Disclaimer at the Outset ~ This Blogpost is not a Recommendation but only an endeavour to interpret what is in the public domain given the latest developments & to thus spell out risks that have played up.I intend to showcase this at my Equity Training Sessions
Toll Free Court Order has Noida Toll Bridge Toiling down over 35% to Rs 14
I have never been a fan of Noida Toll Bridge for many years now for two straight reasons :
1-Corporate Governance ~ In November 1997 a Service Concession Agreement for the Noida Toll Bride and Mayur Vihar Link Road was entered into by the Company,it’s promoter IL & FS & NOIDA,UP Govt.Its been a huge controversy since inception in both granting the Concession to IL & FS company Noida Toll Bridge & the subsequent padding of recoverable Project Cost which incredulously kept being padded every year even after completion because of the absolutely deliberately lenient Agreement Terms that allowed this for any designated returns ( a high 20% pa) that were not attained in the year.There was no cap on Operational Costs too in the Agreement & this allowed the Company to present poor returns and thus pad up project costs to be recovered.Much of the Operational Costs found their way into higher Salaries,Commissions & Perks for the retired IAS Officers who had founded IL & FS and this Company. The Spirit of the PPP was severely dented .Private Benefits at the expense of the Public.Project Costs that should have been @ Rs 200 crs balloned to over Rs 408 crs & then padded up to over Rs 1000 crs !….it was a unprecedented CAGR of designated returns yet to be recovered ! that allowed the company to collect till infinity even beyond the at least 30 year concession granted in the November 1997 agreement.It was only last year on July 9,2015 a modified agreement froze the amount payable as on March 31,2011 & terminates the Agreement on March 31,2031.The Company also has development rights under the Agreement but it has not yet recognised these in their Financial Statements.These could amount to Hundreds of Crores in itself.
2-I saw it as a range bound stock with no serious capital appreciation and just dividend yield, as it’s model was simply just toll collection & then dividend payments once it broke out in 2010.Predictable Flows & DCF captured the range valuation. The expectations of non linear flows through recognition of Development Rights did inflate share price once or twice but till date this has not happened & given Allahabad court order to stop charging user fees now arises a ? mark if at all will they arise.The Court however has upheld the Concession Agreement but ruled inoperative the collection of any levy or Toll Fee