Buy IL&FS Transportation, target Rs 353

Goldman Sachs initiates coverage on IL&FS Transportation Networks (ITNL) with a Rs Buy’ rating and a 12-month target price of Rs 353. ITNL is a leading BOT road infrastructure operator involved in designing, operating, maintaining, and facilitating surface transport infrastructure projects. The company has a differentiated business model-generating value at the pre-construction phase of a road project. The stock currently trades at 12.9x FY11E P/E veRs us. 21.8x median P/E for Indian infrastructure companies under the coverage.

1) ITNL has 1,673 lane km of road projects under construction and 3,683 under development as of March 31, 2010.

2) Goldman Sachs expects five projects worth Rs 7700 crore to achieve financial closure in the medium term, thus augmenting its financial and operational ability.

3) Order wins over the next 6-12 months from the Rs 5900-crore projects in which the company is currently at the Request for Proposal (RFP) stage of bidding should further strengthen its robust order book. The 12-month target price of Rs 353 is based on various projects in ITNL’s portfolio, value from Elsamex, and construction-related services. The target price implies 14.9x FY11E P/E and 9.8x FY12E P/E-32% and 40% discount to the Indian infrastructure peer group median, respectively.

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