Recommend HOLD

CMP 114.00

Target Price 131.00

ISIN: INE975G01012 SEPTEMBER 6th

, 2013

IL&FS TRANSPORTATION NETWORKS LTD Q1 FY14

STOCK DETAILS

Sector Infrastructure

BSE Code 533177

Face Value 10.00

52wk. High / Low (Rs.) 227.00/108.00

Volume (2wk. Avg ) 4310

Market Cap ( Rs in mn ) 22146.78

Annual Estimated Results (A*: Actual / E*: Estimated)

Years FY13A FY14E FY15E

Net Sales 66449.00 74422.88 81865.17

EBITDA 19818.40 22911.80 25123.23

Net Profit 5202.10 5657.50 5894.22

EPS 26.78 29.12 30.34

P/E 4.26 3.91 3.76

Shareholding Pattern (%)

1 Year Comparative Graph

IL&FS TRANSPORTATION NETWORKS S&P BSE SENSEX

SYNOPSIS

IL&FS Transportation Networks Ltd (ITNL) is a

surface transportation infrastructure company and is

one of the largest private sector BOT road operators

in India.

During the quarter, the company’s net profit jumps to

Rs.1245.30 million against Rs.1217.20 million in the

corresponding period of previous year, an increase of

2.31%.

Revenue for the quarter decreased by 8.13% to

Rs.14511.10 million from Rs.15795.80 million, when

compared with the prior year period.

EBITDA increased by 9.55% to Rs. 5490.70 millions

as against Rs. 5012.00 millions in the corresponding

period of the previous year.

IL&FS Transportation Networks has signed a MoU

with Nippon Expressway Company Ltd (NEXCO East)

to work together through a strategic alliance for

implementation of PPP road projects.

During the quarter, Barwa Adda Expressway Ltd and

Khed Sinnar Expressway Ltd have been incorporated

as subsidiaries of the company

Reported EPS of the company stood at Rs.6.41 a

share during the quarter, registering 2.31% increase

over previous year period.

Net Sales and PAT of the company are expected to

grow at a CAGR of 13% and 4% over 2012 to 2015E

respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

COMPANY NAME (Rs.) Rs. in Mn. (Rs.) Ratio Ratio (%)

IL&FS Transportation Networks Ltd 114.00 22146.78 26.78 4.26 0.61 40.00

Jaypee Infratech Ltd 17.75 24653.60 4.07 4.38 0.40 10.00

Ashoka Buildcon Ltd 46.60 7360.60 6.59 7.07 0.86 40.00

IRB Infrastructure Ltd 65.25 21653.50 5.31 12.27 1.38 40.00

Recommendation & Analysis - ‘HOLD’

IL&FS Transportation Networks Ltd has reported its first quarter fiscal 2014 consolidated revenue of

Rs.14511.10 million, a decrease of 8.13% y-o-y. The company’s net profit jumps to Rs.1245.30 million against

Rs.1217.20 million in the corresponding quarter ending of previous year, an increase of 2.31%. During the

quarter total expenditure declines by 16 per cent mainly on account of decrease in material consumed cost along

with consideration of construction contract expenses. Total expenditure in Q1 FY14 was at Rs. 9567.50 million as

against Rs. 11374.80 million in Q1 FY13. The Company international initiatives and has established offices in

Dubai and Nigeria through one of its subsidiary based in Singapore. The International office based out of Dubai

will be responsible for pursuing international mandates. The Company is pursuing in UAE, Nigeria and others

parts of the world. The Company is also pursuing an airport expansion project in the UAE. The Company’s Metro

Rail project in Gurgaon is nearing completion and is scheduled to commence operations in the coming year.

The Company continues to maintain its growth story and the leading position in the Surface Transport Sector

with 25 projects in its portfolio in various stages aggregating to 13,161 lane kilometers, of which 6,318 lane

kilometers are under operation. Over FY2012-15E, we expect the company to post a CAGR of 13% and 4% in its

top-line and bottom-line respectively. Hence, we recommend ‘HOLD’ for ‘IL&FS Transportation Networks

Ltd’ with a target price of Rs. 131.00 on the stock.

