Our analysts believe the company has one of the best management teams in the engineering space and its focus on managing its human resources is one of the best in the industry, resulting in higher efficiencies and better cost management. Further, its ability to source raw materials from its sister companies also enables it to manage costs better.
* IL&FS Transportation Networks Ltd ( CMP: R138, OW and TP: R172): ILFT is poised to make seven projects operational in 2014e. Three of these will be among ILFT’s top four assets; it has 26 road assets in total. With the launch of these seven projects, our analysts expect ILFT’s average daily cash collection to increase threefold to around R60m by FY15e. This will likely ease investors’ main concern about the company and the sector—namely, potential delays in cash flow generation—limiting developers’ ability to cut leverage.
(iii) Strong earnings momentum with reasonable valuations: On the theme of strong growth at reasonable valuations, our analysts highlight three names in the mid-cap space: (i) LIC Housing which is in the resilient mortgage finance business, (ii) Power Trading Corp, and (iii) Prestige Estates.
* Prestige Estates Projects Ltd (CMP: R157, OW(V) and TP: R190): Prestige maintains a very high level of corporate governance/disclosure standards and has been able to meet its guidance successfully since listing. Despite some weakness in key markets like Bangalore, its sales momentum continues apace, driven by strong presales and a strong brand. The company has a diversified product mix ranging from mid-market to premium offerings in the residential segment. It has also it has nurtured a wide client base for its commercial projects. The company has high cash flow visibility based only on the projects that are currently under development.
* Power Trading Corp (CMP: R61, OW and TP: R78): The company has reported better-than-expected growth in volumes in H1, up 20% y-o-y in a tough market and is likely to beat its own guidance of more than 32 bn units for FY14 (growth of 12% y-o-y). The outlook has improved significantly in the last few months with (i) higher visibility in long term volumes, which is a key driver of growth, (ii) de-risking the tolling business with margins protected and (iii) much awaited receipt of old dues from Uttar Pradesh state utility of R7.78 bn in October 2013.