IL&FS Transportation Networks Ltd - Stock Valuation and Financial Performance

IL&FS Transportation Networks was incorporated under the Companies Act, 1956 on November 29, 2000 as “Consolidated Toll Network India Private Limited”. The name of the Company was changed to “Consolidated Toll Network India Limited” pursuant to change in the status of the Company to a public limited company. The word “private” was deleted from the name of the Company pursuant to a special resolution of the shareholders of the Company dated March 28, 2002. The fresh certificate of incorporation consequent to change of name was issued by the RoC on July 22, 2002. The name of the Company was further changed to “Consolidated Transportation Networks Limited”, indicating the growing business profile of the Company, pursuant to a special resolution of the shareholders of the Company dated July 5, 2004 and a fresh certificate of incorporation was granted to the Company by the RoC on September 24, 2004. Subsequently, the name of the Company was changed to “IL&FS Transportation Networks Limited” pursuant to a special resolution of the shareholders of the Company dated September 29, 2005 and a fresh certificate of incorporation was granted to the Company by the RoC on October 18, 2005. The said change of the name of the Company was intended to avail the benefit of the ‘IL&FS’ brand, its goodwill in the surface transport sector and to establish affiliation of the Company with the IL&FS group.

It is an established surface transportation infrastructure company and is one of the largest private sector BOT road operators in India. It is a developer, operator and facilitator of surface transportation infrastructure projects, taking projects from conceptualization through commissioning to operations and maintenance. It was incorporated in 2000 by IL&FS, an infrastructure development and finance company, in order to consolidate their existing road infrastructure projects and to pursue various new project initiatives in the area of surface transportation infrastructure. In March 2008, it commenced the international operations through the acquisition of Elsamex S.A. (“Elsamex”), a provider of maintenance services primarily for highways and roads in Spain and other countries.

Since inception, it has been involved in the development, operation and maintenance of national and state highways, roads (including urban roads), flyovers and bridges in Andhra Pradesh, Delhi, Gujarat, Maharashtra, Karnataka, Uttar Pradesh, Kerala, Jharkhand and Rajasthan. It has a pan-India presence in the BOT road sector and has interests in a diverse project portfolio consisting of 17 road projects, comprising approximately 9,397 Lane kms, which includes 4,086 Lane kms under operation and maintenance and 5,311 Lane kms under development (of which 1,244 Lane kms under construction). The projects are designed and developed with regard to international standards in terms of technology and facilities.

Since the incorporation, it has created a geographically widespread presence in India. Eight of the projects have commenced operations - the North Karnataka Expressway (from Belgaum in the States of Karnataka to Maharashtra Border), the West Gujarat Expressway (connecting Jetpur to Rajkot in the State of Gujarat), the NOIDA Toll Bridge (connecting Delhi to NOIDA, in the States of Delhi and Uttar Pradesh), the Vadodara Halol Toll Road (connecting Vadodara to Halol in the State of Gujarat), the Ahmedabad Mehsana Toll Road (connecting Ahmedabad to Mehsana in the State of Gujarat), Andhra Pradesh Expressway (Kotakatta to Kurnool in the state of Andhra Pradesh) and Ramky Elsamex Hyderabad Ring Road (Tukkugudu to Shamshabad section of Hyderabad Outer Ring Road), as well as the Mega Highways Road Project (comprising five stretches of road from “Phalodi to Ramji-ki-Gol”, “Hanumangarh to Kishangarh”, “Alwar to Sikandra”, Baran to Jhalawar” and “Laslot to Kota”, all in the state of Rajasthan) and Thiruvananthapuram City Roads projects which have both operational and developmental phases. Notably, NOIDA Toll Bridge Company Limited, which is our associate and also the implementing company for the NOIDA Toll Bridge project, was the first Indian toll road company to have been listed both on the national and international stock exchanges; and the Vadodara Halol Toll Road was designated by the World Bank as a “best practices” example for its environment risk mitigation and social rehabilitation plan in India. In addition, It is currently developing 11 road projects (including the Mega Highways and Thiruvananthapuram City Roads projects) in the States of Andhra Pradesh, Chhattisgarh, Jharkhand, Kerala, Rajasthan, Uttar Pradesh and Maharashtra in India and Madrid in Spain. Out of these 11 projects, five projects are currently in the construction phase and the remaining six projects are in the preconstruction phase of development.