FINANCIAL HIGHLIGHTS CONSOLIDATED

Results updates- Q1 FY14,

IL&FS Transportation Networks Ltd is one of the

largest private sector BOT road operators in India,

reported its financial results for the quarter ended

30th June, 2013.

Months Jun-13 Jun-12 % Change

Net Sales 14511.10 15795.80 (8.13)

PAT 1245.30 1217.20 2.31

EPS 6.41 6.27 2.31

EBITDA 5490.70 5012.00 9.55

The company’s net profit jumps to Rs.1245.30 million against Rs.1217.20 million in the corresponding quarter

ending of previous year, an increase of 2.31%. Revenue for the quarter decreased 8.13% to Rs.14511.10 million

from Rs.15795.80 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs.6.41 a share during the quarter, registering 2.31% increase over previous year period.

Profit before interest, depreciation and tax is Rs.5490.70 millions as against Rs.5012.00 millions in the

corresponding period of the previous year.

Expenditure :

During the quarter total expenditure declines by 16

per cent mainly on account of decrease in material

consumed cost along with consideration of

construction contract expenses. Total expenditure in

Q1 FY14 was at Rs. 9567.50 million as against Rs.

11374.80 million in Q1 FY13. Construction contract

expenses were Rs. 6220.70 millions against Rs.

8061.20 millions in the corresponding period of the

previous year. Other expenses were at Rs. 1814.20

million and staff cost is Rs. 960.30 million in Q1

FY14.

Segment Revenue

Latest Updates

� IL&FS Transportation Networks Ltd has signed a Memorandum of Understanding (MOU) with Nippon

Expressway Company Ltd (NEXCO East) to work together through a strategic alliance for implementation of

PPP road projects. Both companies will jointly carry out technical and prefeasibility studies, and other

related works, of potential road projects in India for implementation.

� During the quarter, Barwa Adda Expressway Ltd and Khed Sinnar Expressway Ltd have been incorporated as

subsidiaries of the company.

� National Highways Authority of India has issued Provisional Completion Certificate to the Pune-Solapur Road

project which was awarded to the Company on DBFOT (Toll) basis. The project is on toll basis with a

concession period of 19 years and 295 days comprising of Tolling and Operations & Management period of

18 years.

� IL&FS Transportation Networks Ltd has informed that The Concession Agreements were signed with the

concerned Authorities for the following projects:

� Kiratpur Ner Chowk section of NH 21 of 90.175 kms in the States of Punjab and Himachal Pradesh

� Beawar Gomti section of NH 8 of 88 kms of the total 116 kms (Capacity augmentation) in the State of

Rajasthan

� Sikar Bikaner section of NH 11 of 237.57 kms in the State of Rajasthan

� During the year 2012-13, the group has acquired an additional 3860456 equity shares of one of the

subsidiaries, viz., North Karnataka Expressway Ltd (NKEL), as result of which the stake of the Group in NKEL

has been increased from 87.00% to 93.50%.

� IL&FS Transportation Networks Ltd has been adjudged and awarded the "Most Admired Infrastructure

Company in Transport" at the 5th KPMG INFRASTRUCTURE AWARDS 2013.

Company Profile

IL&FS Transportation Networks Ltd. (ITNL) is an established ISO 9000:2001 surface transportation

infrastructure company & is one of the largest private sector BOT road operators in India. It is a developer,

operator and facilitator of surface transportation infrastructure projects, taking projects from conceptualization

through commissioning to operations and maintenance. ITNL was incorporated in 2000 by IL&FS, an

infrastructure development and finance company, in order to consolidate their existing road infrastructure

projects and to pursue various new project initiatives in the area of surface transportation infrastructure. In

March 2008, ITNL commenced international operations through the acquisition of Elsamex S.A. ("Elsamex"), a

provider of maintenance services primarily for highways and roads in Spain & other countries.

