ILFS Transportation Networks (ITNL) held its analyst meet on 13th May 2016 and was addressed by K Ramchand Managing Director
Key Highlights
ITNL has total of 14680 lane km under its road assets portfolio comprising of a mix of toll and annuity based projects. It has a Pan India presence with 31 BOT projects across various States in India. The company has 11 ongoing road development projects both Toll and Annuity based at various stage of completion which will be completed by end of FY’17.
The company has an operational road asset portfolio of around 10176 lane kms of highways, and one bus transportation project as on June’15.
As on Mar’16, about 1281 kms of 15 road projects are at RFQ stage post qualification which translates into revenue of around Rs 17304 crore. 7 of these projects are from NHAI, 7 from States and rest from MORTH (Ministry of Road transport & highways). As on Mar’16, about 1380 kms of 22 road projects are at RFP stage which translates into revenue of around Rs 18563 crore. 19 of these projects are from NHAI, 2 from States and rest from MORTH (Ministry of Road transport & highways).
For FY’16, Ebdita margin of around 37% at consolidated level was achieved due to 27% increase in revenues on back of construction and completion of 4 BOT projects achieved during the year.
Average borrowing during FY’16 increased to Rs 8214 crore from Rs 6032 crore in FY’15. While interest on Toll based projects are capitalized unless these projects are commissioned, the interest on Annuity based projects are charged to P&L even during the stage of completion of these projects.
For FY’16 at consolidated level, net sales have grown by around 27% largely due to a 37% increase in construction income which stood at Rs 5079 crore. The company booked construction income of 4 projects and fee income of another 4 projects whose construction will be completed in FY’17. During FY’16, the company further received clearance of 5 BOT projects whose fee income will be booked in FY’17.
Consolidated debt equity ratio stands at 4.08 as on Mar’16 which is more or less the same as on Mar’15. Incremental equity commitments required for the ongoing projects is around Rs 1400 crore of which around Rs 740 crore is already raised through right issue.
The company has an order book of about Rs 14625 crore as on Mar’16 as compared to order book of around Rs 15790 crore as on Mar’15. 60% of the order book is from NHAI, 33% from Non NHAI road projects and rest are non road projects including Metro and Border check posts. 62% of the order book are Toll based projects, 31% is annuity based project and rest are non road projects.
Gross Average Daily collection from Toll and Annuity in Mar’16 quarter is around Rs 7.9 crore as compared to around Rs 6.8 crore in Mar’15 quarter. Total toll revenue in FY’15 stood at Rs 905 crore as compared to Rs 1176 crore for FY’16.
About Rs 450 crore worth of project will be constructed by June’16, around Rs 2000 crore worth of project in Aug’16, around Rs 2400 crore in Sep’16, around Rs 2200 crore in Nov’16,
As per the management, the company is fully aware for need of funds and is confident of ensuring the same either through securitization of BOT projects or through sell or partial exits of some of the projects. Also by FY’17 when all projects become operational, and toll revenue collection will reach to around Rs 14 crore per day, management is confident that the debt and interest will peak out in FY’17 and will start coming down significantly on YoY basis post FY’17.
While management has achieved the Ebidta margin of around 37% as guided last year and is confident of the margin to hover around the current level or to improve further, it is still struggling to ensure the debt equity ratio of around 3 by end of FY’17 as targeted earlier. As per the management, upon the completion of the construction of the projects in FY’17, the debt equity of around 3 will happen by end of FY’18 instead of earlier target of FY’17.
1.) ITNL has total of 14,699 lane km under its road assets portfolio comprising of a mix of toll and annuity based projects. It has a Pan India presence with 31 BOT projects across various States in India. The company has 11 ongoing road development projects both Toll and Annuity based at various stage of completion which will be completed over next 3 years.
2.) BOT projects under operations (12) are expected to grow by 10% with the increase of economic activities in future. These projects were bid at ~14% IRR. Beawar Gomti project is still facing execution problem due to land acquisitions (Forest Land).
