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IRB: First ultra mega project into its kitty …
IRB Infrastructure (IRB) has emerged as preferred bidder for the
Ahmedabad-Vadodara project worth | 4,920 crore (including IDC
charges & part of premium payable to NHAI during construction
phase). The project is to be funded with debt to equity of 74:26. IRB
has offered a premium of | 309.6 crore with 5% increase per annum to
NHAI to emerge as L-1 bidder, which is at ~60% premium to its closest
bidder indicating aggressive bidding. Hence, we believe the
management guidance for equity IRR for this project at 15-17% seems
to be on the optimistic side. Nonetheless, the project is expected to
improve its construction division visibility. We have maintained our
BUY recommendation with our SOTP based price target of | 237.
Preferred bidder for first ultra mega project
IRB has announced that it has emerged as preferred bidder for the first
ultra mega project (NHAI Ahmedabad Vadodara - six laning of
Ahmedabad -Vadodara section of NH-8 and improvement of existing
Ahmedabad Vadodara Expressway). Total project cost is | 4920 crore
(including IDC charges, & part of premium payable to NHAI during
construction). The project is to be funded with debt-equity of 74:26.
IRB to pay premium of | 309.5 crore with 5% hike annually
IRB has offered a premium of | 309.6 crore with 5% increase per annum
to emerge as L-1 bidder. This premium is ~60% higher than L-2 bidder
Madhucon Projects’ bid of | 192 crore indicating aggressive bidding.
Hence, we believe the management expectation of equity IRR of 15-
17% is on the optimistic side.
But….construction division order book to increase to | 12,000 crore
With this order addition of | 3,600 crore, we expect IRB to report its
construction division order book at | 12,009 crore, 4.7x FY11E
consolidated revenues post its Q4FY11 results.
Valuation
At the CMP, the stock is quoting at 14x FY12E EPS & 2.4x FY12E
P/BV. We are not incorporating this project into our valuation and
order book in the EPC. We will do that post the receipt of Letter of
Intent. We maintain our BUY rating on IRB with a price target of | 237.
Emerges as preferred bidder for ultra mega project
IRB has announced that it has emerged as preferred bidder for the
first ultra mega project of NHAI (Ahmedabad Vadodara project). The
scope of work involves six laning of the Ahmedabad to Vadodara
section of NH-8 and improvement of the existing Ahmedabad
Vadodara Expressway.
The total project cost is | 4,920 crore (including IDC charges and
part of premium payable to NHAI during the construction phase).
The project is to be funded with debt to equity of 74:26.
The construction cost for the project is | 3,600 crore. The
concession period is 25 years and construction period is three
years. Once completed, the management expects revenues of | 530
crore in FY16.
IRB is likely to get tolling rights for this project from the appointed
date. It has offered the premium of | 309.6 crore with 5% increase
per annum to emerge as L-1 bidder This premium is ~60% higher
than L-2 bidder Madhucon Projects’ bid of | 192 crore indicating
aggressive bidding. Hence, we believe that the expectation of the
management of equity IRR of 15-17% is on the optimistic side.
While competition was already prevalent in smaller ticket size
projects of | 500-1,500 crore with a lot of new entrants crowding up
the space, aggressive bidding as in this project's case reflects that
larger ticket size projects have also warmed up to competition.
Going ahead, we believe that players may have to contend with
lower equity IRR as a result of such aggressive bidding.
