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Targets 7-8% market share, input costs remain stable
IRB is targeting to win orders for c400-500km of roads up to FY12, which will put its market share at 7-8%. The company
expects the National Highways Authority of India (NHAI) to award five new road projects in March and seven in April.
The company indicated that its raw material cost has remained stable over the past six months, with average cost of
aggregates at cINR500 per tonne. With majority of the aggregates are being sourced from its in-house mines, the company
expects cost escalation to remain moderate. IRB expects bitumen prices to remain stable and has hence has not bought any
bitumen tankage this year.
Three out of its recent five projects – Amritsar-Pathankot, Jaipur-Deoli and Talegaon Amravati – expected to become
operational by H2 CY12, while IRDP Kolhapur should be completed in 1Q FY12. The company expects to start booking
construction revenues on its Tumkur-Chitradurga project from Q4 FY13.
While IRB has indicated that it has not experienced any land acquisition problems on projects under construction, its Goa-
Panji project (project cost INR8.3bn) is yet to start construction as the NHAI has yet to allocate 36km of the required land.
While new project orders from NHAI have slowed down, the company has indicated that it would not bid aggressively for
new projects, even if it has to hold out for 3-6 months.
Valuation and risks
We value IRB at INR309 using a sum-of-the-parts approach, of which existing projects contribute INR143, construction
business INR111, other businesses INR11, along with a terminal value at INR44.
Sharper rise in interest rates, weaker-than-estimated traffic growth, lower-than-estimated success in future project bids,
and slower-than-expected project execution are key risks to our investment thesis.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Targets 7-8% market share, input costs remain stable
IRB is targeting to win orders for c400-500km of roads up to FY12, which will put its market share at 7-8%. The company
expects the National Highways Authority of India (NHAI) to award five new road projects in March and seven in April.
The company indicated that its raw material cost has remained stable over the past six months, with average cost of
aggregates at cINR500 per tonne. With majority of the aggregates are being sourced from its in-house mines, the company
expects cost escalation to remain moderate. IRB expects bitumen prices to remain stable and has hence has not bought any
bitumen tankage this year.
Three out of its recent five projects – Amritsar-Pathankot, Jaipur-Deoli and Talegaon Amravati – expected to become
operational by H2 CY12, while IRDP Kolhapur should be completed in 1Q FY12. The company expects to start booking
construction revenues on its Tumkur-Chitradurga project from Q4 FY13.
While IRB has indicated that it has not experienced any land acquisition problems on projects under construction, its Goa-
Panji project (project cost INR8.3bn) is yet to start construction as the NHAI has yet to allocate 36km of the required land.
While new project orders from NHAI have slowed down, the company has indicated that it would not bid aggressively for
new projects, even if it has to hold out for 3-6 months.
Valuation and risks
We value IRB at INR309 using a sum-of-the-parts approach, of which existing projects contribute INR143, construction
business INR111, other businesses INR11, along with a terminal value at INR44.
Sharper rise in interest rates, weaker-than-estimated traffic growth, lower-than-estimated success in future project bids,
and slower-than-expected project execution are key risks to our investment thesis.
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