3.) Annuity projects under operations (8) were bid at IRR 12% and refinancing of these projects will improve 300 bps interest costs.
4.) ITNL has planned to file Infrastructure Investment Trust (InvIT) worth of INR 4,000 crore in order to reduce consolidated debt (INR 27,000 crore). Further, has planned for monetisation of assets worth of INR 1,000 crore to reduce consol debt. The company is targeting INR 21,000 debt after above plans.
5.) ITNL already has invested INR 5,209 crore of equity in under operational projects. ITNL required incremental INR 1,000 crore of equity in next 4 years to fund under construction projects. This equity is funded via internal accruals.
6.) ITNL has planned to bid for INR 4,000-INR 5,000 crore of projects every year where threshold IRR could be 18%.
7.) ITNL has plans to divest Chinese road project ($160 mn) at worth of ~$182, at present two term sheets are at table and decision will be taken soon.
8.) The company expects breakeven in Metro Business over next 4 years. It reported INR 120 crore losses in FY16.
Standalone business:
9.) In standalone business model, ITNL outsources construction part to subcontractors while designing part is done by itself (250 engineers); therefore company charges fee income to SPV. In overall process, the company makes 10%-15% margins in standalone business.
10.) The company has an order book of about Rs 14,000 crore as on Q1FY17 as compared to order book of around Rs 15,790 crore as on Q1FY16. 60% of the order book is from NHAI, 33% from Non NHAI road projects and rest are non road projects including Metro and Border check posts. 62% of the order book is Toll based projects, 31% is annuity based project and rest are non road projects.
Many entities in India are debt ridden, and a huge amount of cash is going into paying interest on these debts. But it seems that falling interest rate is giving some cushion to these firms to refinance their debts with the aim of lowering their cost of funding.
With the same objective at the fore, IL&FS Transportation plans to refinance its Rs 9000 crore debt.
The Company is expected to refinance loans worth Rs 6000 crore on a project level and around Rs 3000 crore on a corporate level by issuing non-convertible debentures. The timing of the NCDs is not confirmed. After issuing NCDs and refinancing, the average interest rate is expected to come down by 200 basis points from 11.5-12.75 per cent to 8.5-10 percent. After refinancing the debt, the Company would be saving an amount of Rs 300-400 crore, due to lower interest outgo, because of both project and corporate level refinancing and NCD issuance.
In FY16, IL&FS Transportation’s total debt level stands at Rs 27,643.06 crore and for the same period company incurred interest cost of Rs 2,545.53 crore.
Does anyone has any current update on the workings of IL&FS Transportation ? Pledge shares have reached 98%. Can anyone share the latest results concall transcript ?
There are 21 operational road projects of which nearly all are loss making
Projects are a mix of BOT(Annuity+toll) and DBFOT and hence need SOTP valuation
On a consolidated basis, valuation is the ideal option. However, the company is trying to discharge itself from some projects like the Gurgaon Metro but given the SPV guarantees and potential impact on reputation/tendering debarring etc, it is difficult to still value it as a going concern
At a mcap of ~1000crs compared to standalone parent level debt of ~13000crs(and SPV debt around 20,000cr debt), there is substantial upside if they recover
5)Like other infra players, they are stuck with significant claims(~5000crores) under the arbitration process.
6)Their parent IL&FS is itself under substantial financial duress and unless rescued by LIC, will probably go under.
Folks welcome to comment on how to value this company(I did not try further since extracting SPV wise cash flows and removing potentially onerous SPVs made into a complex model). However, some starting data is here ILFS Transportation Valuation.xlsx (12.2 KB)
Also, some lessons from this
Mountain of debt makes survival difficult
SPV does not always ringfence claims
Inability to resell debt in the secondary market(eg J&K tunnel project to Cube) is a red flag
while analyzing such companies can be intellectually stimulating, they can destroy almost the entire invested capital. I’d avoid such plays especially since there are decent companies available even now in this market.
