IL&FS Transportation Networks (ITNL) in 1QFY2017 has not reported consol.
numbers as it is in process of migrating to Ind-AS. Despite strong execution,
sharp decline in yoy Fee and O&M income led ITNL report 3.6% increase in
standalone revenues. High contribution of low margin construction business was
seen during in 1QFY2017 (construction/ material expenses reported 19.5/11%
yoy increase). As a result, yoy EBITDA margins contracted 302bps to 3.2%.
Despite 47% yoy EBITDA decline, reported PAT turned-around on yoy basis to
Rs18cr profit in 1QFY2017, owing to strong other income (up 75.9% yoy to
Rs344cr). Other income benefitted from Rs102cr of profit booked from 15% stake
sale in Gujarat Road & Infrastructure Company Ltd. (GRICL).
ITNL reported order backlog of Rs13,758cr at 1QFY2017-end, which gives
construction segment revenue visibility for 36+ months. Consolidated debt in our
view stood at Rs28,650cr, reflecting D/E of 4.4x. ITNL’s equity requirement
towards BOT projects for FY2017-18E stands at ~Rs673cr. 3 BOT projects are to
report Date of Completion (CoD) in next few months, in-turn contributing
FY2017-18E Toll/ Annuity Income.
Outlook and Valuation: In recent time we have seen management offloading
stake in 2 operational BOT projects. ITNL management announced that they
intend to offload 3-4 BOT projects, worth Rs5,000cr in to an Infrastructure
Investment Trust (InvIT). As per a recent board meeting outcome, ITNL would
issue Rs5,000cr of Non-Convertible Debentures (NCDs), where current 12% debt
cost would be re-financed sub-10% levels, thereby saving ~300bps on interest
expenses level. All these initiatives would de-leverage Balance sheet and improve
the profitability. We earlier upgraded ITNL to BUY with price target of Rs93, in
anticipation of lowering of consol. BS stress and likely improvement in interest
coverage ratio. Since our BUY recommendation, ITNL stock has run-up and our
price target is attained. In absence of ITNL’s consolidated financials, we
downgrade to NEUTRAL view on the stock.

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