Investors with a 2-3 year perspective can consider phased investments in the stock of IL&FS Transportation Networks (ITNL). A robust order book, good backing by parent both on the technical and financial front and a well-balanced portfolio of toll and annuity roads make the stock a a good option in the road space.

At the current market price of Rs 194, the stock trades at 7 times its expected consolidated per share earnings for FY13. While road developers normally trade at a premium to engineering procurement and construction stocks, ITNL's current valuation is almost at par with the former. ITNL had not procured any large order since May 2010 and this factor was an overhang on the stock. This has changed in recent months with ITNL winning a spate of large orders.

Intense competition for over a year in the road sector saw pure developers stay cautious. These players, not willing to compromise on their internal rates of return, decided to wait as the relatively new ones such as the Essel and Essar group bid aggressively. But in recent months, the stage has once again become clear for the large players to comfortably win orders as there were fewer participants. Bids from new players came down as these companies were struggling to meet the financial commitments of existing projects.

The recent orders were also large and significant. For instance, ITNL bagged the Kiratpur-Ner Chowk stretch in Himachal Pradesh. This stretch is a key connecting road that will enjoy higher traffic. ITNL is also allowed to collect higher toll. ITNL closed the fourth quarter of FY12 with over Rs 4,000 crore of new orders. This is likely to take the total order book to over Rs 12,000 crore.

Toll revenue from its operational roads in the December quarter expanded 28 per cent, both on account of traffic and hike in toll rates. It has also been growing at about 5-7 per cent every quarter. Acquisitions, road operation and maintenance company Elsamex of Spain and more recently, a 49 percent stake in a Chinese highway project which is operational, can all be expected to provide further diversification.

With a number of roads becoming operational in recent years, ITNL saw a three-fold jump in its consolidated revenues in the last two years to Rs 4,048 crore in FY11. Profits jumped 16 times to Rs 433 crore in the same period. That said, ITNL's revenue tends to be lumpy, especially when it completes any large EPC orders.

ITNL has always had a debt-equity ratio of over 2 but comfortably managed its debt servicing. The borrowing is also done on the individual project balance sheet. For a road builder and operator with a large portfolio like ITNL, this gearing is unlikely to come down.

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