should keep in mind at this juncture. Thankfully, at the current market capitalisation of company, the market seems to have factored in these risks.

Sector consolidation

The challenge facing ITNL will be that with several players wanting to exit BOT assets, particularly in the road space, there is little appetite. For a troubled company like IL&FS, cutting a few small assets would not help it unless more money is pumped in. Besides, ITNL has close to Rs 9,000 crore of claims pending with the concession granting authorities. It expects to receive close to 40-50% of this amount.

The good news is that the IL&FS, is being taken over by the government with a promise of financial support to provide liquidity and a new team of management looking into the affairs of the company. This lends a great hand in terms of providing leeway to resolve the crisis in a phased manner.

Nevertheless, the waiting game is over. ITNL may have to sell some of its assets on an immediate basis. Companies such as L&T, Reliance Infrastructure, IRB Infra and a few others have financial strength in the sector. Besides, private investors could also jump into the fray to bid for these assets in case they are offered at relatively higher yield or IRR.