Noida Toll Bridge Company has just one asset -- the toll bridge -- but its valuations make it a good long-term stock…
04-Jan-2012 •Jatin Khemani
Promoted by IL&FS, the Noida Toll Bridge Company Ltd (NTBCL) was formed as a special purpose vehicle for taking on a project on BOOT (build, own, operate, transfer) basis. The project was to construct a bridge across the Yamuna River connecting South Delhi to Noida, operate it for 30 years, and then transfer it back to the New Okhla Industrial Development Authority.
The Noida Toll Bridge, famously referred to as DND Flyway, is an eight-lane bridge that connects Noida to South Delhi across River Yamuna. It is 552.5 metres long with a 27-lane toll collection plaza at the Noida end. It has a maximum capacity of 2,22,000 vehicles per day.
Cash cow. The company has just one asset — the toll bridge. It incurred a one-time investment on constructing the toll bridge, and since then the bridge has been generating cash. Maintenance expenses are not very high, which accounts for the high operating profit margin of 76 per cent in FY11. A substantial portion of the company’s earnings go into debt repayment and servicing the interest cost. The rest is all profits.
Since the entire revenue is collected as cash on the spot, there is no risk of bad debt. (A car comes to the toll gate, pays toll and then enters the bridge.) In fact, it gets even better: commuters who use the bridge daily prefer to buy cards, which means that they make a lump-sum payment to the company in advance.
Assured return of 20 per cent. Under the concession agreement that the company signed with Noida Authority, the former was conferred the right to earn an assured return of 20 per cent on total project cost through collection of toll for 30 years, starting from December 30, 1998, or till such time that it recovers the said rate of return, whichever is earlier. According to the agreement, the concession period shall be extended for two years at a time till this return is realised. Apart from cost of construction, cost of commissioning and major maintenance expenses, total project cost also includes shortfalls in recovery of returns for previous years.
The initial projections made were too optimistic and the company incurred losses in the beginning. It failed to service its debt and had to resort to restructuring by capitalising interest payments and delaying principal repayments. On a compounded basis, those shortfalls have risen as high as `2,021 crore, as stated by the management at the end of FY11. Based on this shortfall, the management expects to have possession of the bridge for an additional 40 years in order to satisfy the assured-return clause.
This projection will hold in case no land development rights are granted to the company, which is the alternative method through which Noida Authority could compensate the company for its shortfalls. Though the company had appointed Jones Lang LaSalle (JLL) to value the land development rights, which the company is hopeful of getting, there has been no progress on this front yet.
Substantial debt reduction. Year after year, a major chunk of the company’s earnings have gone into debt repayment. As a result, debt, which stood at Rs 358 crore in March 2005, has now been pared down to `126 crore (September 2011 figure). At this rate, the company is expected to be debt-free in two-three years, after which its profits are likely to be even higher.
Revenue from advertising. In addition to toll collection, the company enjoys exclusive rights to advertising revenue from the bridge. Currently advertisements contribute over 17 per cent of the company’s total revenue. Advertisement revenue grew 20 per cent to Rs 12 crore in FY11, compared to Rs 10 crore in the previous year.
Given the fact that traffic on the bridge will only grow in future (and hence advertisements put up along it will attract more eyeballs), advertising revenue is expected to increase. High revenue will come either from more hoardings being put up along the bridge or from higher rates being charged for the existing space.
Tariff revision. After protracted negotiations with Noida Authority, the company was finally able to hike toll rates for cars and two-wheelers by 10 per cent, effective November 2, 2011. In future, even if traffic on the bridge reaches full capacity, it is these tariff revisions that will enable revenue to grow.
Competition from other bridges. Noida Toll Bridge faces competition from two toll-free bridges that are situated nearby, Nizamuddin Bridge and Okhla Barrage. Nizamuddin Bridge is approximately three kilometres upstream of Noida Toll Bridge while the Okhla Barrage is about one kilometre downstream.
Recently there have been reports that the government of Delhi and Noida Authority are considering extending the Barapullah Elevated Road across the Yamuna, and widening Okhla Barrage. Interestingly, the Support Agreement executed with Delhi government and UP government forbids the construction of another un-tolled bridge in the area between Okhla Barrage and Nizamuddin Bridge until DND Flyway achieves a specified level of capacity utilisation. The company has expressed its objection to both the authorities.
Competition from Delhi Metro. The Delhi Metro Rail Corporation (DMRC) commenced metro services in Noida from November 13, 2009. This line caters mainly to commuters travelling between Noida and central Delhi. Traffic on the DND was not affected by the Metro for the initial seven months, but thereafter there has been a consistent drop. Essentially, after the Metro line came into operation, a lot of two-wheeler based commuters shifted to the Metro. A category-wise analysis of vehicular traffic shows that during 2010-11 two-wheeler traffic on the DND Flyway dipped by around 6 per cent.
The average daily traffic on the bridge has grown from approximately 17,000 vehicles per day in 2000-2001 to 1,02,394 vehicles per day in 2010-2011. There has been a revival in the development of recreational, commercial and residential spaces in the primary catchment areas of Noida and Greater Noida. These developments are likely to receive further impetus due to the development of the Yamuna Expressway, a six-lane access-controlled expressway that will connect Delhi to Agra. With more planned development taking place in Noida-Greater Noida region, in the long run traffic on the Delhi-Noida Toll Bridge is bound to increase further.
In addition, the following construction work will have a favourable impact on traffic on the DND Flyway: one, additional entry and exit ramps onto the Barapulla Elevated Road on the Ring Road as well as from Lala Lajpat Rai Market. Commuters from the DND will then be able to travel signal-free from Noida or Mayur Vihar to Moolchand, Lajpat Nagar, and Jawahar Lal Nehru Stadium.
Another development that has the potantial to augment traffic on DND Flyway is the completion of the underpass at the Rajnigandha Crossing on the Noida side. At this point there used to be a lot of congestion earlier. This underpass was opened to the public in the last week of August 2011.
Currently, Noida Toll Bridge Company’s debt stands at `126 crore (as on September 31, 2011) compared to `358 crore at the end of FY05. Debt-to-equity ratio has been constantly on the decline: it now stands at 0.31 compared to 3.34 in FY05. At this pace, it is expected that all the company’s debts will get paid off by 2014, which should allow profits to rise substantially thereafter.
The company has a five-year average EBITDA margin of 76 per cent. The company announced it maiden dividend of 5 per cent in the current year.
The stock is currently trading at a P/E multiple of 10.47, which is at a discount of 52.5 per cent compared to its five-year median P/E of 22.06.
The five-year EPS CAGR (using TTM figures) of the company amounts to 25.66 per cent. Taking this into account, the stock is available at an attractive price-earnings to growth (PEG) ratio of 0.41.
Investors with an investment horizon of three to five years should start accumulating this stock at its current price levels.