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EARNINGS REVIEW
IRB Infrastructure Developers (IRBI.BO)
Buy
In line with expectations: Strong construction ramp-up underway, C-Buy
What surprised us
IRB reported revenues of Rs4,903 mn (38% yoy growth), in line with our
and Bloomberg consensus estimates. However, net income of Rs991 mn
was above our expectations by 11% due to MAT credit. Construction
income grew 46% yoy to Rs2,954 mn despite a strong monsoon this year.
Billing for construction on new projects has not started accruing to
revenues yet – which provides a good starting point for sequential growth
in 2HFY11, in our view.
The company’s order book as of Q2FY11 end is at Rs95 bn – we expect the
order book to start increasing again as NHAI restarts project award activity
post November.
What to do with the stock
With the start of construction activity on 4 under development projects
scheduled in 2H2011 and stable toll revenue from the existing projects, we
expect sales CAGR of 45% over FY10-FY12E. Going forward, toll revenue
dependence of the company will also spread across multiple projects.
The stock currently trades at FY12E P/E of 14X, at a discount to its
historical 12-month forward P/E of 17.1X. We fine-tune our FY11E-FY13E
EPS to reflect 2QFY11 results and maintain our 12-month SOTP-based
target price of Rs338. Reiterate Buy, on Conviction List.
Key risks: 1) Lower than expected traffic growth, 2) Volatile construction
material costs
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