IRB Infrastructure Developers: Traget Rs. 239; Spark

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Focused play on the large US$ 150bn opportunity expected to unfold in the roads sector over the next 4-5 years.
Integrated developer model enables the company benefit entirely from the development value chain by
leveraging upon construction capabilities. We believe the company is a potential beneficiary of one or more
upcoming mega road projects, which is likely to be a niche opportunity. Upgrade to Reduce/Outperform from
Sell/Underperform.
 Massive sector opportunity of US$ 150bn opportunity is expected to unfold in the roads & bridges sector (toll / annuity
roads and cash contracts) over the next 4-5 years and IRB with its integrated development model is well placed to
benefit.
 Profitable portfolio of toll roads which will likely provide a steady stream of cash flows – Over FY12-15E, we expect a
cumulative EBITDA and PBT of >Rs. 50bn and ~Rs.15bn respectively from the toll roads segment.

 Enviable track record of winning projects awarded by NHAI with all the company’s new project wins coming from
NHAI since 2007, reflected in the ~13% overall market share with NHAI projects during the period FY08-10. In our
view, a potential beneficiary of one or more upcoming mega road projects, which is likely to be a niche opportunity.
 We believe IRB is likely to report strong order inflows over the near term given the relative maturity of projects under
construction. Proven capability of achieving financial closure within set timelines adds comfort.
 Highly profitable (~14% EBITDA margins) construction arm which caters almost exclusively to the Group’s pipeline
projects. This business benefits from the strong revenue visibility (Rs. 95bn orderbook), RM cost advantages and
minimal working capital requirements given the prompt payments from the project companies.
 Aided by the profitable / cash flow generation construction arm, financials are healthy with profits well balanced
(almost equal during FY12E) between the asset-owning segment and the construction segment. Attractive return on
capital with RoEs consistently expected to be >15% over the foreseeable future.
We have tweaked estimates marginally and have introduced the recently-won Tumkur-Chitradurga project.
Further, we roll forward our DCF to consider value as at end of FY11 and attribute a terminal value to the
construction business. Our TP stands revised to Rs. 239 (Rs. 151 earlier) on account of the mentioned changes.
Upgrade to Reduce/Outperform from Sell/Underperform, following the >25% correction in stock price since
Aug’2010.