It is also developing capabilities in other transportation infrastructure sub-sectors such as mass rapid transport systems and urban transportation infrastructure systems. It has been selected for the development of the 4.9 km track of elevated metro rail link project in Gurgaon (Haryana) and is also operating and maintaining the Nagpur city bus services on a BOT basis.

With respect to the international operations, It has acquired Elsamex in order to (i) complement the BOT road operations with Elsamex's maintenance capabilities and (ii) to facilitate its entry into international markets such as Spain, Portugal and Latin America. Elsamex's primary business is the maintenance of roads, buildings and petrol stations, mainly in Spain, with additional operations in Portugal in Europe and Columbia and Mexico in South America. Elsamex also provides consulting services for roads and water supply projects in the areas of quality control, safety, health and environment. Additionally, Elsamex conducts research and development for road maintenance projects, with a particular focus on bitumen technology.

The company benefits significantly from its affiliation with IL&FS, which has an established track record in promoting and financing a range of public infrastructure projects in India for over 22 years. IL&FS was incorporated in 1987 and its shareholders include Life Insurance Corporation of India, Central Bank of India, State Bank of India, Housing and Development Finance Corporation Limited, Abu Dhabi Investment Authority and Orix Corporation of Japan.

It is well positioned to benefit from expected growth in vehicular traffic in India and demand for additional surface transportation infrastructure in India and other countries where It has presence. It 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. In addition, It auctions the toll receipts for certain of the toll road projects to third parties for twelve-month periods in exchange for a fixed fee in order to mitigate the risk of volatility of toll revenues. For the six months ended September 30, 2009, the consolidated revenue and total profit after tax amounted to Rs. 9,795.55 million and Rs. 1,182.27 million respectively.

Completed Projects

The company has completed and is operating the following projects:

North Karnataka Expressway (Belgaum Maharashtra Border Road) This project involved the development of four lanes with service roads on both sides aggregating to approximately 472 Lane kms in length between Belgaum in the State of Karnataka up to Maharashtra Border. The concession for this project was awarded to it by the NHAI on a BOT (Annuity) basis for a period of 17.5 years (including a construction period of two and a half years), which commenced in June 2002 and will end in December 2019. It completed the construction of this project and commenced its commercial operations in July 2004. For the six months ended September 30, 2009, It recognized Rs. 333.46 million as revenue from this project. For the year ended March 31, 2009, It recognized Rs.643.71 million as revenue from this project.

West Gujarat Expressway (Jetpur Rajkot Gondal Road)

This project involved the widening of the existing Jetpur–Gondal road from two lanes to four lanes, the improvement of the existing four lanes between Gondal and Rajkot, the widening of the existing Rajkot bypass from two lanes to four lanes on the National Highway 8 B and construction of side roads, with an aggregate length of approximately 389 Lane kms in the State of Gujarat. The concession for this project was awarded to it by the NHAI on a BOT (Toll) basis for a period of 20 years (including a construction period of two and a half years), which commenced in September 2005 and will end in September 2025. It completed the construction of this project and commenced its commercial operations in March 2008.

Noida Toll Bridge - This project involved the development of a toll bridge and approach roads with approximately 60 Lane kms connecting Delhi to NOIDA in the State of Uttar Pradesh. The concession for this project was awarded to the Promoter by the New Okhla Industrial Development Authority (“NOIDA”) on a BOT (Toll) basis for a period of 30 years (including a construction period of two and a half years) which commenced on December 30, 1998. It completed the construction of this project and commenced its commercial operations in February 2001. Pursuant to the terms of the concession, the concession period will be subject to extension beyond 30 years until the total project cost and agreed returns thereon have been recovered. For the six months ended September 30, 2009, It recognized Rs. 104.46 million as revenue from this project. For the year ended March 31, 2009, It recognized Rs. 201.88 million revenue from this project.

