Angel Broking neutral on IL&FS Transportation Networks

Angel Broking's report on ILandFS Transportation Networks

For 3QFY2015, the consolidated revenue of IL&FS Transportation Networks (ITNL) was down 0.7% yoy to Rs 1,952cr, mainly due to a 10.9% yoy decline in the Construction segment’s income to Rs 1,218cr (reflecting weak execution). The quarter witnessed a shift in the revenue mix, where the contribution of the Construction segment to total revenues declined from 68.2% in 3QFY2014 to 62.4% in 3QFY2015. A higher contribution of the high margin Elsamex business led to a 221bp yoy EBITDA margin expansion to 27.0%. In-line with the EBITDA growth, the reported PAT also grew 17.5% yoy to Rs 129cr, on account of higher other income and just a 2.2% increase in interest expenses.

ITNL reported an order backlog of Rs 12,433cr as of 3QFY2015, which gives a revenue visibility for the Construction segment for over the next 36 months. ITNL reported a consolidated debt of Rs 22,251cr, reflecting a D/E ratio of 3.81x (vs. a debt of Rs 21,177cr as of 2QFY2015-end with D/E ratio of 3.68x). 7 of the ongoing BOT projects are expected to report Date of Completion in the next 18 months, adding to FY2016-17E to Toll/ Annuity Income. ITNL’s incremental equity requirement for the next 2-3 years is at ~Rs 741cr.

Outlook and valuation: "Considering the robust order backlog, an emerging Road project awarding environment, and strong execution capabilities of the company, we expect ITNL to report a CAGR of 7.8% in the top-line over FY2015-17E and a 1.2% de-growth in the bottom-line over the same period (owing to contribution of initially loss making BOT projects). Using SoTP based valuation methodology, we arrive at a FY2017 based price target of Rs 211. Given the limited upside, we maintain our Neutral rating on the stock", says Angel Broking research report.

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