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IRB Infrastructure Developers Ltd
Construction Division Drives Revenue and Profits
Quick Comment – Impact on our views: We maintain
our EW rating on IRB as we believe: 1) IRB is fairly
valued for its current projects. 2) New project wins will be
the catalyst for the stock – and we expect NHAI award to
pick up only in F4Q11 3) IRB’s near-term earnings will
be driven by the construction division. IRB trades at
17.6x 2011e P/E, ~ 60% premium to mid-cap E&C
peers.
What’s new – F2Q11 numbers in line with our
estimates: IRB reported F2Q11 revenue of Rs4.9bn (up
38%YoY), which was in line with our estimate of Rs5bn.
Revenue was driven primarily by the construction
division, which was up 46% YoY. BOT revenue was up
26% YoY due to inclusion of the of the Bharuch Surat
project in F2Q11 (commissioned in September 2009).
Construction EBITDA margin was up 3.4% (at 24%) on
bitumen prices coming off. A few projects are in the
initial stages of leveling and excavation, which resulted
in higher sub-contracting expenses and lower material
costs taking the total profits to Rs991mn (up 40% YoY).
Environmental clearances delaying construction: Of
the four road projects that IRB won in F1Q10, it has not
started construction on two (Panaji-Goa and Talegaon-
Amravati) as NHAI has yet to receive the needed
environmental clearances. IRB expects to start
construction on these projects in F3Q11.
Trigger for the stock expected in F4Q11: We believe
that the trigger for the stock is new project wins. Road
award activity from NHAI has come to a standstill over
the past few months as NHAI is in the process of
appointing its new Chairman, which we expect to be
completed by December 2010. Hence, we expect road
award activity to pick up toward the end of F4Q11. IRB
has submitted bids for projects worth Rs265bn
(US$5.8bn).
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