AllCargo Logistics, ILFS Transportation, Punj LLoyd

 AllCargo Logistics, ILFS Transportation, Punj LLoyd 

CCCL, Diamond Power Infrastructure, GSPL, ILFS, JB Pharma, Kaveri Seed, Kajaria Ceramics

CCCL, Diamond Power Infrastructure, GSPL, ILFS, JB Pharma, Kaveri Seed, Kajaria Ceramics

IL & FS Transportation

IL & FS Transportation

IL&FS Transportation settles at 6% premium

At Rs Rs 273.75 on BSE

Shares of IL&FS Transportation Networks settled at Rs 273.75 on BSE, at a premium of 6.10% over the initial public offer price of Rs 258.

The stock debuted at Rs 287, a premium of 11.2% over the initial public offer (IPO) price. On BSE, 1.65 crore shares were traded on the counter. The stock hit a high of Rs 295 and a low of Rs 270.10.

The current price of Rs 273.75 discounts the year ended March 2009 standalone EPS of Rs 2.50 by a PE multiple of 109.5.

IL&FS Transportation Networks (ITNL) had priced the IPO at Rs 258, at the higher end of price band of Rs 242-258 per share price band. The public offer was subscribed 33.42 times. The IPO got bids for 79.26 crore shares as against 2.37 crore shares on offer. The issue remained open between 11 and 15 March 2010.

Category wise data showed that the qualified institutional buyers portion was subscribed 52.60 times, non institutional investors by 39.39 times, and retail individual investors by 4.56 times.

The offer consisted of a fresh issue of equity shares by the company and an offer for sale of 42.78 lakh shares by Trinity Capital.

On 11 March 2010, the company raised about Rs 126 crore by allotting shares to several anchor investors at Rs 258 per share. The anchor investors include Reliance Capital Trustee Company, Axis Mutual Fund, Sundaram BNP Paribas Mutual Fund, Royal Bank of Scotland, HDFC Trustee Company, JF India Fund, Nomura Mauritius, Ward Ferry Management and Jupiter South Asia Investment Company.

The company intends to use the IPO proceeds for repayment of loan and to support its growth plans. The company has debt totaling Rs 1000 crore.

IL&FS Transportation Networks is one of the leading private sector BOT (build, operate and transfer) road operators in India. The company is engaged in the development, operation and maintenance of national and state highways, roads, flyovers and bridges in various parts of India.

The company has a diverse project portfolio, consisting of 17 road projects comprising approximately 9,397 lane kilometers (km), which includes 4,086 lane km under operation and maintenance and 5,311 lane km under development.

IL&FS Transportation Networks reported a net profit of Rs 42.07 crore on sales of Rs 170.67 crore in the year ended March 2009. On a consolidated basis, the net profit was reported at Rs 27.88 crore on sales of Rs 1252.59 crore in the year ended March 2009.

ILFS Transportation Subscription Details

Qualified Institutional Buyers (QIBs)	52.6077
Non Institutional Investors	39.3943
Retail Individual Investors (RIIs)	4.5636

ILFS Transportation IPO Review

Investors with a high-risk appetite can consider the initial public offer of road developer and operator, IL&FS Transportation Networks (IL&FS Transport). A portfolio of eight roads in operation and 11 more under development (totalling to 9400 km), a strong parent in IL&FS and a foreign acquisition which holds potential to offer superior technology for road operation and maintenance in the domestic market are key positives for the company.

Nevertheless, uncertainties linked to the long term and the differentiated nature of projects; high debt and risk of the foreign subsidiary pulling down margins make this investment risky. These risks may stand mitigated after two-three years, when new projects, once commercialised, could de-risk the existing portfolio.

The offer price of Rs 242-258 discounts the annualised consolidated per share earnings for FY-10 by 20-21 times, post-issue. Its price-to-book value (relevant here given that it holds roads as assets) of three is not way off valuations of international toll operators such as Abertis.

Despite holding a larger portfolio of roads, IL&FS Transport's valuation is a tad lower than its most comparable peer, IRB Infrastructure Developers and perhaps rightly so, given the superior profitability and return on equity of IRB at present. IL&FS Transport, nevertheless holds potential to more than double its revenues over the next couple of years, if it is able to successfully implement its projects on time.

