Investors can subscribe to ITN's offering, given the long-term growth prospects of the highway sector AMRITESHWAR MATHUR ET INTELLIGENCE GROUP

IPO details

Price Band: Rs 242 to Rs 258

issue size:

upto Rs 700 crore

Date: MAR 11-15

THE government has been focusing more on improving the country?s infrastructure network, especially roads and the highway networks.

To leverage the growth opportunities in the medium to long term for the development of the country?s transportation network, IL&FS Transportation Network (ITN) is coming out with an issue aggregating up to Rs 700 crore. This issue consists of an offer for sale of 42.78 lakh equity shares of face value of Rs 10 each by Trinity Capital, an existing shareholder, aggregating Rs 110.4 crore at the upper price band. The balance comprises fresh issue of around 2.28 crore shares at the upper price band to raise around Rs 589.6 crore.

EXPANSION PLANS

The company plans to use a part of the proceeds for the pre-payment and repayment of debt. For instance, repayment of loans worth Rs 150 crore to banks is planned by ITN in FY10 and Rs 350 crore in FY11. The secured loans taken by the company amounted to Rs 1,406 crore on a consolidated basis at the end of Sept 2009, and it included Rs 1,126 crore of credit facilities availed from banks.

BUSINESS

ITN is one of the leading private sector BOT (build, own and transfer) road operator in the country. The company was incorporated in 2000 and since then it has been involved in the development, operation and maintenance of national and state highways. The company?s current project portfolio includes 17 highways comprising nearly 9,397 lane kms, which includes 4,086 lane kms under construction and maintenance, and 5,311 lane kms under development (of which 1244 lane kms are under construction). ITN is also developing 11 road projects, across various states in the country, and also in Madrid, Spain. In 2008, they acquired Spain-based Elsamex to complement their BOT road operations with this player?s offerings in maintenance of roads, buildings and petrol stations in its home country, along with additional operations in Portugal, Columbia and Mexico.

The company is also expanding its focus to other segments of the transportation sector - and it has been selected for the development of 4.9 km track of elevated metro rail link project in Gurgaon, Haryana, and also operating and maintaining the Nagpur city bus services on BOT basis.

ITN generates revenues primarily from Elsamex?s maintenance business and from annuity receipts, toll collection, operation and maintenance activities and advisory and project management fees from

BOT road projects.

FINANCIALS

The company?s operating profit amounted to Rs 340 crore in the first half of FY10, while its net income amounted to Rs 957 crore. ITN?s income from operations includes income from advisory and management fees, toll revenue, operation and maintenance income. The results for FY09 and a year earlier are not strictly comparable, given the acquisition of Elsamex in 2008. ITN?s nearest rival is IRB Infrastructure Developers, which had around 800 km of BOT highway projects under management at the end of FY09.

VALUATIONS

At the upper price-band, ITN is asking for price to earning multiple of around 21.2 times its estimated net profit for FY10. The calculation is based on the post-IPO equity dilution of around 13%. In comparison, IRB Infrastructure is currently trading at 29 times its consolidated earning on trailing 12 months basis. Of course, the portfolio of BOT highway projects of both the companies is not strictly comparable. However given its lower valuations, investor?s could consider subscribing to the issue.