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)
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
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.
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.
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.
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.