Business and offer

The company is in the business of developing and operating roads by entering into long-term concession agreements. Apart from revenue received for construction, the group generates toll/annuity revenues and revenues from operation and maintenance of roads. For the half-year ended September 2009, the company's consolidated revenues were Rs 957 crore (Rs 1225 crore for FY-09) and net profits for the six months stood at Rs 118 crore (Rs 27 crore in FY-09).

This offer is a combination of fresh issue of shares and offer for sale. At the offer price band, the company (net of offer for sale) would raise Rs 589-596 crore. The offer proceeds would primarily be used to repay some of the debt.

Unique features

IL&FS Transport's primary business stands out for certain differentiated and ‘ahead of market' strategy adopted by it.

Toll auction: For one, the company, having been in the toll business ahead of peers, has moved up the learning curve, hurting itself initially on estimation of toll traffic and rates.

It has, therefore, adopted the toll auction model for some of its projects; wherein it earns a fixed sum in return for allowing the toll collector to enjoy revenues or bear the volatility in toll collections as the case may be.

While it may seem that the company is capping its toll revenue growth by entering into such arrangements, the short-term nature of such contracts (maximum of 12 months) allow the company to revert to own toll collection if they are found to be lucrative.

For instance, the company could on initial periods of sluggish traffic adopt this strategy and then shift to own toll collection once traffic picks up thusreducing the volatility present in toll projects but enjoying higher revenues if the toll project promises to be lucrative.

Acquisition: IL&FS Transport's profit margins crashed in FY-09 as a result of its acquisition of the Spanish road operator, Elsamex (in March 2008). In what was perhaps a distress sale, valued at Rs 77 crore, the Spanish company's high fixed costs and interest costs evidently dragged IL&FS Transport's net profit margins to a meagre 2.2 per cent in FY-09. The acquisition may, however, have to be viewed in the following context: One, Elsamex, although in distress, generates close to 40 per cent of IL&FS Transport's consolidated revenues and with experience of operating over 21,000 km of roads internationally, is clearly a player equipped with experience and technology.

Two, Elsamex's technology can be effectively used to operate and maintain Indian roads. Besides, a good number of the NHAI road contracts that were initially given on cash-contract basis and maintained by NHAI, may come up for O&M contracts, providing huge opportunity for companies such as IL&FS Transport. If so, the relatively lucrative Indian market could provide the much-needed profit margin boost to this Spanish company. Elsamex's presence in South American countries could also help combat the European slowdown.

Beneficial interest: The third strategy of IL&FS Transport is to hold ‘beneficial interest' in some projects by way of warrants and call options; the warrants entitled to earn dividends from projects; typically at a much later stage. Revenues from these projects would come to IL&FS Transport's books only on conversion of these instruments into shares. The conversion of these warrants can be expected over a three-year time-frame when some of the projects may break even.

However, this does pose risk to revenue visibility if conversion is delayed and dividend flow is insignificant. At least three of the 11 upcoming projects come under such beneficial holding, besides call options on three of the eight operating roads. However, since the parent holds much of the interestthe above risk may not be too high.

Financials

IL&FS Transport's revenues have grown six-fold over two years to FY-09 as a result of acquisitions and stake increases. Consolidated earnings though, halved over this period, merely on account of the acquisition.

The six-month earnings for FY-10 though have picked up pace and at Rs 118 crore, is over double that of earnings in FY-09. Operating profit margins for the half year, at 35 per cent, although not superior to IRB, is in line with industry average.

The company's debt equity ratio could come down to 1.5 times, post-issue, after repayment of debt. This leverage nevertheless appears high; the consoling factor though would be that all new projects, being SPVs would leverage in their independent capacity and the present debt level would provide some leeway to allow borrowing by IL&FS Transport for its equity contribution.

via BL

ILFS Transportation, Pradip Overseas IPO Analysis

ILFS Transportation, Pradip Overseas IPO Analysis

ILFS Transportation Networks IPO Analysis

IL&FS Transportation Networks (ITNL), promoted by IL&FS (Infrastructure Leasing & Financial Services), is an established surface transportation infrastructure developer providing end-to-end solutions for BOT (build, operate and transfer) road projects.

