Kotak Securities has initiated coverage on IL&FS Transportation Network Ltd with a BUY rating on the stock and review as follows,
Based on current order book and portfolio of projects, we expect construction revenues to remain strong while completion of work on under construction projects is expected to increase the toll revenues from FY14 onwards. Operating margins are likely to remain strong due to increase in proportion of BOT revenues going forward. Company is also sufficiently funded for current portfolio of projects where investments are to be made over next 2-2.5 years.
At current price of Rs.189, stock is trading at 6.8x and 6.9x P/E and 9.2x and 9.3x EV/EBITDA on FY13 and FY14 estimates. We value the company on sum-of-the-parts valuation methodology taking into account valuation of construction business, BOT project and urban transportation related projects and arrive at a one year forward target price of Rs.237. We remain positive on the company due to its robust business model, excellent operating cash flows and expertise to capitalize on the upcoming opportunities in the road BOT segment.
