Noida Toll Bridge Co. Ltd. - Limited Downside and Annuity Potential


(Hardik Shah) #21

The question re: the debt payable within 12 months being classified as Current Liabilities - That is as per new accounting norms and is completely normal.

For those who have asked, model attached. Please note: Blue cells are inputs.

Also, the model is on the basis that the concession runs only till March 2028. No extension due to the 20% ROCE clause and no upside from development rights.

Dividends for FY14, FY15 and FY16 are manual inputs after which it assumes a payout of 85% of EPS.

Disclaimer: This is only an indicative model. PLEASE DO NOT RELY ON IT FOR ANY INVESTMENT DECISIONS. If you do so, do it after your own due diligence.

Noida-Toll-Bridge.xlsx (23 KB)


(Hardik Shah) #22

One thing I forgot to mention. The model runs assuming the only way money is returned to shareholders is through dividends (which means the company loses about 19% as DDT). If they do buybacks, there is no tax leakage, so as such, may lead to higher returns for shareholders.


(Hardik Shah) #23

Minor edit to the model. DDT rate has been updated to 16.225% instead of 19% (not sure why I had that number in mind!)

Please use this model.

Noida-Toll-Bridge.xlsx (22.5 KB)


(Rishi) #24

I have been holding this stock for over an year now with the dream described in this thread. The story has been around for a long time even Prof Bakshi spoke about it but the stock seems to move down. Is the market trying to tell something?


(Hardik Shah) #25

My thoughts on this are that the market is definitely disillusioned with this stock. However, IMO the thing that can change that is the dividends increasing and debt going down to zero. The market can discount growth stories and not recognize them, but cashflow in the hands of the shareholders is hard to discount. Thats my hope atleast.


(Rishi) #26

That then goes to the quality of management and Board on how they handle the money, keep or distribute. Due to debt restructuring done a few years ago they had to take approval from the banks consortium for dividend distribution. Once debt is cleaned up they wouldn’t have to do so. That’s hopefully the kicker to get the dividend yield to drive up the price


(Ayush Mittal) #27

Hi Hardik,

In your modelling you have considered 5% toll rate growth for every year - I think looking at the past, one should be careful and model for very little toll increase, if any. The co hasn’t been able to inc the toll rates easily.

Second, you also try to factor the risk of Govt policy going against the co.

Regards,

Ayush

Disc: I do not hold


(Excel Monkey) #28

Any news on this one?

Stock is up7% today with 6 times average volume

Very strange

That to on day when freebie king kejriwal is taking oath as Delhi CM


(rajesh) #29

Hardik,

There are around 68 crores of deferred tax liability ( Difference between book depreciation and income tax depreciation) . So this 68 crore has to be given from company’s cash at a future date when Tax as per Income tax is greater than tax calculated as per book.

Out of 68 crores, Deferred tax asset is 24 crore (unabsorbed depreciation is around 20 crores and other deferred tax assets of 4 crores) , so total of 44 crores of Deferred tax liability. So we need to

Still Tax as per Income tax is greater than tax calculated as per book of around 7 crores as of fy13.

We need to take this into account when we calcualte cash flows and the dividend


(Hardik Shah) #30

Hi Rajesh,

Thanks for the input. Did some more research on the tax angle. Actually, turns out the model is too conservative on the tax side of things.

NTBCL has a tax holiday from FY11 to FY21 (under section 80IA), so their income tax liability under the IT act for those years is zero. They only need to pay MAT for which they get MAT credits. The MAT credits will be utilised in the years after the tax holiday to offset any income tax payable. Effectively, if we are assuming operations only till FY28, on a cashflow basis, the business will pay only MAT (20% of PBT) instead of 33%. This is confirmed by the ARs of FY2012 and FY2013 where the cashflow impact is only the MAT amount.

I guess the deferred tax liability is being created assuming the concession period will get extended?


(rajesh) #31

cash flow impact is only the MAT amount as that is the tax that needs to be paid as per Income tax now. That is the reason we have deferred tax liability.

I am not an expert on this , butI feel cash that will go out in future ( May be 3 years or 5 years or after 2012) will surely be greater than the amount that is shown as Tax in P/L. So this has to be factored in .


(Hardik Shah) #32

Its come earlier than I thought it would. Dividend of Rs 1.5 share declared today after market hours. Implies a 6.8% dividend yield on current price.

I think the final dividend (to be declared in May) should now be 50p a share.


(Mokhtar Yaveri) #33

Positivity has been flowing from the NTBCL management. First big news was the generous dividend. This answers a lot of questions to investors who were of the opinion what would they do with the cash flow.

Another news today was the Good gesture by Noida Toll Bridge management in honour of women. On international Womens day they waived off toll for women. Now from an investor perspective it seems losing out on money. But I see it from the management perspective on showing goodwill and marketing their road to the nation.


(Seeker) #34

It has been a while since there has been any posting on this thread. Here are my 2 cents:

)- Dividend story has played out better than what was expected. Even at today’s price it 7%+ dividend yield share.

)- Resolution on the concession agreement with Noida authority has no end in sight. While this causes uncertainty, we should take comfort that the ongoing toll revenue.

)- There is a risk about a parallel bridge coming up. I think in the best case it is still 3 - 5 years away and in the interim traffic growth will ensure that there is enough volume on the bridge.

)- Biggest risk in my mind is Regulatory risk where government forcibly makes it a free bridge. There is no way to know the probability of this but in my mind this risk has gone since Modi has become PM since he is big on PPP.

Overall, while I will not bet heavily on it, I have around 6% of my portfolio allocated to it.


