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Outlook remains strong
ƒ Construction revenue lower, offset by 490bps EBITDA margin
ƒWe estimate NHAI project awards of 1,600kms by FY11
ƒ Projects essentially on track, to commence tolling in FY13
ƒ Valuation: BOTs INR119, construction INR72, others INR110
Const rev down, tolls inline
Q3FY11 toll revenue was inline, but construction revenue was 21% below our
estimates. Construction EBITDA margin of 24.9% was 490bps higher than our
estimate and offset the revenue shortfall. Interest cost increased 18.3% q-q as
further debt was drawn down for its projects under construction. Net profit
overall was 10.8% higher than our estimate primarily due to lower tax at its
toll projects (tax rate of 1.7%); lower tax was due to a minimum alternate tax
(MAT) credit of INR146.5m (ex-MAT, net profit was inline with our estimates).
Industry outlook
We expect order award activity from the National Highways Authority of
India (NHAI) to resume by end-FY11. We estimate that the NHAI will
award approximately 1,600kms by FY11. IRB has submitted bids for
approximately INR490b worth of projects, of which approximately
INR300-350b are NHAI projects. The remaining are state highways.
Segment outlook
Construction is in full swing at Jaipur-Deoli and Talegaon-Amravati and
resources have been mobilised at Amritsar-Pathankot. Currently,
resources are being mobilised at Goa-Panaji and construction should
commence by Q1FY12. The construction order book of INR70.78b offers
visibility for the next 8-10 quarters. We are lowering our construction
revenue estimates over FY11-13, based on our estimates of project
completion. Management expects to sustain 18-20% EBITDA margins as
all the construction contracts have fixed cost escalation built in. We
estimate 18% EBITDA margins over FY12-13.
Toll collections at the road BOTs has been inline with estimates. Tumkur
Chitradurga should begin revenue contribution by Q1FY12. All of its
projects under development should commence toll collection by FY13.
Valuation
We value IRB on an SoTP basis, at INR301.00. We assign INR119 to the
existing BOT portfolio, (DCF, 13.5% cost of equity). We use a 10x P/E on
our FY12E construction EPS to value the construction business (INR72).
We value the growth portfolio (option value) at INR88/share (1.5x book
value of expected invested equity, 50% discount to the average P/BV of
its portfolio). Real estate contributes INR22 (NAV, 15% discount factor).
Downside risks to TP: traffic risk, regulatory risk, interest-rate risk and
inflationary risk to margins from raw material price increases.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Outlook remains strong
ƒ Construction revenue lower, offset by 490bps EBITDA margin
ƒWe estimate NHAI project awards of 1,600kms by FY11
ƒ Projects essentially on track, to commence tolling in FY13
ƒ Valuation: BOTs INR119, construction INR72, others INR110
Const rev down, tolls inline
Q3FY11 toll revenue was inline, but construction revenue was 21% below our
estimates. Construction EBITDA margin of 24.9% was 490bps higher than our
estimate and offset the revenue shortfall. Interest cost increased 18.3% q-q as
further debt was drawn down for its projects under construction. Net profit
overall was 10.8% higher than our estimate primarily due to lower tax at its
toll projects (tax rate of 1.7%); lower tax was due to a minimum alternate tax
(MAT) credit of INR146.5m (ex-MAT, net profit was inline with our estimates).
Industry outlook
We expect order award activity from the National Highways Authority of
India (NHAI) to resume by end-FY11. We estimate that the NHAI will
award approximately 1,600kms by FY11. IRB has submitted bids for
approximately INR490b worth of projects, of which approximately
INR300-350b are NHAI projects. The remaining are state highways.
Segment outlook
Construction is in full swing at Jaipur-Deoli and Talegaon-Amravati and
resources have been mobilised at Amritsar-Pathankot. Currently,
resources are being mobilised at Goa-Panaji and construction should
commence by Q1FY12. The construction order book of INR70.78b offers
visibility for the next 8-10 quarters. We are lowering our construction
revenue estimates over FY11-13, based on our estimates of project
completion. Management expects to sustain 18-20% EBITDA margins as
all the construction contracts have fixed cost escalation built in. We
estimate 18% EBITDA margins over FY12-13.
Toll collections at the road BOTs has been inline with estimates. Tumkur
Chitradurga should begin revenue contribution by Q1FY12. All of its
projects under development should commence toll collection by FY13.
Valuation
We value IRB on an SoTP basis, at INR301.00. We assign INR119 to the
existing BOT portfolio, (DCF, 13.5% cost of equity). We use a 10x P/E on
our FY12E construction EPS to value the construction business (INR72).
We value the growth portfolio (option value) at INR88/share (1.5x book
value of expected invested equity, 50% discount to the average P/BV of
its portfolio). Real estate contributes INR22 (NAV, 15% discount factor).
Downside risks to TP: traffic risk, regulatory risk, interest-rate risk and
inflationary risk to margins from raw material price increases.
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