Construction - Moneycontrol

Construction
NHAI targets 6000 km of tendering
Your success is our success
July 2, 2014
Re-bidding of stalled contracts and new orders (EPC+BOT) likely to push
awarding activity upwards in 2HFY15E/FY16E; NHAI targets 6000km
In FY13 and FY14, project award activity fell sharply and was at its lowest levels since
FY05, with the exception of FY09. Both BOT (build-operate-transfer) and EPC
(engineering, procurement and construction) project awards by the NHAI declined to
1116km/213km in FY13/FY14 from 6380km in FY12. We have seen a surge in ordering
activity in BOT mode between FY09 and FY12, while the contribution of projects awarded
in EPC mode was negligible. However, in FY13-14, we noticed the tapering off awarding
activity, with 14 BOT projects worth Rs150bn/1822km failing to attract any bids. This led to
awarding of only 1116km of BOT projects as against the original target of 8800km. Given
the prevailing financial and structural challenges in the sector, the NHAI aims to
tender projects worth Rs2300km via the EPC route, and we see scope of new orders
to emerge through the EPC route and potential re-bidding of stalled contracts, as
well as some new projects, which are likely to keep push tendering activity upwards
in FY15E-16E.
Premium restructuring scheme: Cashflow mismatch to get resolved for
developers
Emkay Global Financial Services Ltd.
Panel approved that developers will allow converting their premium owed to the
government (NHAI) into a loan versus earlier methodology of deferring premium to
75% during first 3 years of the construction period and 50% of the premium for the
remaining years for six-laning projects. This, in our view, is a much better framework
as far as the accountability of developers is concerned (the earlier policy would have
created litigation and also had no mechanism to gauge the premium not paid on
projects getting mobilized in the same project or used fresh equity for new road project
or else getting utilized for some other purpose).
The panel has said that the bailout for rescheduling of the premium owed to the
government should be restricted to developers with toll collections insufficient to
service debt, maintenance and premium obligations of the project.
According to the Panel recommendations the rescheduled premium will be treated as
a revenue shortfall loan by NHAI. The shortfall in the premium due can be backloaded to the later years of the concession, but will invite an interest charged at the
rate of 2% point more than the bank rate, which implies an interest rate of 10.75-11%.
The panel has recommended that a maximum penalty of 0.5% of the total project cost
be imposed if a developer avails of the option to reschedule the premium obligation;
however, it involves a caveat that penalty will be charged where the NHAI is not at
default, whereas in 80% of the cases the NHAI has remained at default in terms
getting clearances.
Given that 32 projects qualified for premium restructuring, of which 8-9 projects (sixlaning, starts paying premium from the appointed date) got the approval for premium
restructuring is an attempt to resolve the cashflow mismatch (taking sub-debt to fund
losses), the developer would have faced in early stages of commissioning (partly due
to aggressive bids). However, the developer pledge towards the equity commitment
remains in the project (which was not present in the earlier scheme). We believe the
heightened risk perception about BOT projects, due to which financial
institutions became reluctant to take additional exposure in highway BOT
projects to address this issue, the NHAI has given priority to debt servicing
requirements over the NHAI premium payments.
1
Sector Update
Emkay
©
Construction
Sector Update
Premium restructuring may not be enough, re-bid of projects the prudent
option
Premium restructuring scheme is a mechanism opted by NHAI
To bailout some of the commissioned projects (majority six-laning), which were facing
funding constraints, due to pay premium outgo. However, we believe that the
mechanism will benefit already commissioned projects given on premium, which would
help concessionaires not to fund losses, which otherwise would have taken place.
However, it may not be sufficient to improve viability of projects due to aggressive bids,
especially on road projects like Kishangarh-Udaipur- Ahmedabad (KUA).
The premium restructuring is short-term measure to kick-start the stuck projects on
assumption that traffic will improve in latter part of the concession period, which will not
benefit under construction projects, as it gives no incentives for the developers to start
their projects.
Will benefit projects that are commissioned like Ahmedabad-Vadodra, TumkurChitradurga owned by IRB Infrastructure (will improve the NPV/project valuation).
About 72% of the projects are not commissioned tendered in FY12, and 53% of
projects were given on premium, where the project cost has escalated, which gives no
incentive for these developers, considering the financial tightness of some of the
developers holding these projects to apply for premium restructuring principle.
The projects are broadly categorized into four segments: a) projects wherein developers
are prepared to make progress based on the original bidding parameters as long as the
NHAI fulfills its obligations, b) projects that need to be terminated with a penalty in cases,
where the concessionaire has defaulted, c) projects that would be terminated and re-bid,
but without a penalty in cases where the concessionaire has defaulted and the NHAI has
failed to meet its obligations, and d) projects wherein concessionaires may be willing to
make progress with some changes to bidding conditions (such as premium restructuring).
Recently, the NHAI scrapped four road projects without penalising the developer as wildlife
clearance was still pending.
Kota-Jhalawar road project (80km, a 4-laning project won by Keti Construction)
Meerut-Bulandshahr (60km, a 4-laning project won by C&C Construction)
Rampur-Kathgodam (93km, a 4-laning project won Era Infrastructure)
Agra-Etawah (125km, a 6-laning project, won by Ramky Infrastructure)
Amravati-Jalgoan , Jalgoan Maharashtra (483 km given back by L&T )
We have noticed that developers are weighed down by economically unviable road projects
as a result of aggressive biddings and due to lack incentives to help them keep the projects
in their kitty (in some cases the performance guarantee was not submitted, which forms 1%
of the project cost).
We believe the solution to kick-start these projects that are weighed down due to
financial closure is to re-invite them for re-bidding, which would attract serious
developers and discover a new premium or a grant base.
72% of projects awarded in FY12 yet to commence construction
The NHAI awarded 16,889km of road projects over FY10-14, both in BOT and EPC mode,
with 96% of the projects on a BOT basis. However, the strong tendering activity did not
corroborate the real progress on the execution front. We have observed that of the total 47
projects tendered during FY12, only thirteen projects commenced construction activity till
June 2014, increasing the average time to begin construction after a BOT project is
awarded to 27 months (the difference between the LOA date and till date). Among the 11
projects tendered in FY13, only two have started construction, which implies that the
average time to commence construction is 12-15 months, as 80% of the projects were
tendered in 1HFY13.
Of 47 projects which were tendered in FY12, 53% (25 projects) were tendered out in
premium mechanism, of which two projects are allowed for premium restructuring and 13
(27%) projects have started construction (which includes the two projects given principle
approval for premium restructuring), which implies that large number of projects to come for
re-bidding .
Emkay Research
July 2, 2014
2
Sector Update
Construction
Exhibit 1: Out 47 projects tendered during FY12, only thirteen projects commenced construction till date
Construction
Start date Premium
Km
Type
May-11
45
BOT
Apr-12
Aug-11
163
BOT
May-13
Transitory-OJSC corporation
May-11
176
Annuity
Apr-12
Madhucon projects
Nov-11
64
BOT
Keti construction
Apr-11
88
BOT
Era infra-OJSC-SIBMOST
Nov-11
93
BOT
Y
MH/KNT Border Sangareddy
L&T IDPL
Nov-11
145
BOT
Y
Hospet Chitradurga
Ramkey infra
Nov-11
120
BOT
Y
4-laning Solapur-Bijapur
Sadbhav eng
Mar-12
110
BOT
Y
4-laning of Cuttcuk-Aangul
Ashoka Buildcon
Nov-11
12
BOT
Y
4-laning of UP Harayana border-Yamunagar-Saha-Barwala
Gammon Infra
Mar-12
107
BOT
4-laining of Solapur-Maharashtra/KTK section
Coastal-srie Consortium
Dec-11
100
BOT
4-laning of Rohtak-Jind
Vijai infra
Dec-11
48
BOT
Oct-13
4-laining of Mulbagal-Karnatka/AP Border
JSR Construction
Mar-12
22
BOT
May-13
4-laining of Kiratpur ner chowk
IL&FS transportation
Feb-12
84
BOT
Nov-13
Beawer-Pali-indwara
L&T IDPL
May-11
244
BOT
Dec-11
2-laining with PS Motihari-Raxaul
Tantia-Jiangsu
Jan-11
69
BOT
Oct-11
4-laning of Punjab-Harayana border-Jind
Unity Infra
Mar-12
68
BOT
2-laning of Jowai-Meghalaya/Assam border
Simplex infra
Mar-12
102
BOT
Patna Buxar
Gammon infra
Nov-11
124
BOT
4- laning of Obedullnganj-Betul
Transitory
Feb-12
125
BOT
4-laning of Khagaria-Bakhtiarpur
Navayuga Engineering
Mar-12
112
4-laning of Hoskote-Dobbaspet
Transitory-OJSC Consortium
Mar-12
80
BOT
4-laining of Jalgaon-Maharashtra/Gujarat
L&T IDPL
Mar-12
208
BOT
4-laining of Amravati-Jalgoan
L&T IDPL
Mar-12
275
BOT
Jabalpur to Lakhanadone
Gannon Dunkerley
Jul-11
80
BOT
4-laning of Gwalior-Shivpuri
Essel infraprojects
Sep-11
125
BOT
Y
4-laning of Shivpuri-Dewas
GVK Transportation
Sep-11
330
BOT
Y
4-laning of Raipur-Bilaspur
IVRCL Asset holding
Nov-11
126
BOT
Rehabitation & upgradation to Birmitrapur to barkote
Gammon infrastructure
Mar-12
125
BOT
Y
4-laning to Hospet-Bellary-Karnataka/AP
PNC Infratech-BF utility
Oct-11
95
BOT
Y
4-laning of Mahulia to Behgora to Kharagpur
Simplex infrastructure
Dec-11
127
BOT
Y
4-laning of Gomti-Chauraha-udaipur
Sadbhav Engg, Arvee
Mar-12 79.3
BOT
4-laning of Meerut-Bulandshahar
C&C construction
Sep-11
66
BOT
4-laning of Lucknow-Sultanpur
Essar-Atlanta(JV)
Oct-11
125
BOT
2-laning of Muzaffarpur-Barauni
KNR, frischmann prabhu
Oct-11
107
BOT
Lucknow-Raibareli
Essel infratructure
Nov-11
70
Annuity
4-laning of Angul, Sambalpur
Abhijit Roads
Nov-11
153
BOT
4-laining of Jabalpur-Katni-Rewa
Soma Tollways
Aug-11
225
BOT
Jul-12
6-laning of Gundugolanu-Rajamundry
IVRCL asset & holding
Mar-12
120
BOT
Jul-12
6-laning of Anandapuram-visakapatnam-Anakapalli
Transtroy-OJSC corporation
Mar-12
58
BOT
Ahmedabad to Vadodra
IRB infrastructure
Apr-11
102
BOT
6-lanining of Aurangabad-Barwa Adda
KMC construction
Mar-12
221
BOT
Vijaywada-Gundugolanu
Gammon Infra
Feb-12
103
BOT
Eatawah-Chakeri (Kanpur)
Oriental structural
Nov-11
160
BOT
Agra-Etawah Bypass
Ramky Infra
Nov-11
124
BOT
6-laning of Kishangarh-Udaipur-Ahmedabad
GMR Infra
Sep-11
555
BOT
Projects
Bidder
Nagpur-Wainganga bridge
JMC projects, Artefact projects
Panikholi-Rimoli
Gayatri projects
2 laning of Kisnagiri-Tindivanam
Vijaywada-Machhlioatnam
Kota -Jhalwar
Rampur-Kathgodam
Award date
Y
Y
Y
Y
Y
Y
Apr-13
Y
Y
Jan-13
Y
Y
Source: Emkay Research, NHAI
Emkay Research
July 2, 2014
3
Construction
Sector Update
EPC to propel momentum in FY15E-16E
As awarding activity has stagnated in FY13 and FY14 for various reasons discussed
above, the NHAI is trying to make progress to get the order momentum back on track via
awarding EPC projects. In FY14E the NHAI has awarded six projects of 728km via the
EPC route. We have seen that that there has been aggressive bidding across EPC
projects, since the EPC qualification document, as per our understanding, encourages
participation with no cap on the number of bidders (it is leant that some bidders have
quoted at a 30% discount to the NHAI benchmark cost) in small-size projects of Rs3bn (20
bidders) and project size of Rs3-5bn (10 bidders).
