Noida Toll Bridge a good dividend stock to bet on: Chugh

Independent analyst, Ashish Chugh is bullish on Noida Toll Bridge. 

In an interview to CNBC-TV18 he said that the dividends will gradually increase to 15 percent and may eventually touch 25-30 percent over the next three to four years. "At the current price of about Rs 22, it maybe a good dividend stock to invest into," he added. Below is the edited transcript of Chugh’s views on the stock. Noida Toll Bridge is an excellent annuity business which is available at very attractive valuations. It was promoted by Infrastructure Leasing & Financial Services Limited (IL&FS) as a special purpose vehicle for implementing the Delhi-Noida toll bridge project. The company has an agreement with Noida wherein it is allowed to earn a designated return of about 20 percent for a 30-year period. In case of Noida Toll Bridge, we believe that since there is a huge shortage, the concession period maybe extended beyond 30 years or the company maybe given development rights to develop the land and sell apartments which will recover the short fall which the company is currently having. Also read: FII ownership of Sensex stocks at eight-year high: BofA-ML The business model of the company is simple. The company has already done all capital expenditure. The asset is in place and now what the company has to do is collect the toll from the users of the assets. If one sees the financials of the company, FY13 sales were about Rs 106 crore. EBITDA was about Rs 81 crore and PAT was about Rs 42 crore. Cash profit is about Rs 53-54 crore. The company has recently announced a dividend of 10 percent which at the current price of about Rs 22, translates into a dividend yield of about 4.5-5 percent. Other reasons working in favour of the company is that the company is in a business of toll collection which is a non-risky business and capex for the asset which is in place, is already done. The company has extremely good cash flows. In FY13, the company did a cash flow of about Rs 53-54 crore. They are in a business where there are no outstanding. It’s a cash business and the company has got absolutely not debtor. The company has been continuously reducing its debt over the past few years, we believe that the company will pay off its debt entirely over the next 12-18 months and may become debt free. Now, since the company does not have any other business, rather it is not mandated to expand to any other thing, all the cash flows maybe given back to the shareholders. So, as of now, the dividend is about 10 percent and dividend yield is five percent. In future, once the company becomes debt free and it doesn’t have any other business to invest that cash into, I believe that dividends will gradually increase to 15 percent and go to the extent of 25-30 percent also over the next three-four years. So, if somebody is looking for it, I would say this is akin to a bank FD. There is, ofcourse the risk which is associated with the risk of investing in equity, but I believe that given the nature of its business, the risk may be very less. Even at the current price, the dividend yield is about five percent which is expected to go to seven-eight percent in the future. In case the company gets development rights for land, I think that could be a big bonanza for the shareholders. But even without factoring that bonanza which may or may not come, at the current price of about Rs 22, it maybe a good dividend stock to invest into.