With 10 projects to get commissioned over the next 18 months and interest rates at a peak, Edelweiss believes that ITNL’s strong balance sheet makes it one of the best asset plays in the infra asset space
IL&FS Transportation Networks (ITNL) Q3FY13 profits were below expectation, despite sterling revenue growth, due to lower EPC margin. While revenue surged 39% year-on-year, indicating strong execution, higher share of low margin construction business dragged EBITDA margin down to 25%, according to Edelweiss Financial Services analysis of its Q3FY13 results.
Toll collection on most projects remained strong. Buoyed by robust execution, Edelweiss has revised up its revenue estimates 2% and 13% for FY13 and FY14, respectively. With 10 projects to get commissioned over the next 18 months and interest rates at peak, Edelweiss believes that ITNL’s strong balance sheet makes it one of the best asset plays in the infra asset space. Edelweiss maintains a ‘BUY’ recommendation on these shares in the stock exchange.
ITNL’s Q3FY13 topline at Rs17.6 billion (up 39% year-on-year) highlighted its strong execution capabilities. However, increase in contribution from low margin EPC business (69% against 65% of revenue in Q2FY13) led to EBITDA margin plunging 750 basis points sequentially (EPC EBITDA margin at about 17%, while about 80% for BOT division). While capital charges remained under control, higher tax rate at 37% led to PAT coming at Rs1.0 billion (up 19% year-on-year), lower than our estimate of Rs1.2 billion.
ITNL’s order book remains strong at Rs119 billion. Of this, 49% are NHAI projects, 28% non-NHAI road projects and balance non-road projects.
ITNL’s strong financials place it in an ideal position to benefit from declining competition for road BOT projects; it can win $1 billion worth of new projects every year without equity dilution. With 10 projects becoming operational over next 18 months, toll/ annuity collections are set for an upswing.
“Service sector activity continued to pick up pace led by a faster inflow of new business. With stepped up hiring, companies broadly managed to contain the rise in backlogs of work,” Leif Eskesen, chief economist for India & ASEAN at HSBC said
India’s services sector expanded at the fastest pace in a year, data from the HSBC Services Purchase Managers’ Index (PMI) showed. The seasonally adjusted HSBC Services Business
Activity Index posted 57.5 in January, up from 55.6 in the previous month, which was the fastest since January last year.
The index is based on data compiled from replies to sent to purchasing executives in over 350 private service sector companies. A reading of over 50 shows expansion, while below 50 indicates contraction.
The services sector, which makes up for nearly 60% of the country’s economic output, witnessed a significant pick-up in new orders. The overall rate of expansion was sharp and the fastest in 11 months, the HSBC release said.
Services firms in India remained optimistic regarding activity levels in the upcoming year, but the degree of confidence was the lowest registered in three months. Approximately 42% of services companies predict overall activity at their units to increase, while just 3% forecast a decrease. Anticipated rises in demand, increased marketing and maintained brand reputation are projected to contribute to higher output.
Employment in the Indian private sector rose for the eleventh month running in January, amid evidence of increased volumes of incoming new work. This apart, the rate of job creation was only slight and broadly in line with that seen in December, the release said.
Commenting on the India Services PMI, Leif Eskesen, chief economist for India & ASEAN at HSBC said: “Service sector activity continued to pick up pace led by a faster inflow of new business. With stepped up hiring, companies broadly managed to contain the rise in backlogs of work.
“Inflation readings held broadly steady, with fuel, raw material and labour cost pressures still simmering. These numbers underscore the need for the Reserve Bank of India to approach policy easing with caution.”
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