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Research
IL&FS Transportation Networks - STOCK UPDATE - Sharekhan
Posted On : 2011-12-10 20:49:44( TIMEZONE : IST )
IL&FS Transportation Networks
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs330
Current market price: Rs167
Expected easing of competitive intensity is favourable
Preferred bidder for Chongqing Expressway group: The company has emerged as the preferred bidder for acquiring a 49% equity stake in Chongqing Yuhe Expressway Co (Chongqing Yuhe) in China. Chongqing Yuhe operates 58 kilometre of Yu He Expressway in Chongqing, located in southwest China, with the toll concession rights till 2032. The road project has been operational for the last nine years. The expressway is significant because it connects to a major industrial belt in the Chongqing region, thereby allowing the Chinese company to enjoy consistent traffic flow throughout the year and offering a decent growth prospect. Further, the Chongqing municipality has assured an annuity based payment on a certain part of the road the stretch beyond which will be tolled. However, the contours of the deal would be known by the end of this month after the signing of the agreement by both the parties.
Expected moderation favourable; Maintain Buy: In view of ITNL's leadership in the road vertical, its strong relationship with state governments, its relatively diversified and derisked business portfolio, and strong parentage we remain positive on the company for two key reasons: 1) Given its strong parentage and scale of operations, the company stands to gain from the expected consolidation in the sector; 2) Order inflow is likely to improve on the back of expected moderation in competitive intensity as smaller players are unable to achieve financial closure. On the flip side, the FY2013/14 estimates are at risk if the company is unable to bag decent projects over the next 3-6 months. Currently, its order book stands at Rs8,900 crore, that is 3.5x its FY2011 construction revenues to be executed over the next two to three years. At the current market price the stock is trading at 6.8x and 6.2x its FY2012E and FY2013E earnings. Hence we maintain our Buy rating on the stock with a price target of Rs330.