Gujarat Toll Roads

Vadodara -  Halol Road

This project involved the development of an approximately 190 Lane kms on State Highway No. 87 from Vadodara to Halol in the State of Gujarat. The concession for this project was awarded to the Promoter by the Government of Gujarat on a BOOT (Toll) basis, which commenced from the date of signing the Concession Agreement i.e. October, 1998 and shall extend for a period of 30 years from the operations date i.e. October 2000. The construction period for the project was one and a half years. Pursuant to the terms of the concession, upon completion of the 30 years period, the concession period is further extendable for a two year period until the total project cost and agreed returns thereon have been recovered. It completed the construction of this project and commenced its commercial operations in October 2000. This project was designated by the World Bank as a best practices example for its environment risk mitigation and social rehabilitation plan.

Other projects

• Thiruvananthapuram City Roads (Phase I)
• Andhra Pradesh Expressway (Kotakatta Kurnool Road)
• Tukkuguda to Shamshabad section of Hyderabad Outer Ring Road

Projects under Construction

• East Hyderabad Expressway (Pedda Amberpet to Bongulur section of Hyderabad Outer Ring Road)
• Thiruvananthapuram City Roads (Phase II and Phase III)
• Beawar Gomti Road

Milestones:

• February, 2001- Commercial Operation of ‘NOIDA Toll Bridge’ project
• November, 2001- Concession for ‘North Karnataka Expressway’ project was awarded to North KarnatakaExpressway Limited by the NHAI
• December, 2001- Investment in the equity share capital of North Karnataka Expressway Limited
• March, 2002- Equity investment by ORIX Auto & Business Solutions Limited*
• February, 2003- Commercial Operation of ‘Ahmedabad Mehsana Toll Road’ project
• December, 2003- Further equity investment by ORIX Auto & Business Solutions Limited*
• March 2004- Concession for ‘Thiruvanathapuram City Roads Improvement Project’ granted to Thiruvanathapuram Road Development Company Limited by the Kerala Road Fund Board.Investment in the equity share capital of Thiruvananthapuram Road Development Company Limited
• July, 2004 - Commercial Operation of ‘North Karnataka Expressway’ project
• March, 2005 - Concession for ‘West Gujarat Expressway’ project granted to West Gujarat Expressway Limited by the NHAIInvestment in the equity share capital of West Gujarat Expressway Limited
• January, 2006 - Partnership & Development Agreement for ‘Mega Highways’ project granted to Road Infrastructure Development Company of Rajasthan Limited by the Government of Rajasthan
• March, 2006 - Investment in the equity share capital of Noida Toll Bridge Company Limited Concession for ‘Andhra Pradesh Expressway’ project awarded to Andhra Pradesh Expressway Limited by NHAI Investment in the equity share capital of Andhra Pradesh Expressway Limited
• December, 2006 - Investment in the equity share capital of Gujarat Toll Road Investment Company Limited, Equity investment by Trinity Capital (Two) Limited
• March, 2007 - Equity investment by GS Strategic Investments Limited
• January, 2007 - Programme Development Agreement for ‘Chhattisgarh Accelerated Road Development Programme’ executed between Government of Chhattisgarh and Infrastructure Leasing & Financial Services Limited
• August, 2007 - Concession for ‘East Hyderabad Expressway’ project awarded to East Hyderabad Expressway Limited by the Hyderabad Urban Development Authority and Hyderabad Growth Corridor Limited
• October, 2007 - Investment in the equity share capital of East Hyderabad Expressway Limited
• February, 2008 - Programme Development Agreement for ‘Jharkhand Accelerated Road Development Programme’ executed between Government of Jharkhand and Infrastructure Leasing & Financial Services Limited
• March, 2008 - Commercial Operation of Phase – I of ‘Thiruvanathapuram City Roads Improvement Project’ Further equity investment by Trinity Capital (Two) Limited and GS Strategic Investments Limited, Equity investment by SCB Asian Infrastructure Fund, Acquistion of Elsamex S.A.
• May, 2008 - Commercial Operation of ‘West Gujarat Expressway’ project
• December, 2008 - Investment in equity share capital of Vansh Nimay Infraprojects Limited
• March, 2009 - Commercial Operation of the ‘Mega Highways, Project.
• April, 2009 - Concession for the ‘Beawar Gomti’ project awarded to ITNL Road Infrastructure Development Company Limited by the Department of Road Transport & Highways
• May, 2009 - Amendment to the concession in relation to ‘Thiruvanathapuram City Roads Improvement Project’ granted to Thiruvanathapuram Road Development Company Limited by the Kerala Road Fund Board
• August, 2009 - ‘Letter of Award’ issued for the project ‘4 laning of Warora Chandrapur Bamni Road in the state of Maharashtra’
• September 2009 - Concession for the ‘Ranchi Ring Road’ project awarded to Jharkhand Road Projects Implementation Company Limited by the Government of Jharkhand, Concession for the ‘Pune Sholapur’ project awarded to Pune Sholapur Road Development Company Limited by the NHAICommercial Operation of ‘Andhra Pradesh Expressway’ project.
• October 2009 - Concession for the ‘Hazaribagh Ranchi’ project awarded to Hazaribagh Ranchi Expressway Limited by the NHAIConcesion for the ‘Patratu Dam Ramgarh Road’ project awarded to Jharkhand Road Projects Implementation Company Limited by the Government of JharkhandConcession for the ‘Ranchi - Patratu Dam’ project awarded to Jharkhand Road Projects Implementation Company Limited by the Government of Jharkhand
• December 2009 - Concession for the ‘Gurgaon Metro’ project awarded to Rapid MetroRail Gurgaon Limited by the Haryana Urban Development Authority‘Letter of Award’ issued for the project ‘Moradabad Bareilly section of NH-21 in the state of Uttar Pradesh’
• 2012 -Award of Road Rehabilitation Contract y Government of Haiti to Elsamex S.A. Spain a subsidiary of the Company.
  Letter of Award issued by NHAI for Four Lairing of Kiratpur to Ner-Chowk Section
  Letter of Award issued by NHAI for Construction of New Bridges/Structures, Repair of existing Four Lane Highway
  Letter of Award issued by Public Works Department, Rajasthan on behalf of Ministry of Road Transport and Highway
  

