Noida Toll Bridge

 

To give a background this is a company which is promoted by IL&FS and it was promoted as a special purpose vehicle for implementing the Delhi Noida Toll Bridge project. The reason we like this stock is that Noida Toll Bridge is one of the most lucrative public private partnership which this country has seen. As per the terms of the concession agreement which they have signed with Noida Authority, they are entitle to a 20% return net of taxes on the investments made in the toll bridge project over a concession period of 30 years. 

Noida Authority is ensuring 20% return net of taxes and the concession period can be extended beyond 30 years in case the desired returns are not achieved in that stipulated period. Positives about the stock is that there is a lot of construction activity which is happening in Noida and JP Infratech is making a highway which connects Noida to Agra and there are about 7-8 huge townships which are coming along the expressway. 

This is going to be a big positive for Noida Toll Bridge because you will have a lot of traffic which currently flows to Agra through the Faridabad route taking this route and this bridge is also very close to the Commonwealth Games village and may see more activity during the Commonwealth Games. This company faces competition from one, metro rail where the rail link has been extended to Noida and second, there are two bridges which are within the vicinity of Noida Toll Bridge which provides competition. 

The company has got about 100 acres of land in it's a lease hold land and the company has the right to develop this land subject to Noida Authority granting the development rights of the land to the company in lieu of the shortfall in profit. If you look at the valuation of the company at the current price of about Rs 31.5 marketcap of the company is about Rs 580 crore, company has debt of close to Rs 200 crore which makes the enterprise value of close to 780 crore. 

As on March 31, 2009 this company had receivables of about 1486 crore from Noida Authority which is a shortfall in 20% guaranteed profits and as on 31 March, 2010 that figure would have jumped to about Rs 1,700 crore. So you have a company which is available at enterprise value of Rs 780 crore where the value of the asset if build today maybe much more than the current enterprise value of the company and along with that they have got receivables which are good which will come to them over a period of time of about Rs 1,700 crore. From these levels the probability of going wrong is extremely less even though the stock is depressed on account of uncertainty over a grant of development rights by Noida Authority but that negative factor is fully discounted in the stock price. 

The major risk which I see with this investment is that in case of termination of agreement or in case of Noida Authority not honouring their commitment, that's the major risk to the investment but the probability of that risk is extremely low. So I think there is deep value in this stock at the current market price and the downside looks extremely restricted from the current levels.