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IRB Infrastructure Developers Ltd
Competitive Intensity Not Here to Stay
What's Changed
Price Target Rs263.00 to Rs223.00
F2012/13e EPS -16% / +19%
Reiterate Overweight; New price target implies 34%
upside. Our industry checks suggest competitive
bidding pressures are peaking. We also think the market
is too pessimistic about the value of its recent
mega-project win and fails to appreciate that 12 of IRB’s
17 projects will be operational in the next 3 months.
Competition peaking as project supply grows.
Recent NHAI road wins indicate aggressive bidding by
players but we believe competition is peaking as project
supply rises post government initiatives to make project
awards faster and more transparent. We believe that
larger players, such as IRB, with balance sheet strength
stand to benefit from this increased supply (albeit at
lower IRRs) while smaller players will struggle to
financially close on existing projects.
Ahmedabad-Vadodara project less bad than feared.
Our analysis of IRB’s recent mega project win suggests
the project (equity IRR -14.8%) is largely value neutral.
We think the market is viewing this project as value
destructive – as evidenced by IRB’s 15% under
performance to the Sensex since winning the project.
What’s changed. We include the new mega project in
our model from F2013e leading to our 11% higher than
consensus EPS. Our F2012e EPS is lower as we
assume that IRB books construction profits on the new
project only in F2013e and commissioning of the
Surat-Dahisar project leads to a drag in profits. Our price
target falls to Rs223 as we factor in higher interest costs,
lower traffic growth for longer duration concessions and
due to revised probability weightings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IRB Infrastructure Developers Ltd
Competitive Intensity Not Here to Stay
What's Changed
Price Target Rs263.00 to Rs223.00
F2012/13e EPS -16% / +19%
Reiterate Overweight; New price target implies 34%
upside. Our industry checks suggest competitive
bidding pressures are peaking. We also think the market
is too pessimistic about the value of its recent
mega-project win and fails to appreciate that 12 of IRB’s
17 projects will be operational in the next 3 months.
Competition peaking as project supply grows.
Recent NHAI road wins indicate aggressive bidding by
players but we believe competition is peaking as project
supply rises post government initiatives to make project
awards faster and more transparent. We believe that
larger players, such as IRB, with balance sheet strength
stand to benefit from this increased supply (albeit at
lower IRRs) while smaller players will struggle to
financially close on existing projects.
Ahmedabad-Vadodara project less bad than feared.
Our analysis of IRB’s recent mega project win suggests
the project (equity IRR -14.8%) is largely value neutral.
We think the market is viewing this project as value
destructive – as evidenced by IRB’s 15% under
performance to the Sensex since winning the project.
What’s changed. We include the new mega project in
our model from F2013e leading to our 11% higher than
consensus EPS. Our F2012e EPS is lower as we
assume that IRB books construction profits on the new
project only in F2013e and commissioning of the
Surat-Dahisar project leads to a drag in profits. Our price
target falls to Rs223 as we factor in higher interest costs,
lower traffic growth for longer duration concessions and
due to revised probability weightings.
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