We believe that the total opportunity size for EPC projects would be Rs148bn.
The government plans to set up a finance corporation with a corpus of Rs1 trn,
in partnership with Japanese investors, to fund projects in the road sector. The
Japanese partners are likely to have a 26% stake in the corporation, with assured
returns of 9%. Toll revenue of around Rs50bn, which the road transport ministry
gets, would be securitised to raise money.
We believe that if stalled projects earlier given on BOT projects, which according
to us would be around 2269km, giving opportunity size Rs340bn, considering
that 50% of this comes via EPC route (NHAI can lower the project cost if gets
tendered via EPC by 10%-12%) might create financial constraint for NHAI, which
can be resolved by further bond raising.
We consider this aggressive bidding in EPC projects as generation of negative value for
bidders, as: a) scalability of margins is capped in EPC, b) project value is at risk due to
delays in land acquisition (this would increase overheads), and c) if any change in scope of
work, which ultimately would put project completion at risk.
Emkay Research
July 2, 2014
4
Sector Update
Construction
Exhibit 2: EPC Projects to get tendered
Road Stretch
State
(kms)
Cost
(Rs.mn)
Bheem-Parsoli including Bheem & Parsoli Bypass
Parsoli-Gulabpura
Jhalawar-Rajasthan/ Madhya Pradesh Border
Merta City-Lambia-Jaitaran-Raipur
Raipur-Bheem (Jassa Khera)
Ambedkarnagar-Raebareilly (2 lane)
Raebareilly-Banda (2 lane)
Ladnu Nimbi Jodhan-Degna-Merta City (2 lane)
Bhilwara-Ladpura (2 lane)
Padhi-Dahod (2 lane)
Unaira-Gulabpura (2 lane)
Sitarganj-Tanakpur (2 lane)
Karauli-Dholpur (2 lane)
Biharsharif-Barbigha-Mokama (2 lane)
Chhapra-Rewaghat-Muzzaffarpur (2 lane)
Patna-Gaya-Dhobi (4 lane)
Jalandhar-Amritsar (6 lane)
Thanjavur-Pudukkotai (2 lane)
Tirumayam-Mannamadurai (2 lane)
Bareilly-Sitarganj (2 lane)
Uncha Nagar-Khanuawa-Roppas-Dholpur (4 lane)
Bar-Bilara-Jodhupur (2 lane)
Barmer-Sanchor-Gujarat Border (2 lane)
Two laning of NH-222 with ajunction at NH-211 To
Manwath
Widening & streghtening of Jodhpur-Barmer section
Two laning of Malshej Ghat-Ane Ghat
Two laning of AneGhat-Ahmednagar Bypass section
Two laning of Panchalakona-Yerpedu
Rajasthan
Rajasthan
Rajasthan
Rajasthan
Rajasthan
Uttar Pradesh
Uttar Pradesh
Rajasthan
Rajasthan
Rajasthan
Rajasthan
Uttarakhand
Rajasthan
Bihar
Bihar
Bihar
Punjab
Tamil Nadu
Tamil Nadu
UP
Rajasthan
Rajasthan
Rajasthan
33.0
36.3
62.2
52.8
32.4
155.9
133.3
139.0
67.8
85.6
214.0
52.2
100.9
56.3
75.0
127.2
20.0
55.2
77.7
74.5
75.0
125.0
154.0
1,000
1,140
1,770
1,580
1,490
4,960
3,510
3,680
2,370
2,790
5,710
2,200
2,890
1,940
3,050
10,270
4,930
1,700
2,520
2,970
-
Maharashtra
102.0
Rajasthan
Maharashtra
Maharashtra
Tamil Nadu
Total
Status
Awardee
Awarded
Awarded
Awarded
Awarded
Awarded
Bids invited
Bids invited
Awarded
Bids invited
Proposal given
RFP stage
Awarded
-
GR Infraprojects
GR Infraprojects
Dilip Buildcon
GR Infraprojects
GR Infraprojects
3270
Awarded
L&T
85.6
60.6
51.4
84.0
2120
2930
Awarded
Awarded
Sadbhav eng
Ashoka Buildcon
2090
Awarded
KNR Construction
2,388.92
72,880.00
Dinesh chandra R aggarwal Infracon
Zignego Company -GHV India
VIL
Source: NHAI, Emkay Research
Exhibit 3: Other EPC projects to get tendered
Road Stretch
Ramanathapuram-Dhanushkodi
Ranchi-Birmitrapur Jharkhand
Ranchi-Nagar
Udaipur-Kumdal Naya Kheda-Jhadol- Som-Nalwa Daiya-Idar
Uncha Nagla-Khanuawa-Roppas-Dholpur
Bareilly-Sitarganj
Pathalgaon-Chattisgarh/ Jharkhand border
Ambikapur-Pathlgaon
Indo Nepal Border-Ghaghra Bridge
Barabanki-Bahraich-Nanapar-Rupaidiha
Gorakhpur-Ferenda-Nautanwa-Sonouli
Pundlbari-Baxirhat
Bilaspur-Ambikapur
Kattipudi-Digmaru
Digmarru-Ongole Andhra Pradesh
Kollam-Kazhuthurty Kerala
Kozikhode-Palakkad Kerala
AP border-Nirmal
Baxirhat-North Salmara Assam
Dimapur-Numaligarh Assam
Kollam-Kumily Kerala
State
NH
Length km
Tamil Nadu
Jharkhand
Jharkhand
Rajasthan
Rajasthan
Uttar Pradesh
Chhattisgarh
Chhattisgarh
Uttar Pradesh
Uttar Pradesh
Uttar Pradesh
West bengal
Chhattisgarh
Andhra Pradesh
Andhra Pradesh
Kerela
Kerela
Andhra Pradesh
Assam
Assam
Kerela
49
23
75
58E
123
74
78
78
233
28C
29E
31
111
214
214A
208
213
222
31
39
220
70
198
265
154
80
87
131
84
122
152
99
46
190
65
255
82
75
54
100
100
191
2600
Total (Km)
Source: NHAI, Emkay Research
Emkay Research
July 2, 2014
5
Sector Update
Construction
Features of EPC model concession agreement
It is stringent on technical criteria, where EPC contracts have set minimum criteria of 2.5x
the estimated project cost for projects and construction business (both highways and other
core sectors combined) carried out by the bidder over the past 5 financial years. This
compares with the BOT contract requirement of 1x the project cost’s worth of project
business (highways and other core sectors) accumulated over the past 5 years.
Leeway provided on financial net worth. The concession agreement currently provides
leeway in terms of minimum net-worth threshold, which is at 10% of the project cost as
against 25% of the project cost for BOT contracts.
DLP (defect liability period) of 2 years on completion of the project highway and
additional DLP for major bridges and structures of 3 years (total 5 years).
Defined maintenance period of 2 years after the completion of work; 1.5% and 2% of
the contract price to be paid to the contractor in the first and second year, respectively.
Incentive for the contractor for early completion in the form of a bonus.
The contractor cannot sub-contract any work in more than 70% of the total
project length.
The EPC contract allows for a JV of maximum three players, with the lead member
responsible for satisfying 60% of technical and financial requirements (others have to
satisfy 30% of requirements). This is in addition to the weighted score exceeding the
technical and financial requirements.
Damages up to 1% of the project cost would be paid by the authority on account of any
delay from their side.
Exhibit 4: BOT Projects to be tendered
Road Stretch
State
(kms)
Cost (Rs.mn)
Barwa Adda-Panagarh
West Bengal
122.9
16,650
Jabalpur-Lakhnadon
Madhya Pradesh
Bhavnagar-Verawal (4 lane)
Gujarat
Yadgiri-Warangal (4 lane)
Andhra Pradesh
Hospet-Hubli (4 lane)
Karnataka
Status
Work Awarded to ITNL
80.8
7,770
Bids invited
260.0
32,400
Bids invited
99.0
9,570
143.3
12,930
NA
Bids to be reinvited
Numaligarh-Jorhat (4 lane)
Assam
51.2
5,850
No bids received
Ghoshpukur-Salsabari (4 lane)
West Bengal
154.9
22,120
Bids to be invited
Karaikudi-Ramanathapuram (2 lane)
Tamil Nadu
80.0
3,360
Bids to be reinvited
Demoh-Dibrugarh (4 lane)
Assam
46.0
4,730
No bids received
Jorhat-Demoh (4 lane)
Assam
81.8
8,750
No bids received
Chas-Ramgarh (2/4 lane)
Jharkhand
78.3
2,980
Approved by SFC. RFQ invited
Aurangabad-Vedishi (4 lane)
Maharashtra
189.1
18,710
Chandikhole-Dubari-Bhuban (4 lane)
Odisha
62.2
6,520
Parwanoo-Shimla (4 lane)
Himachal Pradesh
89.6
22,930
Chhutmalpur-Saharapur-Yamunagarh-Haryana/UP border
Uttarakhand/ UP
104.8
10,240
Eastern Peripheral expressway (6 lane)
Haryana/ UP
135.0
Solapur-Vedishi (4 lane)
Maharashtra
98.7
9,700
145.8
13,320
177
9,220
Hissar-Dabwali (4 lane)
Haryana
Jabalpur-Mandla Chipli section of NH12A
Madhyapradesh
Katni -Shahdol-Anooppur-chhattisgarh border section of NH-78
Madhyapradesh
Zirakpur-Patiala section of NH-64 Punjab
Punjab
50.7
5,360
174
18,990
157
65,710
2,582.10
307,810.00
Amritsar-Bhatinda section of NH-15 Punjab
Punjab
Ambala Kaithal, Haryana
Haryana
Delhi-Meerut Expressway, Delhi/Uttar Pradesh
Delhi/UP
Kazhakootam-Mukkola section of NH-47 , kerela
Kerela
Total
Work awarded to IRB Infrastructure
Bids invited
Proposal considered by PPPAC
and deferred
Proposal considered by PPPAC
and deferred
No bids received, project to be
restructured
Work awarded to IRB Infrastructure
PPPAC proposal circulated
Source: NHAI, Emkay Research
Emkay Research
July 2, 2014
6
Sector Update
Construction
Exhibit 6: Construction work per km
Exhibit 5: Order activity remains sedate
3000
2500
2000
1500
6380
1000
753
635
2848
2693
1784
2249
637
FY14
FY13
FY12
FY11
FY10
0
FY09
975
1682
2205
FY08
1116
500
FY07
FY12
FY11
FY10
FY09
643
FY14
1145
FY08
1390
FY07
1608
FY13
3360
FY06
5058
FY06
7000
6000
5000
4000
3000
2000
1000
0
Length completed (Km)
Length awarded (Km)
Source: Company, Emkay Research
Source: Company, Emkay Research
Exhibit 7: Awarding activity in BOT and EPC
7000
6380
6000
5058
5000
4000
3360
3055
3000
2000
1608
1390
1145
345
1000
89
1116
643
213
762
0
FY06
FY07
FY08
FY09
FY10
Length awarded (Km) BOT
FY11
FY12
FY13
FY14
Length awarded (Km) EPC
Source: Company, Emkay Research
Emkay Research
July 2, 2014
7
Sector Update
Construction
Exhibit 8: Competitive intensity among developers
% Final
Players
bids
preFinal
Cost Length
(km) bidders qualified participation
(Rs bn)
Date
Name of Project
Winners
Apr-11
Ahmedabad Vadodara
IRB Infrastructure
49.2
195
13
22
59%
Apr-11
Beawar-Pali-Pindwara
L&T
23.9
244
16
19
84%
May-11
Barwa Panagarh
DSC
16.7
123
9
20
45%
Jul-11
Kishangarh--Ahmedabad
GMR Infra
53.9
556
7
11
64%
Sep-11
Gwalior Shivpuri
Essel Infraprojects
10.6
125
15
28
54%
Sep-11
Shivpuri Dewas
GVK
28.2
330
14
19
74%
Oct-11
Lucknow Sultanpur
Essar - Atlanta
10.4
126
12
34
35%
Nov-11
Cuttak Angul
Ashoka Buildcon
11.2
112
16
27
59%
Nov-11
Etawah and Chakeri (Kanpur)
Oriental Structural
14.9
160
9
35
26%
Nov-11
Hospet Chitradurga
Ramky Infra
10.5
120
14
37
38%
Nov-11
Mah/KNT- Sangareddy
L&T
12.7
145
19
37
51%
Nov-11
Patna - Buxar
Gammon Infra
8.1
105
1
36
3%
Nov-11
Raipur Bilaspur
IVRCL
12.2
127
17
33
52%
Dec-11
Bikaner - Suratgarh
MBL Infra
5.1
172
6
33
18%
Dec-11
Chittorgarh Neemachah
Chetak Enterprises Ltd.
