Thursday, March 11, 2010

IPO Note on IL&FS Transportation Networks Ltd.

IL&FS Transportation Networks Limited is entering the capital markets with an initial public offering (IPO) at theprice band of Rs. 242-258 per share to raise Rs. 7 bn. The issue comprises of an offer for sale of 4.28 million equity shares by Trinity Capital Limited and a fresh issue of more than 22.85 million equity shares with a face value of Rs. 10 per share. The object of the issue is to fund the pre-payment and repayment of a portion of debt availed by the Company and to utilize the funds towards general corporate purposes.

Valuation and recommendation:

According to our valuation, at a lower price band of Rs. 242, the Company offers an EV/EBITDA of 9.2x which is at a discount to peers’ (IRB Infra., IVRCL, Hindustan Const., Nagarjuna Const. and Gammon) average of 11.3x for FY11. The Company proposes a P/E multiple of 19.9x for FY11E, which is comparable to the peers’ average of 18.8x for FY11E, respectively. However, the Company enjoys a high EBITDA margin as compared to the peer average of 16% and also offers a better ROE of 13.7% for FY11 in comparison to the peer set’s average of 12.8%. So, considering attractive valuation and strong operational capabilities and parentage, we recommend investors to Subscribe to the issue.

The issue closes on March 15, 2010.

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