• Company has grown through the inorganic route by making acquisitions. In March 2008, the acquisition of Elsamex enabled the company to earn revenues from its maintenance business, annuity receipts, toll collection, operation and maintenance activities and advisory and project management fees from BOT road projects.
  
  
• Now, ITNL derives the majority of its revenues from Elsamex's operations. To put things in perspective, for the fiscal 2009 and for the six month period ended September 30, 2009,  61.62 per cent and 43.43 per cent of the total revenues respectively were attributable to the ITNL’s interest in its subsidiary. The fortunes of the company are therefore highly dependent on Elsamex's performance. Revenues from Government entities formed 42 per cent and 29 per cent of its revenues and enhances risk, as these could be politically sensitive. 
  
  
• The performance of the company has been significantly affected by the payment of interest that formed almost 50 per cent of the profit before taxes due to the high amount of debt on its books. The debt-equity ratio of the company at the end of September 2009 was 2.4 times. Higher leverage has thus impacted the financial performance of the company. Nevertheless, with the issue of capital (read as augmentmenation of the equity base) and part payment of loans being  the objective of the issue, the leverage is likely to reduce which would positively impact profit margins and profitability of the company. Notably, its closest peer in the listed space, IRB Infra has a debt to equity ratio of less than 1.4 times. 
  
  
• While broadening of equity base will help the company to facilitate fund-raising in the future, it will also dilute its earnings considering the already high equity base.
  

POSITIVES
 

• Satisfactory execution track record – an integrated player : With a pan-India presence and diverse project portfolio consisting of 17 road projects, comprising of approximately 9,397 Lane kms in various stages of development, construction or operation, the company has already proven its extensive and advanced execution capabilities. A satisfactory financial track record and proven ability to execute projects along with strong parentage will further help the company to pre-qualify for projects / tenders issued by the government in the road sector. ITNL thus seems to be in a better position to capitalize on the increase in infrastructure spending, especially roads. Further due to its experience and expertise in various phases of project cycle from conceptualization to development to operations, ITNL has emerged as an integrated player. 
  
  
• Leveraging a Strong Parentage and Brand : Its parent company IL&FS has an established track record in promoting and financing a range of public infrastructure projects. The strong brand name of its parent strengthens ITNL’s position to bid for new projects and manage existing ones. Strong promoter background and an experienced management team backed by strong relationships with State and Central government entities is an added merit. The company also plans to leverage its IL&FS track record in expanding business within and outside India.
  
  
• Diversified Revenue Base and Road Project Portfolio :  The company generates revenues from annuity receipts and toll revenues from BOT road projects. Of the total of 17 road projects that comprise approximately 9,397 Lane Kms, 67 per cent or 6313 Lane Kms are toll bases and the balance have an annuity model.  While the annuity contracts provide relatively stable revenues during the concession period, our toll revenues are subject to fluctuations. However, the current mix of revenues augurs well for the company in terms of a steady income flow resulting into stronger cash flows. In addition, our acquisition of Elsamex, has further geographically diversified its operations. Aggressive expansion into new sub-sectors and recent forays into implantation of rail transit project and city bus transport will also help to mitigate the risk associated with the concentration in road projects which constitute over 90 per cent of ITNL's business. ITNL is also looking at leveraging its expertise to bring airports under its ambit and diversify into the urban mass transit space. However, new ventures tend to be associated with higher execution risk.
  
  
  Lastly, a mix of operating assets along with various projects under development and construction offers considerable visibility to the business prospects of the company. 
  
  
• Favorable Industry Prospects : According to the recent Union budget announcements, the spending on infrastructure such as roads and power plants has been proposed to be increased by 24 per cent to Rs 2.67 trillion. With greater private sector participation through the PPP model, ITNL seems to be better placed to capitalize on the growing opportunities in its sector.

CONCERNS

• Execution Risk : Like any other infrastructure business, the operations of the company is associated with inherent execution risk. Completion risk (in terms of time) is one of the most common risks faced by the companies in this business due to long gestation periods of the projects. Delays in the same may cause higher than anticipated cost and additional financial aid. 
  
  
• High dependence on foreign subsidiary and performance of its SPVs : The company derived 61.62 per cent and 43.43 per cent of the total revenues during FY 2009 and 6M FY 2010 respectively. As the operations of its international subsidiary has operations spread across various countries, the company’s is automatically exposed to currency risk across various currencies such as EURO, USD and Mexican Peso.  This also exposes the company to the vagaries of the global economic cycle. Further most SPV’s are in the nascent stage of operations. Successful integration of the company’s operations thus remains the key to the successful transition of the parent company (ITNL). 
  
  
• Capital intensive business : The business model of the company is highly capital intensive. This results into high leverage. This in turn  aggravates interest rate risk which is expected to rise. Going forward, there is also a possibility of further equity dilution in order to facilitate fund raising. Nevertheless, being a capital intensive business, the competition to that extent, stands reduced. Nevertheless, there are a large number of players (bigger players) with whom the company has to compete. 
  
  
• Potential conflict of interest : ITNL’s parent, IL&FS, and certain members of its group companies have equity interests in companies offering similar services and businesses.