Jan-12
Kiratpur - Ner chowk
IL&FS Transportation
Jan-12
Obdellagang - Betul
Transtroy
Mar-12
Amravati Jalgaon
L&T
Mar-12
Anadpuram- Visakhapatnam - Ankapalli
Transtroy - OJSC
Mar-12
Gomti Chauraha - Udaipur
Sadbhav Engineering
Mar-12
Hoskote - Dobaspet
Transtroy - OJSC
Mar-12
Jalgaon - Guj/Mah Border
L&T
Mar-12
Jind - Punjab/Haryana Border
Unity infrastructure
Mar-12
Kharagpur-Baleshwar
IL&FS Transportation
Mar-12
Rajahmundry - Gundugulunu
IVRCL Asset
Mar-12
Sikar - Bikaner
Mar-12
5.1
117
9
36
25%
18.2
113
4
28
14%
9.1
121
6
36
17%
25.4
275
12
22
55%
8.4
58
6
35
17%
11.1
79
10
39
26%
7.2
80
4
36
11%
19.7
209
17
29
59%
4.4
69
5
40
13%
4.8
119
5
40
13%
16.2
121
3
35
9%
IL&FS Transportation
6.3
238
1
30
9%
Solapur - Bijapur
Sadbhav engineering
11.0
110
16
38
42%
Apr-12
Bridge across Narmada (Vadodara - Surat section)
HCC
5.1
6
2
35
6%
May-12
Walajahpet - Poonamallee
Essel project
12.9
93
19
37
51%
May-12
Goa karnataka - Kundapur
IRB Infra
24.0
187
2
35
6%
Jul-12
Raebareli-Jaunpur
PNC Infratech
5.7
166
8
30
27%
Jul-12
Coimbatore-Mettupalayam
Transstroy-OJSC Consortium
5.9
54
6
35
17%
Aug-12
Walayar-Vadakkancherry
KNR Construction
6.8
54
1
32
3%
Nov-12
Kashipur-Sitarganj
Galfar Engg & Contracting SAOG
6.1
77
1
30
3%
Nov-12
Rajasthan border-Fatehpur-Salasar
Galfar Engg & Contracting SAOG
5.3
154
2
32
6%
Nov-12
Rajsamand-Gangapur-Bhilwara 87 6.8 Sadbhav Engg
Sadbhav Engg Ltd
6.8
87
1
35
3%
Mar-13
Rohtak-Hissar
Sadbhav Engg Ltd
9.6
99
5
34
15%
Mar-13
Khed-Sinnar
IL&FS Transportation Networks
13.5
138
4
40
10%
Jan-14
Solapur yadeshi
IRB Infrastructure
9.1
90
2
8
25%
May-14
Yadeshi aurangabad
IRB Infrastructure
32.0
190
3
8
38%
May-14
Rajasthan -Kaithal
IRB Infrastructure
23.0
166
1
8
13%
Source: Company, Emkay Research
Emkay Research
July 2, 2014
8
IRB Infrastructure
Prospects improved
Your success is our success
July 02, 2014
Rating
Prospects improve with potential benefits from (a) premium
restructuring scheme (aid near-term cashflows and value for
Ahmedabad-Vadodara project), (b) new project wins in the
construction arm, (c) macro recovery to help BOT business
Strong cashflows from a healthy mix of operating and underconstruction assets, and moderate gearing – the key
competitive differentiators in a capital-intensive business
Earnings CAGR of 14% over FY14-16E, expect a CAGR of 25%
in cash profits, providing the ability to fund equity in new
projects. Revised FY15E/16E EPS by 13%/28%, the stock
trades at 2x P/BV, 7.7x EV EBITDA on a FY16E basis
Benefit of premium restructuring for AhmedabadVadodra/Tumkur-Chitradurga projects, addition of newly won
projects in our valuation; revised target price to Rs262
Previous Reco
Buy
Buy
Target Price
CMP
Rs262
Rs235
EPS Chg FY15E/FY16E (%)
13/28
Target Price change (%)
25
Nifty
7,635
Sensex
25,516
Price Performance
(%)
1M
3M
6M 12M
Absolute
19
126
144
138
Rel. to Nifty
13
99
103
83
Source: Bloomberg
Construction revenue visibility kicks in with recent order wins
Relative price chart
250
Rs
%
90
210
62
170
34
130
6
90
50
Jul-13
-22
Sep-13
Nov-13
Dec-13
IRB Infrastructure (LHS)
Mar-14
Apr-14
-50
Jun-14
Rel to Nif ty (RHS)
Source: Bloomberg
Stock Details
Sector
Construction
IRB witnessed some slowdown in its construction revenues (flattish on a yoy basis) in
FY14 on completion of four of its BOT projects (Talegaon-Amravati, Jaipur-Deoli,
Amritsar-Pathankot and Tumkur-Chitradurga). The Ahmedabad-Vadodara project
contributed the major portion of its construction business revenues at Rs19.6bn, which is
76% of FY14 construction revenues. However, over the last 4 months, the company has
won three projects worth Rs70bn (EPC scope of Rs62bn), which increases the order
book to Rs120bn, thereby providing EPC revenue visibility till FY17E. We expect
construction at Solapur-Yedeshi and Yedeshi-Aurangabad to start in 2HFY15, as NHAI
has already acquired 90% of the land, besides receiving all the required approvals for
the projects, which should ease the commencement of EPC activity. However, we
expect the Kaithal-Rajasthan project to start in FY16E. We expected construction
revenue CAGR of 5.2% over FY14-16E.
IRB IB
Bloomberg
3,324
Equity Capital (Rs mn)
10
Face Value(Rs)
332
No of shares o/s (mn)
238/ 52
52 Week H/L
Market Cap (Rs bn/USD mn)
78/ 1,302
Daily Avg Volume (No of sh)
6,746,169
Daily Avg Turnover (US$mn)
19.1
Shareholding Pattern (%)
Mar'14 Dec'13 Sep'13
Promoters
61.7
62.3
62.2
FII/NRI
25.7
23.2
24.1
Institutions
3.0
3.8
3.6
Private Corp
1.7
3.3
3.2
Public
7.9
7.4
6.9
Source: Bloomberg
Nitin Arora
[email protected]
+91-22-66242491
Kunal B. Soni
[email protected]
+91-22- 66242431
Emkay Global Financial Services Ltd.
Comfortably placed to meet incremental equity; restructuring to also help
Given that the equity requirement stands at Rs11bn for existing Ahmedabad-Vadodra
(Rs5.9bn) and Goa-Kundapur project (Rs5.2bn), the three newly won projects adds to
incremental equity requirement of Rs18bn, which will take the total equity requirement to
Rs29bn. The company needs the same to infuse funds over the next 3-3.5 years. We
believe, given the cash balance of Rs15bn, along with operating cashflow from BOT
projects (bulk of this originates from the Mumbai-Pune project), the construction
business would be sufficient to meet the equity requirement. The recent premium
restructuring scheme, which offsets the lower negative cashflows from AhmedabadVadodara and Tumkur-Chitradurga projects, also supported the cashflows. However, we
note that any further award wins in FY15 may put equity funding of new projects from
internal cashflows under strain.
(Rsmn)
Financial Snapshot (Consolidated)
EV/
EPS
RoE
APAT
(Rs) % chg
(%)
P/E
EBITDA
P/BV
47.0
4,591
13.8
-17.5
16.6
17.0
9.4
2.7
51.3
5,955
17.9
29.7
19.0
13.1
8.9
2.3
29,285
55.9
6,139
18.5
3.1
17.0
12.7
7.8
2.0
30,181
56.7
6,185
18.6
0.8
15.2
12.6
7.8
1.8
EPS
EBITDA
YE-
Net
Mar
Sales
(Core)
(%)
FY14A
37,319
17,537
FY15E
45,495
23,335
FY16E
52,390
FY17E
53,196
9
Company Update
Emkay
©
Company Update
IRB Infrastructure
Premium restructuring offers some relief for Ahmedabad-Vadodra project
The underlying principle of premium restructuring provided some respite to AhmedabadVadodra project in terms of a cashflow mismatch. The project is likely to pay a premium
outgo of Rs7.6bn over FY15-20E as against earlier assumptions of Rs23bn, which would
help improve the near-term cashflows and potential net value from the project. However,
we believe, even despite the restructuring scheme, the project may still potentially be
suboptimal with potential equity returns of about 9%.
Toll from recent project wins stabilizing at targeted levels
Talegaon-Amravati: The company received partial CoD for the Talegaon-Amravati project
in 1QFY14, and started toll collections equivalent to about 58% of the total length of the
project. Post-tolling of full length, per day toll has improved to targeted initial levels of
Rs1.5-1.6mn.
Jaipur-Tonk-Deoli: The company also started tolling its Jaipur-Tonk-Deoli project in
2QFY14, and reported toll collections of about Rs186mn for 4QFY14. It currently receives
toll collection equivalent to about 75% of the total tariff level. The collections imply a daily
toll collection of about Rs2.8mn. Note that tolling at full rates has started from May 21,
2014.
Amritsar-Pathankot: Tolling for Amritsar-Pathankot is yet to start (await approvals for 5
RoBs from the Indian Railways). The company expects tolling to start in another 1-2
quarters.
