Share Trading Tips

IL&FS Transportation Networks (ITNL), the surface transportation infrastructure company, is tapping the primary markets to raise around Rs 700 crore and has set the price band at Rs 242-258. This IPO comprises of fresh issue and an offer for sale. The offer for sale comes from Trinity Capital (Two) (TCT) who are offloading 42.78 lakh shares and exiting the company. TCT had first subscribed to 41.60 lakh shares at Rs 100 in December 2006, while it acquired further stake by acquiring 1.18 lakh shares at Rs 133 in March 2008. This takes its average cost of buying to Rs 116.5 and considering price band of Rs 242 — 258, TCT is making a cool exit. Apart from, TCT there are investors such as Bessemer India Capital and GS Strategic Investments, which continue to stay invested. However, the number of shares in the fresh issue is yet to be decided. But considering the issue size of Rs 700 crore and the price band, the total issue size in terms of number of shares could be around 2.89 — 2.1 shares. So, adjusting the shares of offer for sale, the fresh issue could be of about 2.46-2.28 crore shares on the lower and the upper price band. Thus, out of the total Rs 700 crore, Ru 103.52— 110.37 crore would go to the sellers, while the balance Rs 596.48 - 589.63 crore would come to ITNL. ITNL intends to use the net proceeds towards pre-payment and repayment of a portion of its debt. Its total debt as on September 2009 is Ps 2,417.12 crore and its debt to equity pre-issue stands at 2.38x, which will come down to 1.8x after the public issue. The balance proceeds would be towards general corporate purposes.

IL&FS Transportation Networks .TTNL  was formed to consolidate the existing road infrastructure projects of ies promoter IL&FS and pursue vanas new project initiatives in the area : surface transportation infrastructure.

ITNL undertakes projects right from conceptualization to commissioning to operations and maintenance through its SPVs in India. It earns its revenues by providing project management services, construction supervision services, operation and maintenance and tolling supervision services. Eight of its projects have already commenced operations, while it is currently developing 11 projects.

Of these 11, five projects are in construction phase, while remaining six are in pre-construction phase. ITNL is also’developing capabilities in the other transportation infrastructure and has been selected for developing 4.9 km track of elevated metro rail link project in Gurgaon, while they are also operating and maintaining the Nagpur city bus services on a BOT basis. In a bid to spread internationally, ITNL also acquired Elsamex in March 2008 for Ru 76.65 crore, which is into maintenance of roads, buildings and petrol stations in Spain, Portugal, Columbia and Mexico.

We feel ITNL is better bet and there are reasons for the same. First, it’s a known fact that infrastructure development is a major thrust in India. Remember Road Transport and Highways Minister Kamal Nath’s statement on building roads at ambitious rate of 20 kms road per day. If this is something to go by it would speed up infra development and create new opportunities for companies such as
ITNL.

Secondly, there is good revenue visibility for ITNL with an order book of Ru 10,350 crore. Of this Ps 9,300 crore is for roads, Rs 1,000 crore for railways and the balance Ps 50 crore for the bus project to be executed within 2.5 years giving good growth visibility for ITNL. Third, ITNL has strong management bandwidth and has proven project execution capabilities. Besides, it also stands to benefit from its affiliation to IL&FS, which has a track record of financing infrastructure projects for over 22 years.

ITNLs FY09 revenues stood at Rs 1,332 crore (Rs 437.45 crore), while profits dipped to Rs 27.87 crore (Rs 93.25 crore). The numbers aren’t comparable as FY09 includes numbers of Elsamex as well. In H1FY1O ITNL5 revenues stood at Ps 979.55 crore, while profits stood at Ps 118.22 crore. On the valuation front, on an EV/EBDITA basis ITNL looks in line with its peer IRB at 24x, while it looks attractive on
a price to book at 4.60-4.94x compared to 6.21x for IRB. Hence, the valuation for ITNL looks fair and one can subscribe to this IPO.