Buy IL&FS Transportation Networks - Visit Note - Elara Capital

Visit to Beawar Gomti Highway

We visited ITNL's Beawar Gomti stretch on NH-8 in Rajasthan and were impressed with the maintained quality standards, despite an operational history of 24months and recent incessant rains in the region deteriorating the conditions of most of the inner & outer city roads. The company had signed the concession agreement in Apr'09 with MoRTH for development and operation of the existing 116kms two-lane road on Beawar Gomti section; the Provisional Completion certificate was issued in Aug'10 with the toll collection commencing from August 25, 2010.

Widening on ~14kms patch falling in the Wild Life Sanctuary (Todgarh Raoli) has not been permitted still by MoEF though measures for improving the road safety have been undertaken including strengthening of shoulders with gravel. The Concession Agreement also provides for 4-laning the existing project by the concessionaire, ITNL Road Infrastructure Development Company Limited (IRIDCL); estimated cost of which is INR12bn. The concession period for the project in that case will stand extended from the present 11 years to 30 years from the Appointed Date (28 Oct'09).

The present toll collection on the project stands at INR0.47mn/day (Jun'12) having witnessed 9.3% hike since collection commencement buoyed by two tariff hikes undertaken so far. The current collection is ~40% below the management's initial estimates and consequently given the status quo, our calculated Mar'13 NPV for the project is INR(975)mn, shaving off ~INR5/share from our Group's SOTP based TP for the stock. The traffic however, is expected to ramp up substantially over the next couple of years as the construction work on six laning of Kishangarh-Ajmer-Beawar (Soma-Isolux Corsan) and four laning of Gomati ka Chauraha-Udaipur section (Sadbhav Engineering) gets completed. This would have the potential to not only increase the employment potential for the local laborers for the project activities and development of tourism activities but would also boost economic activities in the twin States of Gujarat and Rajasthan.

Elara has a target price of Rs.241 from the current market price of Rs.172 (as on September 20, 2012).

Source : Equity Bulls

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