Exhibit 10: EBITDA to edge higher on higher BOT revenue contribution
Exhibit 9: Revenue CAGR of 18.5% over FY14-16E
35
60
50
52
40
37
15
24
10
17
5
11
16
14
18
8
-
FY10
FY11
FY12
FY13
FY10
FY14E FY15E FY16E FY17E
FY11
FY12
FY13
FY14E FY15E FY16E FY17E
Source: Company, Emkay Research
Source: Company, Emkay Research
Exhibit 12: EPS to proper higher
Exhibit 11: Earnings CAGR of 15% over FY14-16E
20
7.0
6.0
5.0
4.0
30
23
20
37
31
20
29
25
45
30
10
30
53
5.3
4.5
6.0
5.6
5.0
6.2
15
5.5
16
15
19
16
14
13
4.6
18
17
10
3.0
2.0
5
1.0
-
FY10
FY11
FY12
FY13
Source: Company, Emkay Research
Emkay Research
July 2, 2014
FY14E FY15E FY16E FY17E
FY10
FY11
FY12
FY13
FY14E FY15E FY16E FY17E
Source: Company, Emkay Research
10
Company Update
IRB Infrastructure
Exhibit 14: BOT revenue CAGR of 42% over FY14-16E
Exhibit 13: Construction revenue CAGR of 5.2% over FY14-16E
30
30
25
24
20
28
27
26
25
26
20
20
15
27
24
19
15
15
10
10
5
5
12
9
10
7
8
FY10
FY11
FY12
FY13
10
-
0
FY10
FY11
FY12
FY13
FY14E FY15E FY16E FY17E
FY14E FY15E FY16E FY17E
Source: Company, Emkay Research
Source: Company, Emkay Research
Exhibit 15: Total Investments (Equity, loans & advances)
Project Rsmn
Investments in road projects
Equity
Short
term
Long
term
Total
Equity
611
611
978
778
611
Mumbai-Pune Expressway
778
Pune-Sholapur
451
451
451
Pune-Nashik
519
12
531
519
Ahmednagar-Karmala-Tembhurni
80
0
80
Bridge over Patalganga River-Kharpada
80
200
Long
term
Equity
Short
term
Long
term
Total
611
778
451
451
451
534
519
519
80
80
80
80
80
80
80
80
80
222
707
929
222
872
2,297
3169
872
855
855
2,611
2611
257
18
Total
629
Bharuch-Surat
434
15
500
611
1,073
295
722
222
6
228
5,472
6344
872
2680
3,552
1,336
227
1563
1,336
566
1,902
4,653
1,117
5770
4,653
847.8
1792
355
162
1,145
1662
774
7.9
2326.3
3,109
5,501
Pathankot-Amritsar
355
Talegaon-Amravati
322
2
57
381
322
151
828
1301
364
352
1093.4
1,810
Jaipur-Deoli
390
264
272
926
780
200
1,837
2817
974.9
480.62
2924.9
4,380
Panji-Goa
311
929
1240
311.4
1,173
1484.4
311.4
1173.1
1,485
0
1,181
1337
476
476
952 1110.67 315.727
1110.7
2,537
1000
33.61
2950.0
3,984
801.6
972.92
6,558 11578.2
33,075
Tumkur-Chitradurg
1,180
Short
term
1212
Thane-Ghodbunder
Surat-Dahisar
Loans &
advances
Loans &
advances
Thane-Bhiwandi bypass
Integrated Road Development in Kolhapur
FY13
FY12
FY11
Loans &
advances
156
1,000
Ahmedabad-Vadodara Expressway
69
2,950
4019
MVR Infra
Subtotal - Investment in road projects
8,457
6,772
742
15971
7,832
8,942 29620.4
312 1353.214
1665.2
12,846
Investments in other subsidiaries
14,939
1,775
0
-
312
957
1,269
Construction subsidiary
312
1,588
1900
Real estate subsidiary
586
1
587
586
1
587
586
1
587
Hospitality subsidiary
0
26
26
0
119.472
119.562
0.09
182
182
Sindhudurg Airport
0
182
182
0
10.124
10.22399 0.09999
211
211
898
1,796
2694
898
1483.81
2381.81
898
1351
2,249
9,354
8,570
18666
13,744
9,316
32002
15,837
7,909
Subtotal - Investment in other
subsidiaries
Total investments in subsidiaries
742
8,942
11,578
35,324
Source: Company, Emkay Research
Emkay Research
July 2, 2014
11
Company Update
IRB Infrastructure
Exhibit 16: FCFE of both construction and BOT business
FY15
FY16
FY17
Net income (less other income)
3,131
3,500
2,819
Add: Depreciation
7,616
8,598
9,869
(44,792)
(37,658)
(20,973)
(64)
(137)
(109)
(34,110)
(25,697)
(8,394)
Debt and repayments and grant
31,292
29,666
10,087
Free cash flow to equity
(2,817)
3,970
1,692
FCFE from BOT Business
Less: Capex
Add: Working capital
Free cash flow to the firm
Less: Interest adj for tax
3397
2882
4534
Net surplus/(Deficit)
FCFE from construction business
579.54
6,851.92
6,226.16
Equity requirement
6960
12640
9700
Ahmedabad Vdr
3760
2120
Kandapur
2870
2350
0
Solapur yadeshi
1290
1190
1430
Yadeshi Aurangabad
2850
2390
2880
Kaithal Rajasthan
1870
1650
2650
Source: Company, Emkay Research
Maintain Buy with the revised target price of Rs262/share
We have revised our consolidated estimates for FY15E-16E to Rs17.8/18 per share from
Rs15/14 per share based on higher construction business revenues, slightly higher traffic
growth assumptions for road projects, and incorporating premium restructuring scheme.
We have also revised our SOTP from Rs210 to Rs262/share on account of: a) increased
value of road project portfolio from Rs140/share to Rs175/share by addition of newly won
projects in our valuation (increase of 20/share) and benefit from premium restructuring
scheme for Ahmedabad-Vadodara and Tumkur-Chitradurga projects (increase of
Rs24/share), b) higher value of construction business (by Rs8/share) on increase the E&C
earnings multiple, due to a better margin trajectory. We maintain a Buy, with a revised
target price of Rs262/share.
Exhibit 17: Earnings upgrade by 13%/28% for FY15E/16E
FY16E
FY15E
Change
Earlier
Revised
Change
Earlier
Revised
Sales
45,041
45,495
1%
52312
52,390
0%
EBIDTA
21,794
23,235
7%
25688
29,285
14%
48.4
51.1
49.1
55.9
4,780
5,406
13%
4659
5,975
28%
14.4
16.3
13%
14.0
18.0
28%
EBIDTA (%)
Net Profit
EPS
Source: Emkay Research
Emkay Research
July 2, 2014
12
Company Update
IRB Infrastructure
Exhibit 18: SOTP fair value @262
EPC
BOT
SPV
Asset Operated
Holding
Valuation
Measure
Disc rate
Value (Rs
mn)
Val/Share
Modern Road Makers
EPC Business
100%
PER
8
25972
78.1
PV of O&M Contracts
PV of O&M Contracts
100%
NPV
13.5%
3,133
9.4
Value of Contruction segment - (a)
Value of Construction segment - (a)
29,105
88
Mhaiskar Infrastructure
Mumbai Pune Expressway & NH4
100%
FCFE
12.5%
16,529
49.7
Surat Dahisar SPV
Surat Dahisar
90%
FCFE
13.5%
2,593
7.80
IDAA Infrastructure
Bharuch Surat
100%
FCFE
13.5%
2,352
7.1
MMK Toll Road
Mohol-Mandrup Road
100%
FCFE
13.5%
-139
-0.4
IRB Infrastructure
Kharpada-Patalganga Bridge
100%
FCFE
13.5%
251
0.8
NKT Road & Toll
Ahmednagar Tembhurni Road
100%
FCFE
13.5%
251
0.8
Thane Ghodbunder Toll Road
Thane Ghodbunder
100%
FCFE
13.5%
1,349
4.1
ATR Infrastructure
Pune Nashik
100%
FCFE
13.5%
474
1.4
Aryan Toll Road
Pune Sholapur
100%
FCFE
13.5%
700
2.1
Ideal Road Builders
Thane Bhiwandi Bypass
100%
FCFE
13.5%
1,803
5.4
IRB Kolhapur IRDC
Kolhapur City Roads
100%
FCFE
14.5%
3,703
11.1
Namakkal - Omallur
Namakkal - Omallur - NH-7
100%
FCFE
13.0%
1,646
5.0
Amritsar Pathankot
Amritsar Pathankot
100%
FCFE
14.0%
7,623
22.9
Jaipur - Deoli
Jaipur - Deoli
100%
FCFE
14.0%
9,146
27.5
Amravati Talegaon
Amravati Talegaon
100%
FCFE
14.0%
3,426
10.3
Tumkur Chitradurga
Tumkur Chitradurga
100%
FCFE
14.0%
-729
-2.2
Ahmedabad Vadodara
Ahmedabad Vadodara
100%
FCFE
15.5%
2,379
7.2
Goa - Kundapur
Goa - Kundapur
100%
FCFE
14.5%
5,813
17.5
Solapur yadeshi
Solapur yadeshi
100%
FCFE
13.5%
1,903
5.7
Yadeshi Aurangabad
Yadeshi Aurangabad
100%
FCFE
13.5%
2,085
6.3
Kaithal Rajasthan
Kaithal Rajasthan
100%
FCFE
13.5%
2,247
6.8
65,407
197
Gross value of BOT
Gross value of BOT
Add: PV of Loans to SPV
Add: PV of Loans to SPV
Less : Net Debt at Parent Level
2,272
6.8
Less : Net Debt at Parent Level
-9,630
-29
Value of BOT - Net of debt - (b)
Value of BOT - Net of debt - (b)
58048.6
174.7
Total
Total Value - (a+b)
87,154
262
Source: Company, Emkay Research
Emkay Research
July 2, 2014
13
IRB Infrastructure
Company Update
Key Financials (Consolidated)
Income Statement
Balance Sheet
Y/E Mar (Rsmn)
FY14A
FY15E
FY16E
FY17E
Y/E Mar (Rsmn)
FY14A
FY15E
FY16E
Net Sales
37,319
45,495
52,390
53,196
Equity share capital
3,324
3,324
3,324
3,324
1.2
21.9
15.2
1.5
Reserves & surplus
32,283
40,290
53,800
61,493
19,782
22,160
23,105
23,015
Net worth
35,607
43,614
57,124
64,817
1,799
1,815
1,845
1,898
356
308
244
144
0
0
0
0
Growth (%)
Expenditure
Employee Cost
Other Exp
SG&A
EBITDA
1,482
1,453
1,249
1,259
17,537
23,335
29,285
30,181
7.4
33.1
25.5
3.1
47.0
51.3
55.9
56.7
Growth (%)
EBITDA margin (%)
Depreciation
Minority Interest
Secured Loans
Unsecured Loans
Loan Funds
Net deferred tax liability
Total Liabilities
4,771
6,909
8,491
9,196
12,766
16,427
20,794
20,985
34.2
36.1
39.7
39.4
Other Income
1,214
1,092
1,260
1,487
Interest expenses
7,562
9,273
13,176
13,700
PBT
6,419
8,246
8,878
8,772
Current Assets
Tax
1,823
2,340
2,802
2,688
Inventories
28.4
28.4
31.6
30.6
Adjusted PAT
4,591
5,955
6,139
6,185
Growth (%)
-17.0
28.5
2.9
0.1
12.3
13.0
11.6
11.4
Other current assets
(Profit)/loss from JVs/Ass/MI
5
-48
-63
-101
Adj. PAT After JVs/Ass/MI
4,591
5,955
6,139
6,185
0
0
0
0
Reported PAT
4,591
5,955
6,139
PAT after MI
4,591
5,955
Growth (%)
-17.5
EBIT
EBIT margin (%)
Effective tax rate (%)
Net Margin (%)
Gross Block
Less: Depreciation
FY17E
93,980 131,593 152,464 158,608
8,965
8,965
8,965
8,965
102,945 140,558 161,429 167,573
247
247
247
247
139,155 184,727 219,045 232,780
88,916 102,154 143,738 160,352
3,372
3,925
4,500
5,098
Net block
85,544
98,229 139,238 155,254
Capital work in progress
44,867
80,296
75,004
145
145
145
145
27,064
23,902
23,120
22,728
2,683
2,385
2,787
2,678
55
851
907
902
15,806
12,148
10,907
10,630
8,519
8,519
8,519
8,519
0
0
0
0
Current lia & Prov
17,986
17,367
17,983
16,844
Current liabilities
Investment
Sundry debtors
Cash & bank balance
Loans & advances
71,976
15,099
14,479
15,095
13,956
Provisions
2,888
2,888
2,888
2,888
6,185
Net current assets
9,078
6,536
5,137
5,884
6,139
6,185
Misc. exp
0
0
0
0
29.7
3.1
0.8
FY14A
FY15E
FY16E
FY17E
PBT (Ex-Other income)
5,205
7,154
7,618
7,285
