Noida Toll Bridge - Building a strong bridge

First, with the cost of borrowing already going up and the RBI’s move to increase the repo and reverse repo rates by 50 bps, the investment climate as a whole calls for a relook. Many are expecting a slowdown in the economy. Under this situation, Noida Toll Bridge seems to be a safe bet due to its revenue model.

NTB collects toll from vehicles that use the bridge constructed by the company. This revenue model ensures a steady flow of cash. For the year ended March 2011, NTB reported a smart growth in its net profit, with a consolidated figure of Rs 37.46 cr against last year’s figure of Rs 27.45 cr, a growth of 36%. The company’s June quarter numbers are good − the top line remained static, but the bottom line showed an improvement from Rs 10.07 cr to Rs 11.45 cr, a growth of 13.7%.

NTB has also been able to reduce its staff cost from Rs 10.61 cr for the year ended March 2010 to Rs 9.50 cr in FY11. Only in the first quarter yet, staff cost has come down from Rs 1.43 cr (standalone June 2010) to Rs 0.95 cr for the year ended March 2011. We expect the company to report decent growth numbers in the next three quarters, which will help its net profit to grow by around 30% for the full year. In a recent interview, the management has indicated that volume growth in the current year would be close to five%. 

The company is also looking to increase the toll rate by around 10-15% in the second quarter, from July-September, 2011. The last hike in toll was effected by the company in 2009, and is thus, long overdue. Last year, the company made an attempt to hike the toll rate, but it had to be rolled back due to protests from locals. This time, it is hopeful of being able to go through.

Expectation of volume increase, coupled with a hike in toll rate, means that the company would report a better top line and bottom line for the coming quarters. At the same time, it is also expecting to improve revenues from advertisements, with a growth of 10-15% in the current year. Last year, the revenue from advertisements stood at Rs 14 cr. This should help the company to improve its margin.

Another trigger for the company to get rerated on the bourses is the development rights for land in its possession around the DND flyway, in both Delhi and Noida. The company has been in constant touch with the authorities to develop the land for quite some time, but no decision has been taken yet. However, the management is hopeful that something will happen soon, which could earn the company substantial revenues.

Presently, the scrip is quoting at Rs 26 (a yearly high low of Rs 38/24), with Year-to-Date negative returns of 14%. We expect it to report a net profit in the region of Rs 48 cr for the full year. The company has an equity capital of Rs 186 cr. The projected EPS for the year March 2012 is Rs 2.6. This gives us a P/E of 10x, which we feel is less for a company that has been growing at 30% in bottom line. Our target price for the company is Rs 34 in the next twelve months, giving upside potential of 30%.