IL&FS Transportation Networks Q3FY13 profits were below expectation, says Edelweiss
Moneylife Digital Team 05 February 2013

With 10 projects to get commissioned over the next 18 months and interest rates at a peak, Edelweiss believes that  ITNL’s strong balance sheet makes it one of the best asset plays in the infra asset space

IL&FS Transportation Networks (ITNL) Q3FY13 profits were below expectation, despite sterling revenue growth, due to lower EPC margin. While revenue surged 39% year-on-year, indicating strong execution, higher share of low margin construction business dragged EBITDA margin down to 25%, according to Edelweiss Financial Services analysis of its Q3FY13 results.

 

Toll collection on most projects remained strong. Buoyed by robust execution, Edelweiss has revised up its revenue estimates 2% and 13% for FY13 and FY14, respectively. With 10 projects to get commissioned over the next 18 months and interest rates at peak, Edelweiss believes that  ITNL’s strong balance sheet makes it one of the best asset plays in the infra asset space.  Edelweiss maintains a ‘BUY’ recommendation on these shares in the stock exchange.

 

ITNL’s Q3FY13 topline at Rs17.6 billion (up 39% year-on-year) highlighted its strong execution capabilities. However, increase in contribution from low margin EPC business (69% against 65% of revenue in Q2FY13) led to EBITDA margin plunging 750 basis points sequentially (EPC EBITDA margin at about 17%, while about 80% for BOT division). While capital charges remained under control, higher tax rate at 37% led to PAT coming at Rs1.0 billion (up 19% year-on-year), lower than our estimate of Rs1.2 billion.

 

ITNL’s order book remains strong at Rs119 billion. Of this, 49% are NHAI projects, 28% non-NHAI road projects and balance non-road projects.

 

ITNL’s strong financials place it in an ideal position to benefit from declining competition for road BOT projects; it can win $1 billion worth of new projects every year without equity dilution. With 10 projects becoming operational over next 18 months, toll/ annuity collections are set for an upswing.

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