Profitability (%)
Depreciation
4,771
6,909
8,491
9,196
EBITDA Margin
Interest Provided
7,562
9,273
13,176
13,700
0
0
0
0
117
-1,117
158
Tax paid
-1,823
-2,340
Operating Cashflow
15,832
Capital expenditure
Free Cash Flow
E/O items
Cash Flow
Total Assets
139,634 185,206 219,524 233,260
Key Ratios
Y/E Mar (Rsmn)
FY14A
FY15E
FY16E
FY17E
47.0
51.3
55.9
56.7
Net Margin
12.3
13.0
11.6
11.4
ROCE
11.7
11.4
11.8
10.9
-1,024
ROE
16.6
19.0
17.0
15.2
-2,802
-2,688
RoIC
20.1
19.2
18.4
14.8
19,879
26,641
26,469
Per Share Data (Rs)
-31,682
-55,023
-44,208
-22,185
EPS
13.8
17.9
18.5
18.6
-15,851
-35,144
-17,567
4,284
CEPS
28.2
38.7
44.0
46.3
1,214
1,092
1,260
1,487
BVPS
87.6
101.4
115.6
129.8
475
0
0
0
2.8
0.0
0.0
0.0
-29,993
-50,497
-34,152
-17,755
0
0
0
0
Loans Taken / (Repaid)
23,884
37,614
20,871
6,144
Interest Paid
-7,562
-9,273
-13,176
-13,700
Dividend paid (incl tax)
-1,065
-1,382
-1,424
-1,435
Income from investments
0
0
0
Others
0
0
15,258
Other Non-Cash items
Chg in working cap
Other income
Investments
Investing Cashflow
Equity Capital Raised
Y/E Mar
DPS
Valuations (x)
17.0
13.1
12.7
12.6
P/CEPS
8.4
6.1
5.3
5.1
P/BV
2.7
2.3
2.0
1.8
EV / Sales
4.4
4.5
4.4
4.4
0
EV / EBITDA
9.4
8.9
7.8
7.8
0
0
Dividend Yield (%)
1.2
0.0
0.0
0.0
26,960
6,271
-8,991
Gearing Ratio (x)
1,096
-3,659
-1,241
-277
3.0
3.8
3.9
3.6
Opening cash position
14,710
15,806
12,148
10,907
Net Debt/EBIDTA
Closing cash position
15,806
12,148
10,907
10,630
Working Cap Cycle (days)
Financing Cashflow
Net chg in cash
Emkay Research
July 2, 2014
PER
Net Debt/ Equity
5.0
5.5
5.1
5.2
-65.8
-45.0
-40.2
-32.6
14
Sadbhav Engineering
Standing tall
Your success is our success
July 02, 2014
Rating
Construction revenue recovers, momentum to continue in
FY15E/16E (revenue/EPS CAGR of 15% over FY14E-16E),
increased share of mining & irrigation in backlog augur well
Well placed to fund equity requirement of Rs3.5bn for BOT
projects over FY14-16E by: a) cashflows from the
construction business, b) ARRIL securitization proceeds,
c) recovery of receivables, and d) dilution at the SIPL level
63% of equity investment in BOT assets becomes
operational, toll revenue CAGR of 37% over FY14-16E,
revised average portfolio traffic growth to 5.7%, incorporate
premium restructuring impact
Given a large order backlog (stands at Rs90bn 4x revenue
visibility), with improvement in EBITDA margins, it has
potential to generate further growth capital. Maintain a Buy,
with a revised target price of 250 (earlier Rs212)
Previous Reco
Buy
Buy
CMP
Target Price
Rs249
Rs202
EPS Chg FY15E/FY16E (%)
NA
Target Price change (%)
17
Nifty
7,635
Sensex
25,516
Price Performance
(%)
1M
3M
6M 12M
Absolute
17
108
111
111
Rel. to Nifty
11
83
75
62
Source: Bloomberg
Relative price chart
225
Rs
%
80
190
54
155
28
120
2
85
50
Jul-13
-24
Sep-13
Nov-13
Dec-13
Mar-14
Sadbhav Engineering (LHS)
Apr-14
-50
Jun-14
Rel to Nifty (RHS)
Source: Bloomberg
Strong construction momentum to continue in FY15E-16E
With the order backlog providing 4x revenue visibility, Sadbhav Engineering Ltd.’s (SEL)
revenue growth is expected to be propelled over the next 6-8 quarters. We build in
construction revenue CAGR of 15% over FY14-16E, of which the road segment (both
cash contracts and BOT assets) would account for 65% of the revenue share, mining
18% and irrigation 17%. The backlog consists of: 1) a 34% share of BOT road projects,
2) 17% of road cash contracts, 3) 22% of irrigation projects, and 4) 27% of mining
projects.
EBITDA margin expands on higher contribution from mining arm
Stock Details
Sector
Construction
SADE IB
Bloomberg
152
Equity Capital (Rs mn)
1
Face Value(Rs)
152
No of shares o/s (mn)
213/ 51
52 Week H/L
Market Cap (Rs bn/USD mn)
31/ 511
Daily Avg Volume (No of sh)
311,498
Daily Avg Turnover (US$mn)
0.8
Shareholding Pattern (%)
Mar'14 Dec'13 Sep'13
Promoters
48.7
48.8
48.8
FII/NRI
16.0
16.4
18.0
Institutions
26.2
26.5
23.7
Private Corp
6.2
5.5
6.6
Public
2.9
2.8
2.9
Source: Bloomberg
Nitin Arora
[email protected]
+91-22-66242491
Kunal B. Soni
[email protected]
+91-22- 66242431
Emkay Global Financial Services Ltd.
SEL reported an EBITDA margin of 10.3% in the last 3 quarters of FY14E; however, in
Q4FY14 it clocked a margin expansion of 11%. It attributes the margin expansion to the
operating leverage (on the back of a strong pick-up in revenue), as well as to higher
revenues from mining, a high-margin business, which clocked an average EBITDA
margin of 18-20%. Moreover, In terms of profitability, the mining segment has been
more profitable than irrigation contracts, since SEL sub-contracts 10-12% of its work
orders in the irrigation segment, which has an EBITDA margin of 5-5.5%. We expect
EBITDA margin expansion of 80bps over FY14-16E to 11%/11.4% in FY15E/16E.
Well placed to fund incremental equity of Rs3.5bn for BOT projects
With the cancellation of the Solapur project, SEL’s equity requirement has come down to
Rs3.6bn over FY14E-16E. In our view, the company would be able to meet the
requirement from: a) operating cashflows from the standalone construction business, b)
proceeds from ARR securitization, c) potential for further securitization/sale of
operational BOT projects, d) receivables from the Dhule project, and e) dilution of the
stake at SIPL level. So far, SEL has invested equity worth Rs12bn in BOT road assets.
In Q4FY14, the company also raised about Rs1.3bn in non-convertible debentures for 6
years
(Rsmn)
Financial Snapshot (Standalone)
YE-
Net
EBITDA
EPS
Mar
Sales
(Core)
FY13A
18,110
1,558
8.6
127
0.8
-91.0
FY14A
23,581
2,494
10.6
1,445
7.0
736.4
16.4
28.8
FY15E
28,237
3,095
11.0
1,117
7.4
5.2
11.3
FY16E
31,312
3,566
11.4
1,414
9.3
26.6
12.9
(%)
APAT
EPS
RoE
(Rs) % chg
(%)
EV/
P/E
EBITDA
P/BV
1.6 241.3
24.4
3.7
15.4
3.3
27.4
12.3
3.0
21.7
10.8
2.6
15
Company Update
Emkay
©
Company Update
Sadbhav Engineering
Developments over the last 4 months
Proceeds from NCDs, impending securitization to fund equity requirement
SEL raised about Rs1.3bn in non-convertible debentures for 6 years (including moratorium
in principal payments for the first 3 years). It indicated that it was close to completing
securitization of the Aurangabad-Jalna project, which is expected to raise Rs2.5bn. These
sources of funding are likely to support the Rs3.4bn pending equity requirement for projects
under construction.
Received approval for premium deferment on key projects
The company received approvals to defer premium for its Rohtak-Panipat and HyderabadYadgiri projects. For the third project, which SEL won at a premium (Gomti ka Chauraha),
the NHAI will give approval for premium restructuring after achieving CoD.
Tolling at nine check-posts; expects to toll 16 by December 2014.
The company has received completion certificates for 11 out of its 22 check-posts in the
Maharashtra Border Check-post project. Out of these, it is collecting revenues from nine
check-posts. It also disclosed that the five check-posts were close to achieving CoD, which
would become operational by December 2014.
Exhibit 19: FCFE from BOT and construction segment
FCFE from BOT Projects
FY15E
FY16E
FY17E
Net income (less other income adj for tax)
(1,695)
(1,603)
(1,235)
Add: Depreciation
1,185
1,290
2,796
Less: Capex
(13,975)
(12,824)
(4,685)
Free cash flow to the firm
(14,484)
(13,137)
(3,124)
9,741
8,244
3,008
(4,744)
(4,893)
(116)
FCFE from construction buisness
1,533
2,346
-
Cash flow from ARR secuiritisation
2,210
310
NCD raised at SIPL level
1,300
Debt and repayments
Free cash flow to equity
Cash surplus/Deficiet
300
(2,237)
(116)
Debt repayment adjusted for stake at SIPL level
354
534
804
Stake (%)
Total
Invested
Pending
100
810
810
80
416.8
417
Source: Company, Emkay Research
Exhibit 20: Equity Requirement
Projects
Aurnagabad Jalna
Ahmedabad Ring road
Nagpur seoni
100
489
489
Dhule palesnar
27
955
955
Mumbai Nashik
20
104
104
Mah Border check post
90
2,970
2970
100
2,436
2436
Rohtak Panipat
Hydarabad Yadgiri
60
601
601
Bijapur hungund
77
1,055
1,055
Gomti Ka Chauraha
100
3,115
1037.2
2077.8
Rajsamand -Bhilwara
100
1,333
867
463
Rohtak Hissar
100
1,077
542.8
515.4
Karnataka State highway project
100
390
0
390
15752
12284
3446.2
Total
Source: Company, Emkay Research
Emkay Research
July 2, 2014
16
Company Update
Sadbhav Engineering
Maintain Buy – Revised target price to Rs250/share
Given the a) large order backlog (Rs90bn, 4x years of construction revenue visibility), b)
recovery in EBITDA margins due to a recovery in revenues, as well as a higher revenue
contribution from the mining segment, c) 63% of the BOT projects are operational, we
expect a recovery in earnings over FY14E-16E (revenue and earnings CAGR of 15%
each), with an improvement in the EBITDA margin (EBITDA CAGR of 20% over FY14E16E) expansion, with the EBITDA to margin to remain in the range of 11-11.4%. The stock
trades at FY15E/16E EV EBITDA of 12.3x/10.8xand P/B of 3x/2.6x.
Our target price of Rs250 is based on the sum-of-the-parts (SOTP) valuation method,
which comprises the following:
Rs89/share value (adjusted for debt at the construction business) from the standalone
construction business (valued at 6x one-year forward FY16E EBITDA).
Rs160share from the road BOT projects (based on one-year forward FCFE valuations.
