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IRB Infrastructure (IRB)
Infrastructure
Strong construction results but toll collections remain sedate. IRB reported strong
revenue growth of 54% primarily led by strong construction business (revenues up
98%, EBITDA doubles and PBT growth of 4X). However, toll revenues (valuable external
cash) remained sedate recording a 7.8% yoy growth. Toll collections remained below
par across key stretches at a nominal growth of about 5-9% versus our base case
expectation of inflation + traffic growth of at least 12-13% in NHAI projects
Construction business surprises positively on revenues as well as margin front
IRB’s revenue growth in 3QFY11 was primarily due to very strong construction business revenues
of Rs4.7 bn, up 98% yoy, led by a pick-up in execution of existing BOT projects. The margins of
the segment also surprised positively, at 25% in 3QFY11 versus 21.5% last year. The strong
revenue growth and margin expansion helped the company report more than double the EBITDA
and almost 4X PBT in the construction business on a yoy basis (Exhibit 2).
Pick-up in toll collections (valuable external cash) across key stretches remains below par
IRB reported relatively moderate growth in toll collections to Rs2.5 bn, up 7.8% yoy, from Rs2.3
bn in 3QFY10 (Exhibit 3). Toll collections for key stretches were as follows:
Mumbai-Pune: Toll collections at Mumbai-Pune remained stuck below 5% on a yoy basis
recording a 4.9% growth in 3QFY11 (at 4.8% for 9MFY11).
Surat-Dahisar: This project reported toll collections of Rs955 mn, up 9.4% yoy. This implies an
average per day toll collection of Rs10.5 mn versus Rs9.6 mn/day in 3QFY11.
Bharuch-Surat: Toll revenues for the project increased by 7.4% yoy to Rs348 mn in 3QFY11
implying daily collection of Rs3.8 mn versus Rs3.56 mn/day in 3QFY10.
The 9.5% and 7.5% yoy nominal revenue growth in Surat-Dahisar and Surat-Bharuch was below
our base case expectation of inflation + traffic growth of at least 12-13% in NHAI projects.
Results summary: Revenue up 54% on strong construction business; PAT grows by 43% yoy
IRB reported strong revenues of Rs6.7 bn, up 54% yoy and 8% ahead of our estimates, primarily
led by strong construction segment revenues. EBITDA margin declined by about 420 bps on a
sequential basis to 44% (80 bps below estimates) led by higher direct expenses as a percent of
sales. Net PAT at Rs1.36 bn, up 42.7% yoy, was about 16.8% ahead of our estimates (Exhibit 1).
Retain estimates and target price; will revisit estimates post today’s conference call
We retain our estimates and target price of Rs270/share (Exhibit 4); we would revisit our estimate
post today’s conference call. Reiterate BUY on strong balance sheet and likely strong revenue
growth.
Reiterate BUY on strong balance sheet and ability to take on more projects
We reiterate our BUY rating and SOTP-based target price of Rs270/share comprised of (1)
Rs148/share from the BOT road projects, (2) Rs94/share from the construction business, (3)
Rs3/share from real estate business, (4) Rs10 from net cash at the parent level, and (5)
Rs20/share for the potential to win incremental road projects
We would revisit our estimates and target price post today’s conference call.
Our BUY rating is based on (1) strong operational and development pipeline of projects—
total project portfolio of 15 road projects of which 9 projects are operational, 5 are under
construction and only one project awaits financial closure, (2) ability to win incremental
projects with a strong balance sheet, (3) likely strong near-term revenue growth led by
construction of projects in the current portfolio—expect strong construction revenue CAGR
of 45% over FY2010-13E, and (4) recent price correction provides opportunity; current stock
price provides a 26% upside to our target price.
Ascribe Rs20/share to potential to win new projects—400 km projects at P/B of 1.5X
Our SOTP-based target price of Rs300/share comprises Rs20/share for value from
incremental project wins. We expect IRB to win additional projects to the tune of about 400
km. Assuming an average project cost of about Rs110 mn/km and a debt:equity of 70:30,
these projects would require an equity investment of Rs13-14 bn. We have valued this at
1.5X book value—Rs6.6 bn or Rs20/share.
