IRB Infrastructure-New roads drive pick-up in construction :: BofA ML

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IRB Infrastructure Developers Ltd.
New roads drive pick-up in
construction; Tolls flat qoq
􀂄 Good 2Q led by construction revs. +46%, Buy PO Rs324
IRB 2Q PAT Rs1bn +37%yoy on consolidated revenue of Rs4.9bn (+38%yoy).
Surprise was construction revenues grew +46%yoy on start of construction at new
BOT road projects and its highest EBITDA margin of 24% in the last 10 quarters.
Toll revenues were in-line and remained flat sequentially in a seasonally weak
quarter, but is diversifying with contribution from Surat-Bharuch. Buy with a PO of
Rs324/sh on robust earnings growth and potential new concession wins.
Robust E&C as four new BOT project starts construction
E&C’s order book was down marginally by 3%qoq at Rs95bn – still about 3.7x
FY11E sales. While the 4 new BOT projects a/c for 43% of the backlog continue
to drive the revenues from the construction, the revenue from Tumkur –
Chitradurga project would start from Q4FY11 onwards. This would drive an 71%
CAGR in E&C earnings over FY10-13E. EBITDA margin expanded to 24% -
highest in the last 10 quarters, sustainability of which remains to be seen.
Tolls flattish but diversifying, balance sheet looks robust
While the toll revenue remain flat sequentially at Rs2bn, earnings was up 8%yoy
to Rs0.6bn. Revenue contribution from the top 2 projects (Mumbai – Pune and
Surat-Dahisar) declined to 72% (82%) in Sep’Q primarily due to full operations of
Surat-Bharuch. While the cash nearly doubled to Rs9.9bn, net debt:equity
marginally increased to 1.17x (vs 1.14x) as on Sep’10. During FY11-13E, RoE is
estimated to remain at 21-22% while the RoCE is estimated at 10-12%.
SOTP based PO of Rs324; New concessions key catalyst
Our SOTP of Rs324 consists of Rs164 (50%) from road BOT projects, Rs148
(46%) from E&C and balance from real estate and cash. We have valued toll
roads on DCF and E&C at 7.5x FY12 EV/E at steep discount to large E&C
companies and 10% discount to smaller ones, given the predominantly in-house
nature of the order book. Recent slowdown in awards at NHAI is the key risk.