Exhibit 21: SOTP Fair value at Rs250/share
Value Rsmn
%
stake
EPC Business
13524
100
Sadbhav Infrastructure Projects
Buisiness
Value adjusted
for stake
Per share
(Rs)
89
Methodology
Based on FY16E EBITDA - 6X for
construction business
Based on FCFE valuation of projects
41237
80
30246
Aurangabad Jalna
1723
100
1722.6
9.1
Cost of Equity 14%
Ahmedabad Ring Road
3182
80
2545.6
13
Cost of Equity 14%
Nagpur-Seoni
261
100
261.2
1
Cost of Equity 14%
Dhule
4726
27
1276.0
7
Cost of Equity 14%
Mumbai Nasik
5465
20
1093.1
5.8
Cost of Equity 14%
11237
90
10113.5
53
Cost of Equity 14%
4143
100
4143.2
22
Cost of Equity 14%
MBCPNL
Rohtak-Panipat
481
60
288.7
1.5
Cost of Equity 14%
Bijapur-Hungund
3387
77
2608.1
14
Cost of Equity 14%
Gomti ka Chaurah
2963
100
2963.0
15.7
Cost of Equity 14%
434
100
434.2
2
Cost of Equity 14%
2360
100
2360.1
12.5
Cost of Equity 14%
874
50
436.9
2.3
Cost of Equity 13%
Hyderabad-Yadgiri
Rajsamanad-Bhilwara
Rohtak hissar
Karnataka
BOT Value per share
160
Target price
249
Source: Emkay Research
Emkay Research
July 2, 2014
17
Sadbhav Engineering
Company Update
Key Financials (Standalone)
Income Statement
Balance Sheet
Y/E Mar (Rsmn)
FY13A
FY14A
FY15E
FY16E
Y/E Mar (Rsmn)
FY13A
FY14A
FY15E
Net Sales
18,110
23,581
28,237
31,312
Equity share capital
151
152
152
152
-32.3
30.2
19.7
10.9
Reserves & surplus
8,174
9,189
10,200
11,508
Expenditure
16,552
21,087
25,142
27,746
Net worth
8,325
9,341
10,351
11,659
Raw Material
2,684
3,301
3,981
4,227
428
602
678
750
Growth (%)
Employee Cost
Construction Expenses
Minority Interest
0
0
0
0
Secured Loans
4,656
8,133
7,500
8,000
Unsecured Loans
2,974
500
250
500
Loan Funds
7,630
8,633
7,750
8,500
12,513
16,148
19,427
21,573
EBITDA
1,558
2,494
3,095
3,566
Growth (%)
-46.3
60.1
24.1
15.2
Net deferred tax liability
8.6
10.6
11.0
11.4
Total Liabilities
EBITDA margin (%)
Depreciation
317
357
357
357
16,272
18,330
18,458
20,516
Gross Block
5,148
7,301
7,901
8,401
Less: Depreciation
1,845
2,319
2,844
3,414
3,303
4,982
5,058
4,987
323
474
524
571
1,235
2,020
2,570
2,996
6.8
8.6
9.1
9.6
Net block
Other Income
103
114
123
132
Capital work in progress
Interest expenses
844
931
1,026
1,016
Investment
PBT
495
1,203
1,667
2,111
Current Assets
Tax
368
-242
550
697
Inventories
Effective tax rate (%)
74.3
-20.1
33.0
33.0
Sundry debtors
Adjusted PAT
127
1,445
1,117
1,414
-91.0
1,038.5
-22.7
26.6
EBIT
EBIT margin (%)
Growth (%)
Net Margin (%)
Cash & bank balance
Loans & advances
Other current assets
0
8,370
6,466
6,565
Net current assets
Misc. exp
1,979
323
474
524
571
Provisions
0
0
0
0
16,272
18,562
18,690
20,748
FY13A
FY14A
FY15E
FY16E
EBITDA Margin
8.6
10.6
11.0
11.4
Net Margin
0.7
6.1
4.0
4.5
ROCE
9.4
12.3
14.6
16.0
Total Assets
Key Ratios
Y/E Mar (Rsmn)
PBT (Ex-Other income)
Depreciation
Interest Provided
Chg in working cap
Y/E Mar
Profitability (%)
0
931
1,026
1,016
810
117
0
0
-1,069
-241
1,497
243
ROE
1.6
16.4
11.3
12.9
-368
242
-550
-697
RoIC
12.9
17.4
21.6
27.2
697
2,228
4,042
3,112
-695
-2,153
-600
-500
EPS
0.8
7.0
7.4
9.3
1
75
3,442
2,612
CEPS
3.0
12.7
10.8
13.1
BVPS
55.0
61.7
68.4
77.0
0.6
0.7
0.6
0.6
241.3
28.8
27.4
21.7
68.1
16.0
18.7
15.4
P/BV
3.7
3.3
3.0
2.6
EV / Sales
2.1
1.6
1.3
1.2
24.4
15.4
12.3
10.8
0.3
0.3
0.3
0.3
0.9
0.8
0.7
0.7
Other Non-Cash items
Tax paid
Operating Cashflow
Capital expenditure
Free Cash Flow
Other income
Per Share Data (Rs)
103
114
123
132
Investments
-2,627
174
-1,955
-2,030
DPS
Investing Cashflow
-3,219
-1,865
-2,433
-2,398
Valuations (x)
29
0
0
0
3,096
1,003
-883
750
Interest Paid
-844
-931
-1,026
-1,016
Dividend paid (incl tax)
-105
-124
-106
-106
0
0
0
0
EV / EBITDA
Equity Capital Raised
Loans Taken / (Repaid)
Income from investments
Others
PER
P/CEPS
0
0
0
0
Dividend Yield (%)
2,176
-52
-2,015
-373
Gearing Ratio (x)
-346
311
-406
341
Net Debt/ Equity
Opening cash position
563
218
529
123
Net Debt/EBIDTA
Closing cash position
218
529
123
465
Working Cap Cycle (days)
Financing Cashflow
Net chg in cash
Emkay Research
11,152
7,585
1,414
1,545
10,831
16,214
1,117
706
9,707
0
1,062
1,001
697
7,043
15,086
736
FY16E
355
0
Reported PAT
FY15E
761
11,717
0
FY14A
8,579
218
0
1,414
0
FY13A
8,123
8,636
1,117
-383
Cash Flow
7,517
Current liabilities
1,445
26.6
1,887
7,782
464
609
1,414
22,779
1,779
16,214
127
-22.7
21,552
1,638
464
E/O items
1,117
20,087
1,022
15,086
Adj. PAT After JVs/Ass/MI
1,445
16,221
464
0
1,038.5
0
9,196
11,717
4.5
0
127
0
7,166
157
4.0
0
-91.0
0
5,210
8,636
6.1
0
Growth (%)
0
5,385
Current lia & Prov
0.7
(Profit)/loss from JVs/Ass/MI
PAT after MI
FY16E
July 2, 2014
4.8
3.2
2.4
2.2
148.5
117.8
79.0
68.4
18
Ashoka Buildcon
Scalable with assured growth
Your success is our success
July 02, 2014
Rating
Buy
Biggest beneficiary of road projects to be tendered out in
2HFY15E, scalability potential/capacity to bid enhances as
secure funding for current and future growth, qualified to bid
for a single project worth Rs31.8bn
Scale up in the BOT portfolio, revises EPS for FY15E/16E
by12%/25% on account of higher order inflow assumption; we
have revised target price to Rs162 on earnings roll-forward to
FY16E, newer project addition
Target Price
CMP
Rs162
Rs148
EPS Chg FY15E/FY16E (%)
12/25
Target Price change (%)
5
Nifty
7,635
Sensex
25,516
Price Performance
(%)
1M
3M
6M 12M
Absolute
10
94
109
145
4
71
73
88
Rel. to Nifty
Source: Bloomberg
Relative price chart
Rs
%
90
128
64
106
38
84
12
62
-14
40
Jul-13
Well-funded portfolio, sufficient internal cash flows to cater
equity requirement, moderately levered vis-à-vis peers (cons.
debt equity at 2.45x, standalone debt equity at 0.2x)
Previous Reco
Buy
150
Sep-13
Nov-13
Dec-13
Ashoka Buildcon (LHS)
Mar-14
Apr-14
-40
Jun-14
Rel to Nif ty (RHS)
Source: Bloomberg
Stock Details
Sector
Construction
ASBL IB
Bloomberg
791
Equity Capital (Rs mn)
5
Face Value(Rs)
158
No of shares o/s (mn)
52 Week H/L
155/ 41
Market Cap (Rs bn/USD mn)
23/ 389
Daily Avg Volume (No of sh)
218,834
Daily Avg Turnover (US$mn)
0.4
Shareholding Pattern (%)
Mar'14 Dec'13 Sep'13
Promoters
67.6
67.6
67.6
FII/NRI
N/A
N/A
N/A
Institutions
17.9
17.9
18.3
Private Corp
6.8
6.8
6.3
Public
7.7
7.8
7.8
Source: Bloomberg
Nitin Arora
[email protected]
+91-22-66242491
Kunal B. Soni
[email protected]
+91-22- 66242431
Emkay Global Financial Services Ltd.
Order backlog provides reasonable EPC earnings visibility
Ashoka Buildcon Ltd. (ABL) enjoys a 2.5x (ex-Cuttuck Angul) visibility on FY14
construction revenues, with order backlog of Rs35.4bn. On account of the recently won
projects (distribution projects in Bihar worth Rs6.6bn, road project in Karnataka of
Rs4.5bn), along with order inflow assumption of Rs24bn in FY15E-16E, we expect
construction revenue CAGR of 9.1% over FY14-16E. We believe the exclusion of the
Cuttuck-Angul project (not included in the ACL portfolio), which had cost overruns of 810%, provides further scalability to bid for new projects. The company has executed a
concession agreement for the KSHIP road project, which is expected to start construction
in 2HFY15E.
Funding secured for future growth, equity requirement of Rs1bn over the
next 2 years
The current equity requirement stands at Rs1bn, which needs to be infused over the next
2-3 years. The company needs to pump in Rs400mn in Dhankuni-Kharagpur, Rs280mn in
KSHIP road project, Rs100mn in Sambalpur, and Rs300mn in the Chennai ORR project.
ABL has received the fourth tranche of investment of Rs1.33bn from SBI Macquarie.
ABL’s business ramp-up is ideally complemented by its lucrative cash generating portfolio
and strong execution skills, which will ensure that ABL’s transition to a full-scale national
level player is smooth with limited dilution. We believe the company remains the biggest
beneficiary for re-bidding of contracts, which will be tendered in 2HFY15.
Upgraded FY15E-16E earnings estimates on higher construction revenue,
increase in margin assumptions
We have increased our construction revenue assumption for FY15E/16E by 12%/25% on
newer order addition, as well as higher order inflow assumptions over FY14-16E. We
have increased earnings estimate for FY15E by 12% on higher EBITDA flow and lower
tax outgo. For FY16, we have upgraded earnings estimate by 25%, due to the
commissioning of two road projects, as well as higher order inflow. However, we believe,
earnings could pan out higher for FY16E, as the company has the requisite strength to
take up new orders, which will come from the NHAI by 2HFY15E.
(Rsmn)
Financial Snapshot (Consolidated)
EV/
EPS
RoE
(Rs) % chg
(%)
P/E
EBITDA
P/BV
-47.4
9.6
38.3
12.4
2.2
27.7
3.7
30.0
13.5
1.8
6.5
32.6
10.7
22.6
11.4
1.7
5.6
-14.9
8.4
26.6
8.7
1.5
EPS
EBITDA
YE-
Net
Mar
Sales
(Core)
(%)
APAT
FY13A
18,527
3,719
20.1
999
3.9
FY14A
17,949
3,945
22.0
426
4.9
FY15E
23,696
5,525
23.3
1,421
FY16E
25,226
7,763
30.8
1,237
19
Company Update
Emkay
©
Company Update
Ashoka Buildcon
Exhibit 22: Increased EPS estimate by 20%
FY16E
FY15E
change
Earlier
Revised
change
23,696
2.5%
22,794.0
25,226
10.7%
5,525
1.7%
7,445.0
7,763
4.3%
24%
23%
-0.8%
32.7%
30.8%
-6%
APAT
922
1,033
12.0%
701.0
879
25%
EPS
5.84
6.5
12.0%
4.4
5.6
25%
Rs Mn
Earlier
Revised
Sales
23,112
5,433
EBIDTA
EBIDTA (%)
Source: Company, Emkay Research
Exhibit 24: BOT Revenue to edge higher
Exhibit 23: EPC Revenue to sustain
8.0
20.0
7.0
6.0
15.0
5.0
10.0
18.6
14.8
10.3
5.0
11.4
14.1
17.0
4.2
1.0
1.7
1.9
FY10
FY11
2.6
2.9
2.9
FY12
FY13
FY14E
-
FY10
FY11
FY12
FY13
FY14E
FY15E
FY16E
30.0
25.0
20.0
15.0
23.7
10.0
18.5
15.0
25.2
17.9
8.0
0.0
FY10
FY11
FY12
FY16E
Exhibit 26: EBITDA CAGR of 40% over FY14-16E
Exhibit 25: Revenue CAGR of 18.5% over FY14-16E
13.0
FY15E
Source: Company, Emkay Research
Source: Company, Emkay Research
FY13
FY14E
FY15E
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
-
FY16E
7.8
5.5
3.3
3.7
3.9
FY12
FY13
FY14E
FY15E
19.4
21.7
20.1
22.0
23.3
FY11
FY12
FY13
FY14E
FY15E
2.1
2.5
FY10
FY11
FY16E
Source: Company, Emkay Research
Source: Company, Emkay Research
Exhibit 28: Margin to expand
Exhibit 27: Earnings CAGR of 6% over FY14-16E
8.0
35.0
7.0
30.0
6.0
25.0
5.0
20.0
4.0
3.0
7.3
3.0
2.0
5.5
5.0
4.0
5.4
6.5
7.3
6.5
2.0
3.9
4.9
15.0
5.6
30.8
26.9
10.0
5.0
1.0
-
FY10
FY11
FY12
FY13
Source: Company, Emkay Research
Emkay Research
July 2, 2014
FY14E
FY15E
FY16E
FY10
FY16E
Source: Company, Emkay Research
20
Company Update
Ashoka Buildcon
Exhibit 29: SOTP fair value @162
Cost of Equity
Equity value
Stake
ABL Value
ABL per
share/Value
Ashoka Concessions Ltd.
