Result Update on IL&FS Transportation Networks for 4QFY2011

For 4QFY2011, on a consolidated basis, IL&FS Transportation Networks (ITNL) posted strong numbers on the top-line as well as bottom-line front.
Robust revenue growth came from pick-up in the execution of projects, which led to stellar bottom-line performance as well. We believe ITNL is well placed to leverage on the upcoming opportunities in the road sector on account of being a leader with a robust order book and diversified portfolio. Hence, we maintain our Buy recommendation on the stock.

Dazzling performance: ITNL reported top line of `1,656cr (`733.7cr), reporting sequential growth of 125.7%, primarily due to higher revenue of the C&EPC segment. Operating margin stood at 24.8% in 4QFY2011 vs. 30.1% in 3QFY2011, down 530bp, mainly on account of increased contribution from the low-margin C&EPC segment, as expected. The bottom line grew by 158.3% sequentially to `159.2cr (`61.6cr), primarily due to stupendous
top-line growth during the quarter.

Outlook and valuation: The lull in the awarding activity in the road sector for the last few quarters had negatively affected the infra sector’s performance on the bourses. However, the awarding activity has picked up in the last couple of months, thus presenting opportunities for road developers; ITNL, being the market leader, is expected to fare well. Going ahead, we are optimistic on the road segment, given the quantum of opportunities lined up in the sector and the resultant bidding pipeline. We have valued ITNL on an SOTP basis, by assigning 5.5x EV/EBITDA to its standalone business and have valued its investments on DCF/Mcap/BV basis on FY2013E. We continue to maintain our Buy recommendation on the stock with a target price of `309/share, implying an upside of 46.2% from current levels.