ITNL likely to improve revenue visibility on new road projects, diversified orders

In the past one year, the stock of IL&FS Transportation Networks ( ITNL) has fallen by 44% to Rs 81 due to concerns over the stretched balance sheet. However, fundamental factors such as geographically diversified orderbook, and healthy operating margin stave off such concerns. In addition, soon-to-be-operational 26 road projects in the next one year improve revenue visibility.

The company’s projects are spread over in more than 10 states extending up to 14,680 km. Of this, close to 9,500 km is operational. As of September 2015 quarter, the company had orderbook amounting to Rs 15,023 crore. In the next one-and-a-half years, it would have 26 operational projects as opposed to 20 at the moment.

Total gross average daily collection from toll and annuity projects is expected to grow to Rs 12.7 crore per day by FY17 from Rs 6.7 crore at present. A part of this can be used to reduce the debt in the coming quarters.

At present, ITNL’s orderbook has close to 30% annuity projects and 63% toll projects. Annuity projects provide a fixed source of income from the government. The company has been selective in choosing projects that have high operating margins. Through its subsidiary Elsamex SA, the company has several road projects in international markets such as Spain, Europe, Latin America and China. In China, the company has acquired already operational Yuhe Expressway.

Though the company has high net debt-equity ratio of 3.4, its sturdy orderbook, superior execution capabilities, and strong parentage, of IL&FS, give comfort. On FY17 estimated earnings, the company’s enterprise value (EV) is 10.6 times its operating profit before depreciation (EBIDTA). Investors with a longer horizon of over three years may consider the stock for further research.