FINANCIAL MODELING

A Report on Noida Toll Bridge Company Ltd.

Anisha Bharati
Roll No. 020

Introduction: The Noida Toll Bridge Company Limited was incorporated as a Special Purpose Vehicle for the Delhi Noida Bridge Project on a Build, Own, Operate and Transfer (BOOT) basis. The Delhi Noida Bridge is an eight lane tolled facility across the Yamuna river, connecting Noida to South Delhi. The main advantage of using the bridge is the savings in time, distance and fuel consumption for travellers between South Delhi and Noida The Noida Toll Bridge Company Ltd. (NTBCL) has been promoted by Infrastructure Leasing and Financial Services Ltd. (IL&FS) as a special purpose vehicle (SPV) to develop construct, operate and maintain the DND Flyway on a Build Own Operate Transfer (BOOT) basis. NTBCL is a public listed company, incorporated in Uttar Pradesh, India, in 1996 and operates only in India.The main revenue source for NTBCL is collection of toll from vehicles crossing the bridge. The project was commissioned on February 7, 2001, almost 4 months ahead of schedule and broadly within the budget.

Background: The company initially had financial issues after the toll bridge was completed as the initial traffic projections did not materialize. The project was structured as a Rs. 408.2 crore (US$ 100m ) 30-year BOOT concession, which was financed through equity of Rs. 122.4 crore (US$ 30m) and debt of Rs. 285.8 crore (US$ 70m). Debt financing consisted of term loans from various Indian banks and financial institutions totaling Rs. 235.8 crore (US$ 58m) and the issue of deep discount bonds totaling Rs. 50 crore (US$ 12m) by the Noida Toll Bridge Company Limited (the concessionaire). The company had a highly leveraged structure (high debt) and hence had to get the debt re-structured. In addition the company also raised equity to improve the debt equity ratio. In the initial years of operation, the revenue from collection of toll fees at the Delhi Noida toll bridge fell below originally projected levels and below break-even level. The shortfall was attributed to a number of factors including the rate of growth of Noida being lower than expected. As a result of the financial losses incurred, NTBCL approached its lenders for the restructuring of its debt after its first year of operation. The restructuring was carried out in 2002.

The State Bank of India in conjunction with NTBCL, IDBI and IL&FS prepared the corporate debt restructuring proposal, the key features of which were: (i) rescheduling of interest and repayments; (ii) reduction in interest rate for loans; and (iii) construction of new links in order to augment NTBCLs revenues (to be funded by additional equity capital). As per the terms of the debt restructuring ,the Company issued Zero Coupon Bonds of Rs. 555.4 million to Banks, Financial Institutions and others, repayable no later than March 31, 2014, towards the Net Present Value of the sacrifice made by them. The Delhi Noida bridge project is often presented as a path-breaking project which showed that private capital could indeed be attracted to provide public infrastructure services in India despite having to deal with multiple authorities and a fragile political environment. The project was completed within budget and ahead of schedule. It was also successful in raising investment funds from capital markets (including an issue of GDRs overseas). Following significant shortfalls in projected traffic and revenues, it was also successful in restructuring its debt after the first year of operation. It is the only toll road in the country listed on the stock exchange.

Current financials: The company had a toll revenue of around 69 Crs in 2011. The company is also able to sell rights for outdoor advertising around the bridge and was able to earn around 12 Crs from it. The company was able to make a net profit of around 37 Crs on the above revenue base. The company has an operating expense of around 27%.The depreciation expenses are bound to remain fixed as there is not much addition to the fixed assets. The salary costs and some other expenses such as legal fees, travelling expense etc are variable and are bound to increase over time. The company thus has around 40-45 Crs of pretax profits available to service the debt. The company has been paying down debt which now stands at around 145 Crs in the latest quarter. At the current profit levels, the company should be able to pay off its entire debt in less than 3 years (though it may not happen due some of the re-structuring clauses). The company also has a leasehold title to around 99 acres of land which was awarded by the government as compensation for shortfall in the revenue. The company estimates this title to have a value of around 300 Crs. I have personally not ascribed full value to it as I dont have an idea on the status of this leasehold title or what the company plans to do with it (which the company describes as a risk)

