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Thursday, December 29, 2011

Stocks To Buy in 2012 - Noida Toll Bridge

A stock of a company which has already made it’s investment, done all the work and now just collects revenues with minimal operational expenses should be on your list of stocks to buy in 2012 for sure. Any value investor should buy stocks of Noida Toll Bridge in 2012 for excellent returns on investment looking at future developments in company. Here is the reasoning.

Business
Noida Toll Bridge Company Ltd. (NTBCL) has constructed and now operates a bridge (popularly known as DND flyway) that connects South Delhi to Noida. It is an 8 lane world class highway with toll plaza. NTBCL is promoted by IL&FS. NTBCL has only one business, to collect toll revenues form DND flyway which it has already constructed. The bridge is like cash machine for company. The company just have to spend money on minimal operational needs and maintenance of bridge. Operational expenses are not very high. And that is the reason behind company’s operating profit margin of 76% in FY11. Company has to pay big portion of this for debt repayment and interest costs associated with it.

Thousands of vehicles travel everyday on DND flyway out of need to commute between Delhi and Noida. And DND flyway is the only time and energy saving route that vehicle commuter has. Other two routes (via Nizamuddin bridge and Okhla bridge) are free to use but are time consuming and traffic laden. I have travelled a lot on DND flyway and of course on other two mentioned bridges myself by car and at any given day, I have preferred to use DND flyway paying toll. This was to save my time (approximately 20-30 minutes if I use other routes) and of course to save fuel. As per my calculations, with an increased driving distance of 4-5 kilometers per trip if I use alternative free routes and not DND flyway, I would burn more than 1/4th liter of petrol or more in driving, spending at least Rs.18-20 extra in petrol (petrol at Rs.70/liter). And then, extra travel time, hassle of very slow moving big traffic (that burns more fuel than mentioned earlier). Any sensible car driver would use DND flyway so NTBCL may never face slowdown in terns of traffic. Traffic is in fact bound to increase due to huge business infrastructure and residential developments in Noida, Greater Noida and along the sideways of Noida-Greater ay. Visit DND Flyway site for more details on business.

May be, Delhi metro should prove competition to DND flyway (two wheeler riders may opt for metro) but chances of travelers using cars being diverted to metro are very less in my opinion.

Stock Financials
Now, just imagine a company which has operating profit margins of like 76%, will make how much profit once it becomes debt free! NTBCL had debt of Rs. 358 crores in March 2005. As on Sept. 2011, the debt is down to Rs. 126 crores. At this speed, company may repay entire remaining debt within 2 years. And there after, you would have a company which is debt free, generates cash on the spot from toll collections with big operating profit margins.

Along with toll revenues, NTBCL also collects revenues by placing advertisements along side the entire bridge. And advertisement revenues are growing every year (up 20% in FY11 from 10 in FY10 to 12 crores). Under the project agreement with Noida authority, company has right to earn assured returns of 20% on total project cost through toll collection for 30 years from Jan 1999 onwards. The total project cost also includes major maintenance expenses on top of which the profit would be earned.

As in FY11, the total project cost with profit projections that NTBCL management has estimated stand at Rs.2021 crores. And to recover this money, NTBCL will have possession of DND flyway for 40 more years additional to 30 years in contract! There is an alternative using which company can recover these costs. The alternative is that Noida authority would award development rights of land along DND flyway to NTBCL. And this land is very precious and at prime location between Delhi and Noida. So there is a real estate play for company in future.

Stock Valuations
5 year median P/E ratio for NTBCL stands at 22. The stock trades at CMP of RS. 20 with P/E of just 10. Company’s EPS growth for last five years (CAGR) is about 25%. The PEG (Price earnings to Growth) ratio stands at 0.4. Any stock with PEG ratio lower than 1 can be considered as value stock. NTBCL can be called as a good value stock. Company has started paying dividends in 2010. Dividend was 50 paise per share which puts stock dividend yield at 2.5% annually at CMP of Rs. 20. As the debt would reduce in future, net profit would increase and so the dividends. You can expect NTBCL to be a good dividend yielding stock in future for long term.

All in all, Noida Toll Bridge is one of the very good stocks to buy for long term investment portfolio. It will pay you good stock dividend too. It has good scope for capital appreciation in future looking at current stock valuations. One may buy stocks of NTBCL at CMP (Rs.20) or below, which has limited downside.

Disclaimer: I own this stock at 22-23 levels and determined to add more at CMP and below for long term.

7 comments:

  1. My only issue with NTBL is that the stock has been recommended many time by many different people (including equitymaster too), but if you see the graph of the stock, it has never really given a great return, despite good fundamentals for the last so many years.
    Any comments

    ReplyDelete
  2. The issue I see is the Sales does not seem to grow. It is around 83 cr for the past two years and seems to be in the same around for the current year too.

    ReplyDelete
  3. Thanks, you have explained very well.
    Shrinivas,
    Vizag.

    ReplyDelete
  4. but jaypee expressway operation will increase the traffic

    ReplyDelete
  5. THE COMPANY IS MAKING GOOD RETURNS BUT NOT THE INVESTOR

    ReplyDelete
  6. you miss the whole point of growth, it has limited growth potential hence will never give good returns, but will be a good dividend stock to hold.

    ReplyDelete

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