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IRB Infrastructure Developers |
Positives in construction & BOT number disappoints |
ACCUMULATE
CMP: Rs 257 Target Price: Rs 304
n PAT at Rs991 mn (+39.9% yoy) ahead of our and street expectation – driven by better than expected construction margins (22.7% v/s est of 18.1%) and MAT credit of Rs83 mn
n Revenue (Rs4.9 bn) growth of +37.8%yoy - aided by +48.1% yoy growth in construction segment and 25.1%yoy growth in BOT segment
n EBITDA at Rs2.36 bn (+35.3% yoy) higher than estimates (Rs2.19 bn), driven by 83.3% growth in construction EBIDTA & 22.9% growth in BOT EBIDTA
n Slower ramp up in traffic at Bharuch Surat & Surat Dahisar playing spoil sport for BOT. -5.7% downgrade FY11E/12E earnings by 5.7%/4.7%. Retain ACCUMULATE-Target Rs304
Construction – stealing limelight with revenues growth of 48.1%
Consolidated revenues for the quarter at Rs 4.9 bn (our est-Rs 4.55 bn) have grown by
37.8%, driven by +48.1% yoy growth in the revenues of construction segment, and growth
of 25.1% in the BOT segment. Growth in construction segment was driven impressive even
as execution at Surat Dahisar and Kolhapur project was sequentially impacted by
excessive rains. We expect the construction vertical to pick further traction in H2FY11E, led
by execution pick up on 4 new BOT projects (TPC-Rs 43 bn) bagged in FY10. Though
gross toll collections have grown 20.1% yoy (Driven by new concessions of Bharuch- Surat
and revenue traction at Pune Nashik, & Thane Bhiwandi projects) average daily collections
at some projects have disappointed (Bharuch Surat declined by 5.5% , Thane Ghodbunder
declined by 1.8%, Surat Dahisar witnessed a muted daily collection growth of only 7.7%
even after a toll hike).
EBIDTA at 35.3% yoy growth beats estimate led by construction segment
EBITDA at Rs 2.36 bn was better than our estimates of Rs 2.19 bn led by better than
expected construction margins of 22.7% vs expected margin of 18.1%. Overall EBIDTA
grew by 35.3% yoy, as construction EBITDA grew by 83.3% yoy to Rs 658 mn. BOT
segment reported a muted EBITDA margins as the same contracted 156 bps to 85.2%.
However with a revenue growth of 23.1%, BOT EBITDA grew by 22.9% to Rs 1.70 bn.
Consequently, overall EBITDA margin improved by 88 bps to 48.7%.
Net profit growth at 39.9% driven by MAT credit and margin expansion
Reported PAT includes Rs 83 mn of MAT credits and also a better than expected
execution of the construction segment the revenues of which grew +48.1% yoy, and a 546
bps yoy expansion of PAT margins for the construction segment. Although the BOT
segment reported a subdued margin picture with a decline of 529 bps in PAT margins, the
shortfall was made good by the construction segment, thus, resulting in overall APAT
growth of 39.9% yoy.
Margins contraction owing to dull BOT performance
Excluding the other income from the segmental performance the EBITDA margins in the
construction segment has expanded significantly by +436 bps to 22.7%. However BOT
segment has witnessed a contraction of margins by -156 bps to 85.2%.
Ramp up slower than anticipated on key projects
Average daily toll collection at the Bharuch Surat has shown de-growth of -5.5% and
witnessed a collection of Rs 3.35 mn/day another project Thane Ghodbunder has shown
de-growth of -1.8% and has witnessed a collection of Rs 0.71 mn/day. Temporary traffic
diversion at Surat Dahisar has also impacted the performance, even after taking a toll hike
during the quarter, the project has witnessed a muted daily collection growth of only 7.7%
and has been able to achieve a collection of Rs 9.1 mn/day.
The management feels that it is early days and the growth in traffic for these projects will
surprise the street on the upside. We do believe that these are still early days for Surat
Dahisar and Bharuch Surat, however one needs to watch these projects carefully as both
the projects commands nearly 50% of the toll revenues for IRB infra.
Order backlog at Rs 95.1 bn – 9.3X FY2010 construction revenues
Construction order backlog stood at Rs 95.1 bn, out of which Rs 71.6 bn is the backlog
related for own BOT project and Rs 23.1 bn is the backlog of O&M for own BOT projects.
The backlog of funded construction projects stood at Rs 0.301 bn. The order backlog at
9.3X FY10 construction revenues of Rs 10.24 bn provides extremely strong earnings
visibility for IRB growth.
Order book details Rs mn
O&M 23158.0
Funded Projects 301.0
EPC 71610.0
Total 95069.0
Significant ramp up in Construction revenues in H2FY11E
IRB has added 5 projects in their portfolio in the last one year totaling 497 kms and with an
overall order book of Rs 52 bn which comprises ~53% of the overall order book. The
construction activity on 4 of these projects will commence in H2FY11E. Consequently we
will witness significant revenue traction in construction business. Further FY12E will witness
full execution on all the projects under development stage which will further fuel revenue
growth in construction segment in FY12E.
IRB has further potential of bagging projects worth Rs 50 bn
The management highlighted that the company is targeting new projects worth Rs50bn in
FY11E. We believe the additional opportunities are opening up in the BOT space and will
offer significant growth potential to IRB. The company based on its current BOT portfolio of
10 operational projects and construction order backlog of approximately Rs 95.1 bn has
significant visibility for maintaining the growth profile.
Downgrade in PAT by -5.7% & -4.7% in FY11E and FY12E respectively –
Target lowered to Rs 304 (Rs310 earlier)
Earnings projection for FY11E are downgraded from Rs 4674 million to Rs 4408 million a
decline of -5.7% and FY12E projections are downgraded from Rs 5360 million to Rs 4674
million a decline of -4.7% respectively based on the slower than anticipated ramp up of
traffic growth in key projects like Bharuch Surat, Surat Dahisar which forms ~50% of the toll
revenues. Simultaneously the margin outlook for the construction segment has started
looking up and the company has been able to achieve an EBITDA margin of ~23% for
1HFY11. We have raised our full year margin outlook and maintain that the company will be
able to achieve a full year EBITDA margin of 18%. We maintain our ACCUMULATE rating,
however the target price has been reduced from Rs 310 To Rs 304.
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