Since inception, ITNL has been involved in the development, operation and maintenance of national and state

highways, roads (including urban roads), flyovers and bridges in Andhra Pradesh, Delhi, Gujarat, Maharashtra,

Karnataka, Uttar Pradesh, Kerala, Jharkhand and Rajasthan.

Business Activity

The key business activity is the development, implementation, operation and maintenance of surface transport

infrastructure projects.

Project Development and Implementation

ITNL performs a range of project development activities from the conceptualization of projects to commissioning

and commencement of commercial operations.

• Business development & finding opportunities to participate in competitive bidding.

• evaluation and preparation of bids,

• assessment of estimated project costs,

• applications for pre-qualifications and tenders,

• preparation of structural and other designs,

• SPV formation and arranging financing for the project,

• management of logistical and development issues

• Management and supervision of projects during project life cycle.

Business Development and Internal Co-ordination

ITNL has an internally well-regulated management policy governing our strategy on bidding for projects. ITNL

also subscribes to news wires to stay informed on the bids published and local and international government

initiatives. ITNL has set up an international multi-segment footprint spanning road, urban infrastructure and

railways sectors.

� Competitive Bidding

� Bilateral Negotiations

� SPV Formation and Financing

Financial Highlight CONSOLIDATED

Balance sheet as at March31st, 2012-2015E

(A*- Actual, E* -Estimations & Rs. In Millions)

FY12A FY13A FY14E FY15E

SOURCES OF FUNDS (Rs.in.mn)

Shareholder's Funds

Share Capital 1942.70 1942.70 1942.70 1942.70

Reserves and Surplus 25695.22 34455.45 40112.95 46007.17

1. Sub Total - Net worth 27637.92 36398.15 42055.65 47949.87

2. Minority Interest 2934.65 3577.21 3756.07 3943.87

Non Current Liabilities

Long term borrowings 69737.62 121849.41 140126.82 154139.50

Deferred Tax Liabilities 2046.51 2425.06 2158.30 2007.22

Other Long term Liabilities 2291.01 2950.86 3482.01 3899.86

Long Term Provisions 750.90 634.12 691.19 725.75

3. Sub Total - Non Current Liabilities 74826.04 127859.45 146458.33 160772.33

Current Liabilities

Current maturities of long term debt 10590.75 13220.08 14542.09 15414.61

Short term borrowings 21930.81 8521.99 7243.69 6664.20

Trade Payables 11304.42 11066.69 11620.02 12084.83

Other Current Liabilities 1860.04 3279.53 4263.39 5329.24

Short Term Provisions 1395.19 1979.46 2494.12 3042.83

4. Sub Total - Current Liabilities 47081.21 38067.75 40163.31 42535.70

Total Liabilities (1+2+3+4) 152479.82 205902.56 232433.37 255201.77

APPLICATION OF FUNDS

Non-Current Assets

Fixed Assets

Tangible assets 1251.63 1415.49 1557.04 1650.46

Intangible assets 27612.84 27716.93 29102.78 29975.86

Capital Work in Progress 195.20 475.99 590.23 684.66

Intangible assets under development 34812.66 66969.81 75006.19 81006.68

a) Sub Total - Fixed Assets 63872.33 96578.22 106256.23 113317.67

b) Goodwill on consolidation 5265.68 5232.59 5441.89 5659.57

c) Non-current investments 3831.91 6527.51 7833.01 8929.63

c) Deferred Tax Asset 5.23 110.60 87.37 72.52

d) Long Term loans and advances 9247.03 7916.57 7520.74 7821.57

e) Other non-current assets 48690.68 67824.49 82954.76 94788.07

1. Sub Total - Non Current Assets 130912.86 184189.98 210094.01 230589.04

Current Assets

Current Investment 122.22 343.74 412.49 474.36

Inventories 210.1 168.87 182.38 194.65

Trade receivables 8820.13 7516.96 6915.60 7261.38

Cash and Bank Balances 2837.87 4552.42 5690.53 6714.82

Short-terms loans & advances 7895.73 6253.00 5627.70 5965.36

Other current assets 1680.91 2877.59 3510.66 4002.15

2. Sub Total - Current Assets 21566.96 21712.58 22339.36 24612.73

Total Assets (1+2) 152479.82 205902.56 232433.37 255201.77

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 56056.20 66449.00 74422.88 81865.17

