On a fast lane

IL&FS Transportation Networks (ITNL), which undertakes road projects on a build-operate-transfer (BOT) model, is raising Rs 700 crore from the primary market. Of this, about Rs 103-110 crore is an offer for sale by an existing investor Trinity Capital, while the balance will accrue to ITNL which plans to use the funds to prepay part of its debt. ITNL has so far been involved in 21 projects of which 19 are in the road sector. The company started operations in 2000 when its parent IL&FS spun it off into a separate company with a focus on surface transportation projects.

Projects
Of the total 9,397 lane kilometres it has taken up for execution (see table), the company has completed 4,081 kilometres. These include the Noida Toll Bridge, the first road toll company to be listed. Its biggest project till date is in Rajasthan where it is developing multiple stretches under the Mega Highways Project with a total length at 2,106 lane kilometres. In addition to eight projects under operation, the company is developing 10 other road projects across the country, which are in various stages of implementation.

These projects are expected to be completed in the next two and a half years. The company is also the preferred bidder for two projects - the 888 lane kilometre Narketpalli-Medarmetla road project in Andhra Pradesh and Almaty-Hargos stretch in CIS (former Soviet Union) with a size of 1,212 lane kilometres. Further, it is pre-qualified in 23 projects of 2,500 lane kilometres with estimated project cost of about Rs 21,000 crore.

The key risk for the company is the level of traffic flow through a route which will decide the viability of a project. The Noida Toll Project for example, where ITNL currently holds 25 per cent, did not meet the requisite targets (commercial operations started in 2001) and is only now able to generate healthy traffic flow. The management, however, says that projects it is implementing are in areas where alternative routes are not likely to come up and should fetch it reasonable traffic. 
 

FAIRLY PRICED
	IL&FS Transportation			IRB Infra

in Rs croreFY2008*FY2009FY10**FY10E Revenues 4371,3321,9601,800 Ebidta249263714633 Net profit 9328236346 P/E (x)—158.321.724.2 P/BV (x)—4.33.04.2 * Acquired Elsamex in March 2008* Annualised 
Valuation at Rs 258, the higher end of the price band
Source: Company, E:Analyst estimates 

Revenue flow
The company generates its revenues primarily through annuities and toll charges. While annuities are assured payments for the duration of the project, toll charges are fees collected from users of the project. A majority (65 per cent) of the company’s projects are in the toll collection category while the rest is annuity based. The management is not looking at projects below 14 per cent IRR (internal rate of return) and expects the current projects to give it an IRR in the range of 16-17 per cent.

For future projects, what will act in favour of ITNL are NHAI norms which forbid developers from bidding for projects if three or more of their projects are awaiting financial closure. Having a parent such as IL&FS, which has proven skills at raising capital and financial closure, is expected to be a major positive for ITNL. Further, 35 per cent of the projects being annuity give stability to cash flows.

In addition, to reduce revenue volatility it has auctioned toll collections to third parties for a period of one year in exchange for a fixed fee.
 

PROJECT PORTFOLIO
Key road projects	Format	Length ^	Type
Under development
Mega Highways, Rajasthan	PPP	476	Toll
Multiple stretches, Chattisgarh	BOT	1,368	Annuity
Multiple stretches, Jharkhand	BOT	1,002	Annuity
Hyderabad city	BOT	173	Annuity
Trivandrum city	BOT	107	Annuity
Beawer to Gomati	DBFOT	248	Toll
Chandrapur-Warora-Bamni	DBFOT	275	Toll
Hazaribagh-Ranchi,	BOT	319	Annuity
Pune to Sholapur	DBFOT	571	Toll
Moradabad to Bareilly,	DBFOT	522	Toll
Madrid Highway Stretch	-	255	Toll
Total	-	5316	-
Key road projects	Format	Length ^	Type
Under operation
Maharashtra to Belgaum	BOT	472	Annuity
Baroda-Halol, Ahmed.-Mehsana	BOT	523	Toll
Delhi to Noida	BOT	60	Toll
Jetpur to Rajkot, Gujarat	BOT	389	Toll
Mega Highways, Rajasthan	PPP	2106	Toll
Trivandrum city	BOT	51	Annuity
Kotakatta to Kurnool	BOT	328	Annuity
Outer Ring Road, Hyderabad