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IRB Infrastructure Developers Ltd.
A pure toll road player, a new
Buy
Proven execution track record, reinstate with Buy
We reinstate coverage on IRB Infrastructure with a Buy rating and a Rs210 PO,
offering 22% upside potential. IRB is India’s 2nd largest road developer with inhouse
EPC capabilities and operates 3,400 lane kms of toll roads. Our Buy rating
is driven by (a) well positioned to increase the portfolio of road assets by ~ 80%
during FY12-14E, (b) likely key beneficiary of a surge in new awards by NHAI in
the medium term, (c) strong EPC o/bk of Rs117bn (5.6x FY12E sales) offsets the
declining toll profits, and (d) FY11-14E EPS CAGR of 14% with RoE of 15-19%.
Pure toll road portfolio with 1.8x growth during FY12-14E
IRB is a pure play on toll roads and operates about 3,400 lane kms (Lkm) (or 700
kms) of road projects currently spread over 10 projects. IRB has commenced
tolling on ~ 300 kms of road projects during FY09-11. We estimate that IRB will
commence tolling on an incremental ~ 570 kms during FY12-14E, leading to
overall portfolio length of 1,270 kms by FY14E. This would transition IRB from
being focused on the western region to a pan-India player.
Beneficiary of surge in new orders
About half of the NHDP project is yet to be awarded by NHAI, with opportunities
existing predominantly in Phase III, IV and Phase V (six laning). IRB has
submitted bids worth Rs464bn spread over 44 projects, largely at the qualification
stage. Given IRB’s strong execution capabilities, we estimate IRB could
potentially win projects worth Rs15-40 bn annually during the forecast period.
Risk: Execution delay, slowdown in new awards
Our SoTP based PO of Rs210 uses DCF for toll road assets at CoE of 14-16%
and exit P/E of 10x FY12E for the E&C division. Downside risks: slowdown in new
awards, execution delay, higher commodity prices, lower toll traffic vs base case.
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