Other Income 1238.10 1414.00 1329.16 1382.33

Total Income 57294.30 67863.00 75752.04 83247.49

Expenditure -41400.70 -48044.70 -52840.24 -58124.27

Operating Profit 15893.60 19818.30 22911.80 25123.23

Interest -7282.10 -11190.10 -13875.72 -15818.33

Gross profit 8611.50 8628.20 9036.07 9304.90

Depreciation -765.50 -944.10 -1095.16 -1171.82

Profit Before Tax 7846.00 7684.10 7940.92 8133.08

Tax -2457.20 -2274.00 -2128.17 -2114.60

Profit After Tax 5388.80 5410.10 5812.75 6018.48

Minority Interest -457.70 -254.90 -203.92 -175.37

Share of Profit & Loss of Asso. 38.50 46.80 48.67 51.11

Net Profit 4969.60 5202.00 5657.50 5894.22

Equity capital 1942.70 1942.70 1942.70 1942.70

Reserves 25695.20 34455.50 40112.95 46007.17

Face value 10.00 10.00 10.00 10.00

EPS 25.58 26.78 29.12 30.34

Quarterly Profit & Loss Statement for the period of 31st

Dec, 2012 to 30th Sep, 2013E

Value(Rs.in.mn) 31-Dec-12 31-Mar-13 30-Jun-13 30-Sep-13E

Description 3m 3m 3m 3m

Net sales 17644.10 19305.20 14511.10 13712.99

Other income 321.20 320.20 287.00 330.05

Total Income 17965.30 19625.40 14798.10 14043.04

Expenditure -13146.50 -14587.90 -9307.40 -8776.31

Operating profit 4818.80 5037.50 5490.70 5266.73

Interest -2843.90 -3022.20 -3246.70 -3506.44

Gross profit 1974.90 2015.30 2244.00 1760.29

Depreciation -219.50 -304.00 -260.10 -218.48

Profit Before Tax 1755.40 1711.30 1983.90 1541.81

Tax -654.10 85.80 -677.90 -340.74

Profit After Tax 1101.30 1797.10 1306.00 1201.07

Minority Interest -63.60 -49.20 -48.60 -36.45

Share of Profit & Loss of Asso 3.30 36.60 -12.10 35.29

Net Profit 1041.00 1784.50 1245.30 1199.91

Equity capital 1942.70 1942.70 1942.70 1942.70

Face value 10.00 10.00 10.00 10.00

EPS 5.36 9.19 6.41 6.18

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 25.58 26.78 29.12 30.34

EBITDA Margin (%) 28.35% 29.82% 30.79% 30.69%

PBT Margin (%) 14.00% 11.56% 10.67% 9.93%

PAT Margin (%) 9.61% 8.14% 7.81% 7.35%

P/E Ratio (x) 4.46 4.26 3.91 3.76

ROE (%) 19.50% 14.86% 13.82% 12.55%

ROCE (%) 12.82% 11.54% 11.77% 11.73%

Debt Equity Ratio 3.70 3.95 3.85 3.68

EV/EBITDA (x) 7.65 8.13 7.79 7.63

Book Value (Rs.) 142.27 187.36 216.48 246.82

P/BV 0.80 0.61 0.53 0.46

Charts

Outlook and Conclusion

� At the current market price of Rs.114.00, the stock P/E ratio is at 3.91 x FY14E and 3.76 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.29.12 and

Rs.30.34 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 13% and 4% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 7.79 x for FY14E and 7.63 x for FY15E.

� Price to Book Value of the stock is expected to be at 0.53 x and 0.46 x respectively for FY14E and FY15E.

� We recommend ‘HOLD’ in this particular scrip with a target price of Rs.131.00 for Medium to Long term

investment.