Lower-than-expected traffic growth & base traffic is key risk
Lower-than-expected traffic growth and base-year traffic assumption remains the key risk to
the value of BOT projects. A 1% lower traffic growth assumption for the full period of the
concession period results in 27% lower value for road projects versus our target value and a
15% impact on our target price.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
IRB Infrastructure (IRB)
Infrastructure
Strong construction results but toll collections remain sedate. IRB reported strong
revenue growth of 54% primarily led by strong construction business (revenues up
98%, EBITDA doubles and PBT growth of 4X). However, toll revenues (valuable external
cash) remained sedate recording a 7.8% yoy growth. Toll collections remained below
par across key stretches at a nominal growth of about 5-9% versus our base case
expectation of inflation + traffic growth of at least 12-13% in NHAI projects
Construction business surprises positively on revenues as well as margin front
IRB’s revenue growth in 3QFY11 was primarily due to very strong construction business revenues
of Rs4.7 bn, up 98% yoy, led by a pick-up in execution of existing BOT projects. The margins of
the segment also surprised positively, at 25% in 3QFY11 versus 21.5% last year. The strong
revenue growth and margin expansion helped the company report more than double the EBITDA
and almost 4X PBT in the construction business on a yoy basis (Exhibit 2).
Pick-up in toll collections (valuable external cash) across key stretches remains below par
IRB reported relatively moderate growth in toll collections to Rs2.5 bn, up 7.8% yoy, from Rs2.3
bn in 3QFY10 (Exhibit 3). Toll collections for key stretches were as follows:
Mumbai-Pune: Toll collections at Mumbai-Pune remained stuck below 5% on a yoy basis
recording a 4.9% growth in 3QFY11 (at 4.8% for 9MFY11).
Surat-Dahisar: This project reported toll collections of Rs955 mn, up 9.4% yoy. This implies an
average per day toll collection of Rs10.5 mn versus Rs9.6 mn/day in 3QFY11.
Bharuch-Surat: Toll revenues for the project increased by 7.4% yoy to Rs348 mn in 3QFY11
implying daily collection of Rs3.8 mn versus Rs3.56 mn/day in 3QFY10.
The 9.5% and 7.5% yoy nominal revenue growth in Surat-Dahisar and Surat-Bharuch was below
our base case expectation of inflation + traffic growth of at least 12-13% in NHAI projects.
Results summary: Revenue up 54% on strong construction business; PAT grows by 43% yoy
IRB reported strong revenues of Rs6.7 bn, up 54% yoy and 8% ahead of our estimates, primarily
led by strong construction segment revenues. EBITDA margin declined by about 420 bps on a
sequential basis to 44% (80 bps below estimates) led by higher direct expenses as a percent of
sales. Net PAT at Rs1.36 bn, up 42.7% yoy, was about 16.8% ahead of our estimates (Exhibit 1).
Retain estimates and target price; will revisit estimates post today’s conference call
We retain our estimates and target price of Rs270/share (Exhibit 4); we would revisit our estimate
post today’s conference call. Reiterate BUY on strong balance sheet and likely strong revenue
growth.
Reiterate BUY on strong balance sheet and ability to take on more projects
We reiterate our BUY rating and SOTP-based target price of Rs270/share comprised of (1)
Rs148/share from the BOT road projects, (2) Rs94/share from the construction business, (3)
Rs3/share from real estate business, (4) Rs10 from net cash at the parent level, and (5)
Rs20/share for the potential to win incremental road projects
We would revisit our estimates and target price post today’s conference call.
Our BUY rating is based on (1) strong operational and development pipeline of projects—
total project portfolio of 15 road projects of which 9 projects are operational, 5 are under
construction and only one project awaits financial closure, (2) ability to win incremental
projects with a strong balance sheet, (3) likely strong near-term revenue growth led by
construction of projects in the current portfolio—expect strong construction revenue CAGR
of 45% over FY2010-13E, and (4) recent price correction provides opportunity; current stock
price provides a 26% upside to our target price.
Ascribe Rs20/share to potential to win new projects—400 km projects at P/B of 1.5X
Our SOTP-based target price of Rs300/share comprises Rs20/share for value from
incremental project wins. We expect IRB to win additional projects to the tune of about 400
km. Assuming an average project cost of about Rs110 mn/km and a debt:equity of 70:30,
these projects would require an equity investment of Rs13-14 bn. We have valued this at
1.5X book value—Rs6.6 bn or Rs20/share.
Lower-than-expected traffic growth & base traffic is key risk
Lower-than-expected traffic growth and base-year traffic assumption remains the key risk to
the value of BOT projects. A 1% lower traffic growth assumption for the full period of the
concession period results in 27% lower value for road projects versus our target value and a
15% impact on our target price.
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