Dhankuni - Kharagpur
14.0%
6,160.3
100.0%
6,160.3
39.0
Sambhalpur - Baragarh
14%
5,279.9
100.0%
5,279.9
33.4
Belgaum - Dharwad
15%
1,336.7
100.0%
1,336.7
8.5
Pimpalgaon - Nasik
15%
(0.6)
Value for Under construction projects
(334.5)
26.0%
(87.0)
12,442.40
0.0%
12,690.0
80.4
Jaora - Naigaon
14%
10,979.6
37.5%
4,117.3
26.1
Durg - Chhattisgarh
14%
1,518.9
51.0%
774.7
4.9
Chhattisgarh - Bhandara
15%
67.3
51.0%
34.3
0.2
Chennai ORR
13%
2,191.7
1,095.8
6.9
27,199.8
11,841.7
80.6
Value of ACL at 66% stake – (b)
Indore - Edalabad
14%
2,238.6
100.0%
2,238.6
14.2
Waiganga river Bridge
14%
525.8
50.0%
262.9
1.7
Pune - Shirur
14%
543.4
100.0%
543.4
3.4
Dewas Bypass
14%
718.8
100.0%
718.8
4.6
Katni Bypass
14%
306.8
99.9%
306.4
1.9
A'nagar - Karmala
14%
-
100.0%
A'nagar - Aurangabad
14%
139.5
100.0%
139.5
0.9
Nasirabad Road ROB
14%
-
100.0%
Mudhol Maharashtra Road Project
13%
1,575.5
51.0%
803.5
5.1
Sherinallah Bridge
14%
47.6
100.0%
47.6
0.3
Dhule Bypass
14%
-
100.0%
Anwali Kasegaon
-
-
5.0%
FOBs - Eastern Exp H'way - 6
14%
20.6
100.0%
20.6
0.1
Value for operating projects – (c)
5,081.3
32.2
Total BOT Fair value – (a + b + c)
16,923.1
112.8
16,923
113
Add: Net holding company cash/debt
Net Value of BOT
Add: EPC valuation
Fair value per share
7,786
49
24,708.8
162
Source: Company, Emkay Research
Emkay Research
July 2, 2014
21
Ashoka Buildcon
Company Update
Key Financials (Consolidated)
Income Statement
Balance Sheet
Y/E Mar (Rsmn)
FY13A
FY14A
FY15E
FY16E
Y/E Mar (Rsmn)
FY13A
FY14A
FY15E
Net Sales
18,527
17,949
23,696
25,226
Equity share capital
675
939
939
939
23.5
-3.1
32.0
6.5
Reserves & surplus
9,832
11,690
13,111
14,348
14,808
14,003
18,172
17,463
10,507
12,628
14,049
15,286
502
583
814
871
0
0
0
0
482
432
1,028
1,024
Unsecured Loans
3,719
3,945
5,525
7,763
Loan Funds
Growth (%)
Expenditure
Employee Cost
Other Exp
SG&A
EBITDA
Net worth
Minority Interest
Secured Loans
FY16E
2,787
4,645
4,296
2,092
23,469
31,032
42,275
45,925
0
0
0
0
23,469
31,032
42,275
45,925
Growth (%)
14.4
6.1
40.0
40.5
Net deferred tax liability
0
0
0
0
EBITDA margin (%)
20.1
22.0
23.3
30.8
Total Liabilities
36,763
48,306
60,620
63,303
Depreciation
1,324
1,389
1,512
2,031
Gross Block
20,275
20,275
56,921
93,567
EBIT
2,395
2,556
4,012
5,732
Less: Depreciation
5,275
6,664
8,176
10,207
12.9
14.2
16.9
22.7
Net block
15,000
13,611
48,745
83,360
Capital work in progress
96,100 106,199
79,253
47,289
EBIT margin (%)
Other Income
294
246
246
258
Interest expenses
1,395
1,335
2,441
4,396
Investment
2,824
2,847
3,464
4,135
PBT
1,295
1,467
1,817
1,594
Current Assets
9,672
11,869
13,887
11,811
Tax
685
688
784
715
Inventories
5,399
6,272
5,930
4,911
Effective tax rate (%)
52.9
46.9
43.2
44.8
Sundry debtors
862
1,305
1,797
1,658
Adjusted PAT
609.6
778.7
1032.6
878.9
Cash & bank balance
518
1,205
2,785
1,648
Growth (%)
-47.4
27.7
32.6
-14.9
Loans & advances
2,893
3,087
3,376
3,593
Net Margin (%)
3.3
4.3
4.4
3.5
Other current assets
0
0
0
0
(Profit)/loss from JVs/Ass/MI
389
-353
388
358
Current lia & Prov
87,624
87,077
85,584
84,148
Adj. PAT After JVs/Ass/MI
999
426
1,421
1,237
Current liabilities
87,624
87,077
85,584
84,148
E/O items
157
157
0
0
0
0
0
0
1,156
583
1,421
1,237
Net current assets
-77,953
-75,208
-71,697
-72,337
Reported PAT
Provisions
999
426
1,421
1,237
Misc. exp
-19.9
-57.4
233.7
-13.0
Total Assets
FY13A
FY14A
FY15E
FY16E
PBT (Ex-Other income)
1,451
1,467
1,817
1,594
Profitability (%)
Depreciation
1,324
1,389
1,512
2,031
EBITDA Margin
Interest Provided
1,395
1,335
2,441
4,396
-85
0
0
0
61,230
-2,107
-1,931
-702
-688
-784
PAT after MI
Growth (%)
0
0
0
0
35,971
47,449
59,764
62,448
FY13A
FY14A
FY15E
FY16E
20.1
22.0
23.3
30.8
Net Margin
3.3
4.3
4.4
3.5
ROCE
8.3
6.6
7.8
9.7
-497
ROE
9.6
3.7
10.7
8.4
-715
RoIC
-7.3
-4.0
-9.1
-70.1
Cash Flow
Key Ratios
Y/E Mar (Rsmn)
Other Non-Cash items
Chg in working cap
Tax paid
Operating Cashflow
Capital expenditure
Free Cash Flow
Y/E Mar
64,999
1,396
3,055
6,809
-69,694
-7,212
-9,865
-4,833
Per Share Data (Rs)
3.9
4.9
6.5
5.6
-4,695
-5,815
-6,810
1,976
CEPS
14.7
11.5
18.6
20.7
BVPS
66.5
80.0
89.0
96.8
1.3
1.5
1.7
1.5
PER
38.3
30.0
22.6
26.6
P/CEPS
10.1
12.9
8.0
7.1
P/BV
2.2
1.8
1.7
1.5
2.5
3.0
2.7
2.7
12.4
13.5
11.4
8.7
0.9
1.0
1.2
1.0
2.2
2.4
2.8
2.9
6.2
7.6
7.1
5.7
EPS
Other income
-274
0
0
0
Investments
-772
-23
-617
-671
Investing Cashflow
-70,740
-7,235
-10,482
-5,504
Equity Capital Raised
11,798
263
0
0
Loans Taken / (Repaid)
-4,395
7,563
11,243
3,651
Interest Paid
-1,395
-1,335
-2,441
-4,396
Dividend paid (incl tax)
0
0
0
0
EV / Sales
Income from investments
0
0
0
0
EV / EBITDA
Others
0
35
204
-1,696
Dividend Yield (%)
6,008
6,526
9,007
-2,441
Gearing Ratio (x)
267
688
1,580
-1,136
Net Debt/ Equity
Financing Cashflow
Net chg in cash
DPS
Valuations (x)
Opening cash position
500
518
1,205
2,785
Net Debt/EBIDTA
Closing cash position
767
1,205
2,785
1,648
Working Cap Cycle (days)
Emkay Research
July 2, 2014
-1,546.0 -1,553.9 -1,147.3 -1,070.5
22
IL&FS Transportation
Higher leverage to suppress earnings
Your success is our success
July 02, 2014
Rating
Hold
CMP
Target Price
Standalone leverage to surge higher to 2x, as ITNL pumps in
equity (Rs10bn) to complete the projects. High leverage in
the absence of meaningful rate cuts to exert pressure on
standalone profitability
Issue of preference share capital doesn’t address leverage
concerns, given the redeemable nature, the debt equity
stands at 2.3x/4.48x
As leverage surged higher and ITNL earnings highly
leveraged to new orders, equity funding gap would still put
pressure on balance sheet. Maintain Hold rating, revised
target price of Rs221 on roll-forward of earnings to FY16E
Rs221
Rs209
EPS Chg FY15E/FY16E (%)
NA
Target Price change (%)
24
Nifty
7,635
Sensex
25,516
Price Performance
(%)
1M
3M
6M 12M
Absolute
9
79
55
48
Rel. to Nifty
3
57
29
13
Source: Bloomberg
Construction revenue growth intact, but fee income to stagnate
Relative price chart
Rs
%
30
198
16
171
2
144
-12
117
-26
90
Jul-13
Robust order backlog (4x FY13 construction rev) to help a
construction income CAGR of 17% over FY14-16E, but a high
margin fee income to stagnate, to exert pressure on EBITDA
Previous Reco
Hold
225
Sep-13
Nov-13
Dec-13
Mar-14
IL&FS Transportation (LHS)
Apr-14
-40
Jun-14
Rel to Nifty (RHS)
Supported by back-ended FY13 order wins (Rs38bn), ITNL’s order book currently
stands at healthy Rs110bn. With robust revenue visibility (4x FY14E construction
revenues), we expect the standalone construction revenues to surge at a CAGR of 17%
over FY14-16E. ITNL has booked a fee income of Rs6.8bn in FY14, which, we believe,
almost completed the entire fee income booking from existing projects. Winning new
awards may help ITNL in generating more fee income, but would simultaneously
compound balance sheet leverage concerns. The commissioning of Gurgoan Metro,
Pune-Sholapur, Narketpally-Addanki and Moradabad-Bareilly projects should increase
interest and depreciation costs in the P&L, which would challenge near-term earnings.
Source: Bloomberg
Leverage to surge higher, putting pressure on standalone profitability
Stock Details
Sector
Construction
ILFT IB
Bloomberg
2,467
Equity Capital (Rs mn)
10
Face Value(Rs)
247
No of shares o/s (mn)
232/ 93
52 Week H/L
Market Cap (Rs bn/USD mn)
52/ 859
Daily Avg Volume (No of sh)
355,070
Daily Avg Turnover (US$mn)
1.0
Shareholding Pattern (%)
Mar'14 Dec'13 Sep'13
Promoters
72.5
72.5
72.5
FII/NRI
4.9
4.9
3.4
Institutions
2.5
2.9
3.1
Private Corp
6.8
7.0
7.4
13.4
12.7
13.7
Public
Source: Bloomberg
Nitin Arora
[email protected]
+91-22-66242491
Kunal B. Soni
[email protected]
+91-22- 66242431
Emkay Global Financial Services Ltd.
