Buy IL&FS Transportation Networks - Kotak

IL&FS Transportation Networks Ltd has the largest road BOT asset portfolio with a pan India presence. It also has a balanced mix of toll and annuity projects thereby de-risking it from traffic fluctuations. With a diversified present in road projects, a metro rail project, airport project, border check post and city bus project, ITNL is set to benefit from upcoming opportunities from NHAI and state governments. Company is also expected to be a significant beneficiary of decline in interest rates. Strong parentage of IL&FS also enhances its expertise and enables it to bag projects from various concessionaires. Company has expanded its footprints across various locations internationally such as Spain, Portugal, Latin America and even China through its stake purchases in Elsamex and YuHe Expressway.

Based on current order book and portfolio of projects, we expect construction revenues to remain strong while completion of work on under construction projects is expected to increase the toll revenues from FY14 onwards. Operating margins are likely to remain strong due to increase in proportion of BOT revenues going forward. Company is also sufficiently funded for current portfolio of projects where investments are to be made over next 2-2.5 years.

At current price of Rs.189, stock is trading at 6.8x and 6.9x P/E and 9.2x and 9.3x EV/EBITDA on FY13 and FY14 estimates. We value the company on sumof-the-parts valuation methodology taking into account valuation of construction business, BOT project and urban transportation related projects and arrive at a one year forward target price of Rs.237. We remain positive on the company due to its robust business model, excellent operating cash flows and expertise to capitalize on the upcoming opportunities in the road BOT segment. We thus recommend BUY on the stock.

Source : Equity Bulls

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