Company Background

• IL&FS Transportation Networks Ltd. (ITNL) was formerly known as Consolidated Transportation Networks Limited and changed its name to IL&FS Transportation Networks Limited in September 2005.
• It is an established surface transportation infrastructure comp any, and is one of the largest private sector BOT (Build Operate Transfer) road operators in India. In BOT projects, entrepreneurs are allowed to collect and retain tolls.
• ITNL has been involved in the development, operation and maintenance of national and state highways, roads (including urban roads), flyovers and bridges in Andhra Pradesh, Delhi, Gujarat, Maharashtra, Karnataka, Uttar Pradesh, Kerala, Jharkhand and Rajasthan.
• ITNL generate revenues primarily from Elsamex's, a provider of maintenance services primarily for highways and roads in Spain and other countries, maintenance business and from annuity receipts, toll collection, operation and maintenance activities and advisory and project management fees from BOT road projects.
• Some of the renowned completed and operating projects of the company include North Karnataka Expressway, NOIDA Toll Bridge, West Gujarat Expressway. Gujarat Toll Roads.
• Post issue Promoters & Promoter’s group shareholding will reduce to (74.4%-75.1%) from existing 85.1%.

Object of Issue

• Funding pre-payment and repayment of a portion of debt availed by the Company while the proceeds from the Offer for Sale will not received by the company.

IPO Grading / Rating

Credit Analysis and Research Limited (CARE) has assigned an IPO Grade 4, indicating above average fundamentals, to the IPO of IL&FS Transportation Networks Ltd. CARE assigns IPO grading on a scale of 5 to 1, with Grade 5 indicating strong fundamentals and Grade 1 indicating poor fundamentals.

Strengths

Growing Road Industry in India
Roads are the dominant mode of transportation in India today, and carry almost 85% of the total passenger traffic and 70% of the total freight traffic. The highway network is large but most of the highways are narrow with poor surface quality, and 40% of India’s villages do not have access to all-weather roads. Moreover, vehicle traffic has grown at a CAGR of 10% over past 5 years. Further, Highway minister has set a target of laying 35,000 km of roads by 2014 with100% FDI allowed under the automatic route in all road development projects 100% tax exemption for 5 years and 30% relief for next 5 years, which may be availed of in 20 years.

An established player with strong track record
ITNL is among India’s largest players in the BOT road segment and has a very strong brand value. Company’s portfolio consists of 17 road projects, comprising of approximately 9,397 Lane kms in various stages of development, construction or operation. Company’s flagship projects include the Vadodara Halol Toll Road, designated by the World Bank as a best practices example for its environment risk mitigation and social rehabilitation plan and the NOIDA Toll Bridge.

Healthy Order Book
The company currently has an order book of Rs 10,300 cr in road and railway projects with a total of 19 projects in its portfolio of which 8 have been completed. It wishes to further diversify into the airport and urban mass transit space.

Projects under construction:

Projects	Approximate length	Likely to completion date	Revenue Basis
East Hyderabad Expressway	173 kms	Jun-10	Annuity
Thiruvananthapuram City Roads	158 kms	Nov-10	Annuity
Beawar Gomti Road	248 kms	Dec-10	Toll

Diversified portfolio basket
Company has a pan-India presence and a diverse project portfolio consisting of 17 road projects (9 annuity and 8 toll road projects), comprising of approximately 9,397 Lane kms in various stages of development, construction or operation. It is involved in the development and operation of National and State highways, flyovers, bridges and roads in various parts of India.

Weakness

Highly dependent on thepolicies of the Government of India
Business of the company is highly dependent on various central and state government entities, in terms of policies, incentives, budgetary allocations and other resources provided by these entities for the surface transportation industry. Any adverse change in the focus or policy framework regarding infrastructure development or the surface transportation industry will affect the income of the company.

Financials

• Total income increased from Rs. 437.45 Cr in FY08 to Rs. 1,332.01 Cr in FY09 primarily due to the inclusion of the operations of Elsamex in FY09.
• EBIDTA has grown at a CAGR of 68% from FY07 to FY09, however, net income has dropped steeply from Rs. 51.38 cr in FY07 to Rs. 27.87 cr in FY09.
• Within six month ended FY10, top line of the company jumped more than twice, while, net profit of the company has increased three fold to Rs. 114.35 cr from FY09.
• For the six month ended September ’09, NPM of the company was seen at 12.07%.
• Debt/Equity ratio has been at consistently low level at 2x which will definitely come down after the proposed equity infusion via IPO.

Peer Analysis

Companies	CMP (10-03-10)	Face Value (Rs)	Total Income  (Rs)	PAT  (Rs)	EPS Annualised  (Rs)	PE
ITNL	242-258	10	979.56	123.45	11.7-11.8	20.7-21.9
HCC	143.10	1	2,553.02*	38.46*	1.15	37.98
Gammon Infra	24.65	2	104.46*	8.07*	4.61	31.02
GVK Power & Infra.	43.55	1	44.40*	16.84*	0.51	48.65

* Nine month ended Dec’09

Valuations

ITNL’s offered at a price band of Rs. 242 to Rs. 258 per share. On the basis of annualized PAT post issue the P/E of the company comes out to 20.7x at the lower price band and 21.9x at the upper price band which seems quite good as compared to its peers HCC (PE of 37.98), Gammon Infra (PE of 31.02) and GVK Power & Infra (PE of 48.65).