Risks associated: Noida toll bridge was assured a 20% return on the cost of the toll bridge through toll collection and development rights for 30 years. In the initial years, the traffic projections did not come through and hence the actual returns were much lesser than the assured returns. The shortfall in the returns has been accruing to the company and one way of compensating the company would be to extend the 30 year operation period for the company. In other words, the company may be allowed to run the toll bridge for a much longer period. The leasehold title is definitely a risk for the company. Anything related to land always has some kind of political risks. The staff cost for the company is way too high. The company has around 15 employees and wage bill of almost 6 Crs. The key management personnel (CEO and a manager) are paid a salary of around 4Crs.I think the compensation costs of the company are high.

Finally, the company will generate quite a bit of cash flow once the debt is paid off. It is not clear what the company intends to do with the excess cash, though the company has started paying dividend in the current year. The Land Bank: Noida Bridge has huge land bank to the tune of 200 acres in Delhi and 30 acres in Noida. Value may unlock once the company gets a development rights from government. Land bank is valued at 1500crores. The price of the land is approximately Rs. 35000-40000 per square meter near that land bank. Apart from the core business of toll-collection, company has another non-core asset, which can be monetised in future. Company has in its possession, land bank of 200 acres in Delhi side and 30 acres in Noida side. NTBCL in its annual report mentions that there are risks involved with this land bank development Company has in its possession, land around the DND Flyway both in Noida and Delhi, which may be developed subject to grants of Development Rights by NOIDA / Govt. Of UP / Govt of Delhi. Though company has been trying to gain rights, it has been years and no rights have been granted till date. Some conservative estimates in 2002, valued this land bank at 350 crores. Taking an average 15% rise in land prices, this land bank can be valued at around 1100 to 1200 crores. The grant of rights can be a huge trigger for companys stock price.

They have a fair amount of land on both sides, in Delhi and in Noida, its part of their listing document. They are focusing on whether they can utilise a small portion of that land in Noida for which discussions are on with the Noida authorities. Financial analysis:

Source : MVXenius

As evident from figures above, barring 2010-11, NTBCL has been consistently increasing sales (revenues) as well as net profits. For 2010-11, sales are almost same as previous year. Though projected increase in traffic was 5%, the same did not materialise and led to stagnation of the income from toll collection.But a positive found in 2010-11 accounts is that there has been a considerable decrease in interests over the years. This augurs well for company as it is indicative of fact that company is retiring its debts and will turn debt free within 3 years. Even Debt/Equity ratio is decreasing for good. After results of 1Q-2011, the Debt/Equity stands at a comfortable 0.3.After all debt is serviced, entire profit will be used in increasing of EPS which currently stands at 2.01. And company, to give an indication of free cash being generated, for the first time, has declared dividend of 5% at FV 10. This is also an indicator that company will pretty soon turn into a regular dividend paying company, which shall give back the cash generated to its investors, as its debt obligations would be over.

At current market price of Rs 22.45, the company is available at a P/E of 11. With decreasing debt and increasing EPS, company is expected to come out with another 15-25% increase in EPS within 2-3 quarters; which works out to be Rs 2.3-2.5/ per share. Translating this into PE, we have a forward P/E of 8.90-9.60. Book Value stands at Rs 23.86. This translates into Price/Book Value (P/BV) of 0.94, which is satisfactory on fundamental valuation scales. Black Swan event It is an event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult to predict. Though it would be too farfetched to consider such an event while evaluating the company, the fact remains that Delhi (NCR) lies in a seismically dangerous zone of India. This area is prone to earthquakes (Same is validated by National Disaster Management Ministry of Home Affairs). And since NTBCLs only business is toll-collection, any damage to the bridge, would lead to a fall or total loss of revenue. References: 1. http://infrastructure.gov.in/pdf/NOIDA.pdf 2. http://essentialassociate.wordpress.com/2011/09/27/noida-toll-bridge-value-buy/ 3. http://www.ntbcl.com/investor.aspx 4. http://www.ntbcl.com/shareholding.aspx