Exhibit 2: Project cost & funding details
Project Cost
EPC Cost 3531
Independent Engineers fees 22
Preliminary & Preoperative expenses 46
IDC 548
Contingencies 45
Premium payable to NHAI during construction 618
DSRA 110
4920
Means of Finance
Debt 3641
Equity 1279
4920
Source: Company, ICICIdirect.com Research
But…construction order book increases to ~| 12,000 crore
With this order addition of | 3,600 crore, we expect IRB to report its
construction division order book at | 12,009 crore, 4.7x FY11E
consolidated revenues post its Q4FY11 results.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IRB: First ultra mega project into its kitty …
IRB Infrastructure (IRB) has emerged as preferred bidder for the
Ahmedabad-Vadodara project worth | 4,920 crore (including IDC
charges & part of premium payable to NHAI during construction
phase). The project is to be funded with debt to equity of 74:26. IRB
has offered a premium of | 309.6 crore with 5% increase per annum to
NHAI to emerge as L-1 bidder, which is at ~60% premium to its closest
bidder indicating aggressive bidding. Hence, we believe the
management guidance for equity IRR for this project at 15-17% seems
to be on the optimistic side. Nonetheless, the project is expected to
improve its construction division visibility. We have maintained our
BUY recommendation with our SOTP based price target of | 237.
Preferred bidder for first ultra mega project
IRB has announced that it has emerged as preferred bidder for the first
ultra mega project (NHAI Ahmedabad Vadodara - six laning of
Ahmedabad -Vadodara section of NH-8 and improvement of existing
Ahmedabad Vadodara Expressway). Total project cost is | 4920 crore
(including IDC charges, & part of premium payable to NHAI during
construction). The project is to be funded with debt-equity of 74:26.
IRB to pay premium of | 309.5 crore with 5% hike annually
IRB has offered a premium of | 309.6 crore with 5% increase per annum
to emerge as L-1 bidder. This premium is ~60% higher than L-2 bidder
Madhucon Projects’ bid of | 192 crore indicating aggressive bidding.
Hence, we believe the management expectation of equity IRR of 15-
17% is on the optimistic side.
But….construction division order book to increase to | 12,000 crore
With this order addition of | 3,600 crore, we expect IRB to report its
construction division order book at | 12,009 crore, 4.7x FY11E
consolidated revenues post its Q4FY11 results.
Valuation
At the CMP, the stock is quoting at 14x FY12E EPS & 2.4x FY12E
P/BV. We are not incorporating this project into our valuation and
order book in the EPC. We will do that post the receipt of Letter of
Intent. We maintain our BUY rating on IRB with a price target of | 237.
Emerges as preferred bidder for ultra mega project
IRB has announced that it has emerged as preferred bidder for the
first ultra mega project of NHAI (Ahmedabad Vadodara project). The
scope of work involves six laning of the Ahmedabad to Vadodara
section of NH-8 and improvement of the existing Ahmedabad
Vadodara Expressway.
The total project cost is | 4,920 crore (including IDC charges and
part of premium payable to NHAI during the construction phase).
The project is to be funded with debt to equity of 74:26.
The construction cost for the project is | 3,600 crore. The
concession period is 25 years and construction period is three
years. Once completed, the management expects revenues of | 530
crore in FY16.
IRB is likely to get tolling rights for this project from the appointed
date. It has offered the premium of | 309.6 crore with 5% increase
per annum to emerge as L-1 bidder This premium is ~60% higher
than L-2 bidder Madhucon Projects’ bid of | 192 crore indicating
aggressive bidding. Hence, we believe that the expectation of the
management of equity IRR of 15-17% is on the optimistic side.
While competition was already prevalent in smaller ticket size
projects of | 500-1,500 crore with a lot of new entrants crowding up
the space, aggressive bidding as in this project's case reflects that
larger ticket size projects have also warmed up to competition.
Going ahead, we believe that players may have to contend with
lower equity IRR as a result of such aggressive bidding.
Exhibit 2: Project cost & funding details
Project Cost
EPC Cost 3531
Independent Engineers fees 22
Preliminary & Preoperative expenses 46
IDC 548
Contingencies 45
Premium payable to NHAI during construction 618
DSRA 110
4920
Means of Finance
Debt 3641
Equity 1279
4920
Source: Company, ICICIdirect.com Research
But…construction order book increases to ~| 12,000 crore
With this order addition of | 3,600 crore, we expect IRB to report its
construction division order book at | 12,009 crore, 4.7x FY11E
consolidated revenues post its Q4FY11 results.
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