Construction & Contracting - Civil
IL&FS Transportation Networks (ITNL)
IL&FS Transportation Networks (ITNL) (updated - 09 Jan 2012)
The recent acquisition of Yu He Expressway in China marks a significant step for the cautious growth plans of IL&FS Transportation Networks (ITNL). Though the project is unlikely to earn much of a return initially, growing economic activity around the expressway will ensure a decent traffic growth in the years to come.
ITNL has spent $170 million for acquisition of 49% stake in the four lane 58-km Yu He Expressway, connecting Chongqing with Hechuan in western China. This expressway project generated $12.7 million in pre-tax profits in 2011 and has 20 more years of concession period. Although the profits are low at present, the project has immense potential to grow as China continues to invest heavily in its western regions. By 2015, the expressway is scheduled to extend further to Lanzhou - a key transportation hub in North-West China. These factors bode well for traffic growth on the Yu He Expressway.
At the end of September 2011, ITNL had a debt of Rs 6,887 crore at the consolidated level. After this deal, gross debt is likely to go up by another Rs 800 crore. This would marginally increase the company’s interest burden, which was 42% of its operating profit for the half year ended September 2011. Hence, in the short-term, this acquisition may impact the profitability of the company.
The Chinese investment might be small for the company, but it marks its entry in the Chinese infrastructure industry. Based on this experience, it can bid for more road projects in China. This also gives additional geographical diversification to the company.
At a time when other Indian infrastructure companies are fiercely competing for new road projects, ITNL has been extremely choosy. This has resulted in it not bagging any of the new National Highway Authority of India (NHAI) projects in the last nine months.
In India, ITNL has 22 road projects, which are well diversified in state and central governments’ projects. At present, the company has an EPC order book of Rs 8,900 crore, which are over two times its surface transportation revenues of FY11. The company is implementing around 12 under-construction projects, which would keep its interest expense high.
Source - Economic Times
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