Subsidiaries:

The companies mentioned below have been acquired by the Company (either directly or through its Subsidiaries) and have become its subsidiaries.

1. Elsamex S.A; and2. Vansh Nimay Infraprojects Limited. The following are the Subsidiaries of the Company:1) ITNL Road Infrastructure Development Company Limited;2) Gujarat Road and Infrastructure Company Limited;3) East Hyderabad Expressway Limited;4) ITNL International Pte Limited;5) Elsamex S.A;6) ITNL Enso Rail Systems Limited;7) Vansh Nimay Infraprojects Limited;8) Elsamex India Private Limited;9) Elsamex Internacional SL;10) Elsamex Portugal S.A;11) Grusamar Ingenieria Y Consulting SL;12) Inversiones Tyndrum, S.A.;13) Intevial-Gestao Integral Rodoviaria S.A.;14) Mantenimiento Y Conservacion De Vialidades, S.A. de C.V;15) Proyectos de Gestion, Sistemas, Calculo y Analisis, S.A.;16) Sanchez Marcos Senalizacion E Imagen, S.A.;17) Senalizacion Viales E Imagen, S.A.;18) Centro De Investigacion Elpidio Sanchez Marcos SA;19) Control 7, SA;20) Geotecnia 7, SA;21) ESM Mantenimiento Integral S.A. de C.V;22) Grusamar Albania SHPK;23) Atenea Seguridad y Medio Ambiente S.A;24) Ecoasfalt Construction Company Private Limited;25) Proyectos y Promociones Inmobiliarias Elpidio Sanchez Marcos, S.L.;26) Instituto Tecnico De La Vialidad Y Del Transporte, S.A;27) Yala Construction Co Private Limited;28) Hazaribagh Ranchi Expressway Limited;29) Pune Sholapur Road Development Company Limited;30) Rapid MetroRail Gurgaon Limited;31) North Karnataka Expressway Limited;32) West Gujarat Expressway Limited; and33) Moradabad Bareilly Expressway Limited.