The company, incorporated in 2000 to consolidate the existing road infrastructure projects of IL&FS and pursue various new project initiatives in the area of surface transportation infrastructure, currently has a total road portfolio of 9,397-lane km of BOT roads under development and management. Of which, about 35% is annuity projects and balance 65% are toll projects. Of the total road project portfolio, operational projects were eight with an aggregate distance of 4,081 lane km, and the projects under development number about 11 (including one overseas project in Spain), with an aggregate length of 5,316 lane km. In addition to the road sector projects, it is also developing the Gurgaon Metro Link Rail Project. Similarly, it operates the Nagpur City Bus Transportation Service on BOO basis. Moreover, the company is believed to be the preferred bidder for two projects, with an aggregate distance of 2,100-lane km.
All the BOT projects are implemented through special purpose vehicles (SUVs), and the company has controlling interest in a number of SPVs. Noida Toll bridge is the first BOT project of the company. It holds a 25.35% stake.

The company acquired a 100% stake in Spain-based Elsamex SA, which provides maintenance services primarily for highways and roads in Spain and other countries, in March 2008. Apart from o
operations and maintenance (O&M) of roads, Elsamex also offers O&M service for petrol stations and buildings. Elsamex has over 21,000-lane km of roads and over 3,100 petrol stations under maintenance worldwide. ITNL plans to diversify its operations into urban infrastructure, railways, and airports.

ITNL's major source of revenue are fees received on account of rendering 1) project development services; 2) advisory and project management services; 3) construction supervision services; 4) operation and maintenance service; 5) tolling; and 6) dividend and interest income on investments. O&M income, construction contract revenue, toll revenue and finance income accounted for about 63.2%, 13.3%, 6.9% and 6.2%, respectively, of the FY 2009 consolidated income of the company, excluding other income. However, the share of construction contract revenue has increased to 42.9% for the half-year ended September 2009, with that of O&M declining to 39.8%. Toll revenue and finance income stood at 7.2% and 4% for the same period.

The O&M revenue largely consists of income from 1) Elsamex's maintenance activities [beginning FY 2009]; and 2) operation and maintenance startup fees the company generate in India as well as recurring O&M fees to upkeep the road assets in India. The finance income consists of revenue from financial assets (roads or bridges for which ITNL entered into an annuity contract). The majority of the annuity received for these roads or bridges is not recognized as revenue but instead used to offset the cost of the original assets, which was capitalized.

Further, the company has also entered into a memorandum of understanding with Belbadi and Ascon Road Construction L.L.C (Ascon) to bid for new projects in the Gulf Cooperation Council Region and for setting up a contracting and project development strategic partnership to undertake major infrastructure, real estate development, and construction and maintenance projects. IL&FS has also entered into a memorandum of understanding with the AAI pursuant to which IL&FS has agreed to cooperate, identify, develop, implement, operate and maintain airports and associated projects outside India, and it intends to leverage IL&FS's arrangement with the AAI (Airport Authority of India) for identifying, securing and developing airport projects outside India. The company also entered into a memorandum of understanding with Middle East Coal Pte, Singapore, for financing, developing and implementing coal evacuation infrastructure facilities in Muara Wahau, Indonesia. The company intends to utilize Elsamex to bid for OMT (operate, maintain and transfer) projects outside India in the countries in which Elsamex operates.

Though the company is not get anything from the offer for sale (by Trinity Capital), at the offer price band of Rs 242-258, the fresh issue will result in proceeds of Rs 589.61 crore to Rs 596.45 crore. These funds will be used primarily for funding pre-payment and repayment of portion of the Rs 500-crore debt and balance for general corporate purposes.

Strengths

Parent IL&FS has reputation in infrastructure development, with advisory relationship with various agencies/arms of governments, both Central and state, implementing infrastructure projects. This differentiates ITNL from other infra developers who transformed themselves from being construction companies to project developers. On strong parent, the company is well positioned to generate value in the pre-construction phase, with its advisory role. IL&FS also brings in strong management team with vast experience in infrastructure development and financing of infra projects.

Has strong execution capability, with a track record of operational projects.

The government of India is strongly committed to road sector development, with construction of 20 km of road a day, expressways etc. This is all set to bring enormous opportunities for road sector developers.

Weakness

Though the GoI is committed to highway construction of 20 km a day, the last couple of years, especially 2008 and 2009, has not seen major finalization of orders from NHAI (National Highways Authority of India), the nodal agency for highway development in the country at the national level.

Though the company, off late, took up design, engineering and project management for SPVs, it still outsources civil works unlike its competitors, who are integrated players. Thus, it is unable to capture the complete value chain.