(Varadharajan Ragunathan) #35

Rajeev

Agree but this is the type of stock that one should buy after a deep correction - at a Rs. 24-25 levels, this would be a good stock to get in but at Rs. 32/- upside becomes substantiall limited. I do not see this getting re-rated into double digits given the lack of growth levers - I would baulk before buying at these levels.

how are you saying 7% dividend yield - are you extrapolating the march 2013 dividend ?

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(Seeker) #36

I have been in this stock for a while now and my average price is much lower than the current price. However, as the stock have risen I always like to go through the exercise of mentally liquidating the stock and then deciding if I should continue to own it. So I was putting my thoughts on my current thought process.

Noida has given an interim dividend of 1.5 Rs/share in March 2014 and they have a declared final dividend of 1 Rs/share which should come in Sept 2014. So for a price of 32.6 we get a dividend of 2.5 Rs/share or 7.7%.


(Sridhar V) #37

I haven’t been closely tracking this stock until I head about the recent dividend announcement. Going by Rajev’s point the dividend yield of 7.7% at current market price (32.6) seems highly attractive. Its almost on par with fixed deposit, and capital appreciation is extra.

I cannot predict what will happen in future and I’m not an expert in understanding concession agreement/TDR, etc.

Assuming the toll revenue continues as such I dont think the investing story will end. Let me provide a few assumptions or opinions (I could be wrong here. so do ur own analysis)

  1. As long as toll revenue is steady and assuming the company maintains the infrastructure well and manages operational costs, the profitability and cash flows will be good

  2. What if new bridges come up. This will have a big impact initially, but since the asset is already generating free cash flows the only issue will be drop in revenues and profits. I don’t think everyone will stop using DND tollway. Some people will avoid it for a few months or years, but regular commuters who want to save time will not mind the toll fare. We also need to think about transportation of goods, commodities, etc, and the trucks and logistics companies may protest but they will be fine with paying nominal toll if they can get access to better road and save time, fuel and efforts. The kind of traffic in Delhi, Noida, Gurgaon and Faridabad will tell you that the number of vehicles are always on the rise despite having metro rail and other public transport systems.

  3. The dividend yield is 7.7%. For people who bought at lower prices the yield would be much higher. The yield will improve going forward assuming cash flows are good. The new roads can put a break to this. If some cash is retained the BV would increase, which is also good for existing investors as they get some margin of safety.

  4. A few generic news I came across looks positive. The safety norms were an issue and accidents were frequent. NTBCL has been taking some moves to improve all this. There was also some mention of smart cards or passes for regular commuters, which will speed up the operational procedures. I feel the idea of passes at concessional rates can also generate free cash in advance. Its one way of generating float. In addition there is hardly any risk of credit sales or account receivables or bad debts. These are clearly strengths in this business model.

  5. The new bridges could be a blessing in disguise, because people will not have a reason to complain/protest if they have free roads as well as toll roads. Then NTBCL can focus on its operations better and will not be disrupted by these protests. Moreover if more people move to Noida/Gr.Noida given free roads, some of them will tend to use paid toll at some point or other…and that’s positive news in future.

My personal view is that the current government will not disrupt and mess around with PPP projects. They may put in some conditions, rules, etc to ensure better maintenance, safety norms, etc.

The stock price may move up or down and completely mislead investors. One has to remain focused on the fundamentals. This is definitely not a blue chip stock so obviously one’s exposure should be limited.

The kind of expansion happening in Noida is rapid. You see more sectors being created and people shifting over there. Of course there are some buildings that were flouting norms, but overall there is a tendency to move to Noida/Gr. Noida/Gurgaon, etc. Few people move there for housing, but some move due to job/career reasons and companies are also setting up base.

The free tolls can upset the story a bit but DND flyway will still be used by people when other tolls become full. If the new tolls are going to come up in 3 years (as Rajesh mentioned above) I think the traffic growth will go up. The only thing to bear in mind is the fact that the expected growth in earnings may not be as it is today if new bridges come up. So there will be some interim pain to live with.


(vivek bothra) #38

In cases like Noida, we should be also looking at this from point of view of after tax return. At CMP it is giving close to 10% after tax return for people in 20% tax bracket.

So what will happen if the stock falls for 10 to 20% from these levels?

The stock would become too attractive for arbitrageurs as it will provide above risk free rate return (free lunch) to them. There will be demand for stock and price will move up

How long will this phenomenon continue to happen?

The key assumptions that will drive the stock price up every time there is a fall

  1. Till company continues to earn continues to post healthy earnings per share a last five years it has been able to do so a Check out their earnings analysis** here**
  2. There is no major Capex outlay for the company that reduces the dividend pay-out thereby reducing dividend per share if that happens this will reset the floor price lower

The entire analysis was first posted here -


(Alok Lodha) #39

chairman commented at AGM that they will increase the dividend payout in future as they don’t have any use of cash.


(Sridhar V) #40

A small correction: By saying ‘free tolls’ i actually meant ‘free roads’, which compete with NTBC. The free roads will dent DND flyway in the short-medium term once they start operations. Once the traffic, population and commercial activities reach a critical mass, some people would start using the paid toll - either to save time, fuel or to ensure timely delivery of people, goods, etc. Long-distance commuters, tourists, etc would also prefer the toll route. As Noida, Greater Noida, etc see a greater expansion in population due to the metro connectivity from Delhi, the DND route will pick up even after the free bridges come in to play. The other interesting aspect is when there are fewer toll users, there is a possibility of regular hikes as no one should complain given that they have both free and paid options. So the hike issue will get sidelines as long as its reasonable.