Due to a lower contribution of fee income to the overall revenue, we see ITNL resorting
to taking further debt on the standalone book to infuse equity requirements towards
funding its new projects. Hence, we see a surge in debt on the standalone balance
sheet from Rs46.2bn (debt equity of 1.55x) in FY14 to Rs55bn (debt equity of 1.98x) by
FY16E, which would lead to a further deterioration in its leverage ratios, which, in turn,
would increase the interest burden on ITNL. In order to address the balance sheet
concerns, the company has so far issued three tranches of preference shares, totaling
376.45mn shares or Rs7.5bn in FY14. Given their compulsorily redeemable nature, we
believe it to be more like debt than equity. ITNL reported FY14 standalone/consolidated
leverage at 1.55/3.76x; however, if preference shares are treated as debt, then leverage
would have been 2.29/4.48x, respectively. However, in case leverage increases further,
it would become essential for the company to maintain its EBITDA at Rs5bn and
Rs5.5bn in FY15E and FY16E excluding other income respectively, to service interest
costs at the standalone level.
(Rsmn)
Financial Snapshot (Consolidated)
YE-
Net
EBITDA
EPS
EPS
RoE
Mar
Sales
(Core)
(%)
APAT
(Rs) % chg
(%)
FY13A
66,449
18,446
FY14A
65,870
18,953
27.8
5,244
27.0
5.5
16.6
28.8
4,686
8.2
-69.6
10.8
FY15E
71,929
21,570
30.0
3,644
6.4
-22.2
7.2
FY16E
73,314
23,931
32.6
4,243
7.4
16.4
8.1
EV/
P/E
EBITDA
P/BV
7.7
9.8
1.1
25.5
15.9
2.4
32.8
13.8
2.3
28.1
12.6
2.2
23
Company Update
Emkay
©
Company Update
IL&FS Transportation
Exhibit 30: SOTP Fair value at Rs221/share
Holding
SPV
Valuation
Measure
Disc
rate
Equity
Value
(Rs mn)
Stake
Value
(Rs mn)
Value/
Share
31.2
BOT
Gujarat Road and Infrastructure company ltd
WGEL
Delhi - Noida
Gomti - Beawar
RIDCOR
RIDCORII
83.6%
Operational
FCFE
13%
9,212.9
7,702.9
100.0%
Operational
FCFE
13%
2,021.3
2,021.3
8.2
25.4%
Operational
FCFE
13%
8,653.6
2,193.7
8.9
100.0%
Operational
FCFE
13%
4,167.6
4,167.6
16.9
50.0%
Operational
FCFE
13%
10,164.0
5,082.0
20.6
50.0%
Under development
FCFE
14.50%
4,475.9
2,237.9
9.1
100.0%
Under Construction
FCFE
14.50%
4,722.0
4,722.0
19.1
Chadrapur Warora Road Project
35.0%
Under development
FCFE
14.50%
1,997.6
699.1
2.8
Narkatapally to Addanki Road Project
50.0%
Under development
FCFE
14.50%
3,949.7
1,974.8
8.0
Moradabad Bareili Road Project
100.0%
Under development
FCFE
14.50%
8,416.4
8,416.4
34.1
Kharagpur - Baleshwar
Pune Sholapur NH-9 Road Project
100.0%
Under development
FCFE
14.50%
1,089.7
1,089.7
4.4
Kiratpur Ner Chowk
100%
Under development
FCFE
14.50%
8,238.2
8,238.2
33.4
Sikar Bikaner
100%
Under development
FCFE
14.50%
2,525.9
2,525.9
10.2
Khed Sinnar
100%
Under development
FCFE
14.50%
730.1
730.1
3.0
Barwa adda panagarh
100%
Under development
FCFE
14.50%
1,209.3
1,209.3
4.9
Toll Projects - (A)
71,574.1
53,011.1
215
North Karnataka expressway ltd Road Project
94%
Operational
FCFE
13%
1,356.5
1,268.3
5.1
Thiruvananthpuram Road Development Company Ltd
Road Project
50%
Operational
FCFE
13%
-301.0
-150.3
-0.6
Andhra Pradesh expressway ltd Road Project
100%
Operational
FCFE
13%
-584.8
-584.8
-2.4
East Hyderabad expressway ltd Road Project
74%
Under Construction
FCFE
13%
783.3
579.7
2.3
Hyderabad Ring Road
26%
Under Construction
FCFE
13%
76.9
20.0
0.1
Hazaribaug Ranchi expressway ltd Road Project
74%
Under Construction
FCFE
14%
599.7
443.8
1.8
Jharkhand - Ph - I Road Project
100%
Under Construction
FCFE
14%
204.0
204.0
0.8
Jharkhand Ph - II Road Project
100%
Under development
FCFE
14%
193.8
193.7
0.8
Shillong Jorbat Road Project
50%
Under development
FCFE
14%
1,807.6
903.8
3.7
Chenani Nashri Road Project
100%
Under development
FCFE
14%
4,081.7
4,081.7
16.5
14%
8,217.7
6,959.8
28.2
Annuity Projects - (B)
Vansh Nimay infraprojects Limited
Operational
FCFE
14%
301.6
301.5
1.2
ITNL ENSO Rail system limited
100%
70%
Under Construction
FCFE
14%
4,332.4
3,032.6
12.3
MP Check post
51%
Under development
BV
1x
1,174.2
YuHe Project - Chonguin Road project
49%
Opeartional
BV
1x
Urban Infra Projects - '(C)
Investments in Elsamax
100%
BV
5,808.2
5,978.3
24.2
1.0x
11.0
2,722.2
11.0
1,109.3
1,109.3
4.5
1,120.4
3,831.6
15.5
18,960
18,960
76.9
18,960.4
18,960.4
76.9
Other Subsidiaries - (D)
EV/EBITDA
Construction business - (E)
4.8
6.0
14%
Investments in other Companies
E&C business
1,174.2
1,470.0
3.5x
Net Debt at parent levels
-34,309
-34,309
-139
Total Value (A+B+C+D+E)
71,372.1
54,432.6
221
Source: Company, Emkay Research
Emkay Research
July 2, 2014
24
IL&FS Transportation
Company Update
Key Financials (Consolidated)
Income Statement
Balance Sheet
Y/E Mar (Rsmn)
FY13A
FY14A
FY15E
FY16E
Y/E Mar (Rsmn)
FY13A
FY14A
FY15E
Net Sales
66,449
65,870
71,929
73,314
Equity share capital
1,943
5,707
5,707
5,707
18.5
-0.9
9.2
1.9
Reserves & surplus
34,456
44,331
45,689
47,647
48,003
46,918
50,359
49,383
Net worth
36,398
50,038
51,397
53,354
Employee Cost
3,819
4,142
4,672
4,758
Minority Interest
2,716
3,727
3,998
3,193
Other Exp
2,016
2,016
2,016
2,016
Secured Loans
Unsecured Loans
Growth (%)
Expenditure
SG&A
EBITDA
4,483
6,206
6,182
5,963
18,446
18,953
21,570
23,931
Loan Funds
FY16E
135,931 178,764 128,757 124,314
8,522
10,262
52,649
63,080
144,453 189,026 181,407 187,394
Growth (%)
25.9
2.7
13.8
10.9
Net deferred tax liability
EBITDA margin (%)
27.8
28.8
30.0
32.6
Total Liabilities
185,992 244,782 238,792 245,932
Gross Block
175,342 231,423 223,840 227,097
Depreciation
EBIT
944
1,510
1,896
2,543
17,502
17,442
19,675
21,388
26.3
26.5
27.4
29.2
EBIT margin (%)
Other Income
Less: Depreciation
Net block
1,414
2,154
2,396
2,664
11,190
14,710
16,476
19,141
PBT
7,726
4,887
5,595
4,912
Current Assets
Tax
2,274
266
1,678
1,473
Inventories
29.4
5.4
30.0
30.0
5,244
4,686
3,644
4,243
Cash & bank balance
1.2
-15.2
-15.3
-12.2
Loans & advances
Interest expenses
Effective tax rate (%)
Adjusted PAT
Growth (%)
Capital work in progress
Investment
Sundry debtors
2,425
5,356
1,990
6,866
1,990
8,762
1,990
11,305
169,986 224,557 215,079 215,792
0
0
0
0
6,871
4,691
4,738
4,975
28,985
42,005
45,811
51,354
169
172
311
311
7,517
9,875
13,222
15,322
4,252
6,828
2,506
4,750
14,170
20,763
22,894
23,019
Net Margin (%)
8.2
7.0
5.4
4.7
Other current assets
2,877
4,368
6,878
7,952
(Profit)/loss from JVs/Ass/MI
208
-65
272
-805
Current lia & Prov
19,911
26,546
26,909
26,263
Adj. PAT After JVs/Ass/MI
5,244
4,686
3,644
4,243
Current liabilities
23,594
0
0
0
0
Reported PAT
5,244
4,686
3,644
PAT after MI
5,244
4,686
5.5
-10.6
FY13A
17,297
23,573
24,240
Provisions
2,614
2,973
2,669
2,669
4,243
Net current assets
9,075
15,459
18,901
25,091
3,644
4,243
Misc. exp
0
0
0
0
-22.2
16.4
FY14A
FY15E
FY16E
7,726
4,887
5,595
4,912
Profitability (%)
944
1,510
1,896
2,543
EBITDA Margin
11,190
14,710
16,476
19,141
0
0
0
0
5,497
-3,809
-7,764
Tax paid
-2,274
-266
Operating Cashflow
23,083
17,032
Capital expenditure
-47,846
-53,039
Free Cash Flow
-24,763
-36,007
E/O items
Growth (%)
Cash Flow
Total Assets
Key Ratios
Y/E Mar (Rsmn)
PBT (Ex-Other income)
Depreciation
Interest Provided
Other Non-Cash items
Chg in working cap
Other income
Investments
Investing Cashflow
Loans Taken / (Repaid)
Interest Paid
Y/E Mar
Net Margin
FY15E
FY16E
27.8
28.8
30.0
32.6
8.2
7.0
5.4
4.7
ROCE
11.8
9.1
9.1
9.9
-3,945
ROE
16.6
10.8
7.2
8.1
-1,678
-1,473
RoIC
11.6
8.6
8.5
9.1
14,524
21,177
Per Share Data (Rs)
7,583
-3,257
EPS
27.0
8.2
6.4
7.4
22,107
17,920
CEPS
31.9
10.9
9.7
11.9
BVPS
187.4
87.7
90.1
93.5
3.4
3.8
0.0
0.0
PER
7.7
25.5
32.8
28.1
P/CEPS
6.6
19.3
21.6
17.6
P/BV
1.1
2.4
2.3
2.2
EV / Sales
2.7
4.6
4.1
4.1
0
0
0
2,180
-47
-237
-50,763
-50,859
7,536
-3,494
0
8,481
0
0
41,332
44,574
-7,620
5,988
-11,190
-14,710
-16,476
-19,141
-786
-2,286
-2,286
-2,286
0
0
0
0
EV / EBITDA
9.8
15.9
13.8
12.6
1.6
1.8
0.0
0.0
3.9
3.6
3.5
3.4
Income from investments
Others
DPS
Valuations (x)
-262
343
0
0
Dividend Yield (%)
29,094
36,402
-26,381
-15,439
Gearing Ratio (x)
1,414
2,575
-4,321
2,244
Net Debt/ Equity
Opening cash position
2,838
4,252
6,828
2,506
Net Debt/EBIDTA
Closing cash position
4,252
6,828
2,506
4,750
Working Cap Cycle (days)
Net chg in cash
FY14A
0
Dividend paid (incl tax)
Financing Cashflow
FY13A
-2,917
Equity Capital Raised
Emkay Research
185,932 244,707 238,718 245,858
July 2, 2014
7.6
9.6
8.3
7.6
26.5
47.8
83.2
101.3
25
Construction
Sector Update
Emkay Global Financial Services Ltd.
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