IL&FS and certain other group companies have equity interests or other investments in other companies that offer services that are similar to the business of ITNL, such as Maytas Infrastructure, Chhattisgarh Highway Development Company, Jharkhand Accelerated Road Development Company, MP Toll Roads, Road Infrastructure Development Company of Rajasthan and IL&FS Nepal Infrastructure Development Company Private. This may result in conflict of interest in addressing business opportunities and strategies in circumstances where ITNL's interests differ from other companies in which IL&FS or group companies have an interest. Additionally, as per the model concession agreement, an applicant will be considered to have conflict of interest and will be disqualified if such applicant and any other applicant have common shareholders or other ownership interest direct or indirect of more than 25% of the paid-up and subscribed capital. As neither IL&FS nor any group company has undertaken to refrain from competing with ITNL's business, future bidding of the company may be affected in such conflict of interest cases.

As on September 30, 2009, approximately about 40% of the loans were repayable with a period of the next 12 months. The total indebtedness of the company as on September 30, 2009, was Rs 2417.13 crore. Moreover, about 21.40% of the total debt availed by ITNL as on January 21, 2010, is repayable on demand, with the unsecured debt from promoter/ group companies such as IL&FS, IL&FS Securities Services and IL&FS Financial Services aggregating to Rs 340 crore.

The company's plans of integration of Elsamex with the company might (i) take longer than expected; or (ii) cost more than expected. Any failure to effectively implement the Elsamex integration strategy would have an adverse bearing on the financials of the ITNL.

Promoter of the company, i.e. IL&FS, has been involved in SEBI proceedings. SEBI had restrained IL&FS depositary participant from opening fresh demat accounts in relation to the investigations relating to IPO scam. However, the show cause notice of the enquiry officer was disposed of, accepting the response of IL&FS.

Though GOI is committed and removed some irritants relating to concession agreement and RFQ/RFP (Request for Qualification/ Request for Proposal), land acquisition remains a roadblock, affecting the timely completion of projects. Moreover, some external factors not in the control of the developers such as insufficient/quality traffic assessment could affect the successful implementation and viability of the project.

Valuation

The financials of FY 2008 and FY 2009 are not comparable on acquisition of Elsamex SA in March 2008. The revenue for FY 2009 was up by 246% to Rs 1252.59 crore. However, the net profit (after minority interest) was lower by 70% to Rs 27.88 crore, with OPM crashing to 17.6% in FY 2009 compared to 50.6% in FY 2008 on account of thin margin business of Elsamex. But the revenue for the half-year ended September 2009 was at Rs 958.34 crore. With OPM improving to 35.2% on the back of change in revenue mix in favour of construction services business, net profit stood at Rs 118.23 crore. On post-issue equity (based on price band of Rs 242-258), the annualized EPS works out to Rs 12.2 -12.3. This is discounted 19.8 times at the lower price band and 21 times at the upper price band. In comparison, IRB Infrastructure quotes at a PE of 26.3 times its nine months ended December 2009 annualized consolidated EPS.

ILFS Transportation Grey Market Premium

Company Name	Offer Price (Rs.)	Premium (Rs.)	Kostak (Rs. 1 Lac Application)
Man Infraconst.	252	80 to 90	--
United Bank of India	60 to 66	8 to 9	-
DQ Entertainment (Inter.)	75 to 80	45 to 50	--
NMDC (FPO)	300 to 350	20 to 25	1900 to 1950
Pradip Overseas	100 to 110	14 to 16	1900 to 2000
ILFS Transportation	242 to 258	32 to 33	2000 to 2100

IL&FS Transportation IPO opens on 11 March 2010

Price band fixed at Rs 242-Rs 258

IL&FS Transportation Networks, an infrastructure development player with a focus on road projects, is looking to raise Rs 700 crore from an initial public offer.

The offer opens for subscription on Thursday, 11 March 2010 and closes on Monday, 15 March 2010. IL&FS Transportation Networks has set Rs 242-Rs 258 per share price band for the initial public offer (IPO).

The offer consists of a fresh issue of equity shares by the company and an offer for sale of 42.78 lakh shares by Trinity Capital

The company intends to use the IPO proceeds for repayment of loan and to support its growth plans. The company has debt totaling Rs 1000 crore.

The company currently has an order book of Rs 10,300 crore in road and railway projects with a total of 19 projects in its portfolio of which 8 have been completed. It wishes to further diversify into the airport and urban mass transit space.