Industry Overview

India’s road network, spanning across 4.69 million km, is the third-largest road network in the world, next in line

only to the US and China. The country relies heavily on its robust road network that carries almost 65 per cent of

freight and 80 per cent of passenger traffic. National Highways (NH), under the jurisdiction of National Highways

Authority of India (NHAI), constitute for almost 2 per cent of the network but carry about 40 per cent of the total

road traffic.

The Indian Government is very particular about the development and maintenance of this huge network; more

so because number of vehicles in the country has been growing at an average rate of 10.16 per cent per annum

over the last five years. Thus a need for efficient and world-class road network becomes inevitable for smooth

transitions of goods and services.

The administration awarded about 2, 000 km worth of new road construction contracts in FY13.

Key Developments and Investments

FDI received in construction development sector from April 2000 to April 2013 stood at US$ 22.112 million,

according to Department of Industrial Policy and Promotion (DIPP).

• IL&FS Transportation Networks Ltd has recently signed a US$ 300 million contract to build a six-lane

highway. The project will link an eastern industrial zone (having heavy-duty traffic) to mining districts such

as Dhanbad, the nation's coal capital.

• Meanwhile, NHAI has agreed to facilitate 50 per cent of the financial assistance to Kerala’s State Government

for developing the proposed bypasses in Kollam, Alappuzha and Kozhikode. The Union ministry will grant Rs

357 crore (US$ 60 million) of financial assistance to the state for developing the five bypass roads. The funds

for the same would be disbursed in a phased manner.

• The Government of Uttar Pradesh (UP) has also put highway development programme on the highest

priority. It has decided to convert busy roads into four lane highways for faster and better transportation of

goods and people. The state Public Works Department (PWD) has been asked to identify such roads and later

transfer them to the UP State Highways Authority (UPSHA) for up-gradation.

UP has one of the largest road networks in India measuring about 1,35,000 km, including national/state

highways, district and rural roads.

Policy Initiatives

The Indian Government also plays a vital role in developing the road network in the country. It provides various

incentives for private and foreign sector investment in the roads sector apart from allowing 100 per cent foreign

direct investment (FDI) under the automatic route for support services to land transport such as operation of

highway bridges, toll roads, and vehicular tunnels. Such services also include services incidental to transport

such as cargo handling, construction and maintenance of roads, bridges; and construction and maintenance of

roads and highways offered on build-operate-transfer (BOT) basis, including collection of toll.

The Government also plans to earmark US$ 1 trillion for the development of infrastructure in India over 2013-

18. To attract investments in the sector, it has modified its policies so that developers no longer have to wait for

clearance from forest authorities to commence construction. Another supportive policy came from the central

bank wherein it reclassified loans to road builders as secured loans rather than unsecured loans, which would

give more comfort to banks to lend to projects.

Another major relief has been granted to highway widening projects. The Cabinet has recently allowed

exemption of environmental clearance requirement for stretches up to 100 km in length. Earlier, this was for

stretches up to 30 km, as a result of which most expansion projects required green nod from the environment

ministry. This exemption is expected to fasten the road development projects currently undergoing in India.

Knowing the significance of expressways, the Government had approved the construction of 1,000 km of

expressways under the National Highways Development Project (NHDP) Phase VI. Besides that the ministry

released a project report to devise a master plan aiming to construct 15, 600 km by 2022, marking the end of the

13th five year plan.

The Government aims to award 9,600 km of road projects in FY14.

Road Ahead

India is poised to attain the next level in highway development as the authorities and builders are increasingly

focussing on transit efficiency. Experts believe that public funding or other alternate financial models, apart from

public-private partnerships (PPP), would be instrumental for attaining the required targets.

Moreover, the country has 600-700 km of access-controlled expressways and is working continuously to build

more high-quality, access-controlled expressways for faster connectivity between cities and towns. The

Government is making sure that new roads and routes are well equipped with Intelligent Transportation

Systems (ITS) including round-the-clock CCTV surveillance for monitoring real-time traffic data and ensuring

safety and security of users.

A recent study has stated that infrastructure development (for expressway projects alone) would require about

Rs. 450,000 crore (US$ 75.65 billion).

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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