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UBS Investment Research
IRB Infrastructure Developers
R obust construction segment performance
Q1FY12 - Beats expectations; robust execution/margins in construction
IRB reported Q1FY12 revenues of Rs8bn (+57% y/y), operating profit of Rs3.3bn
(+32% y/y, UBS-e Rs3bn) and PAT of Rs1.3bn (+14% y/y, UBS and consensus
estimate of Rs1.1bn). Excluding derivative contract related losses of Rs60m, PAT
would be Rs1.4bn. The beat was led by higher-than-expected revenues and
margins in the construction business. The BOT segment operating profit was inline
with our expectations (toll revenues were slightly higher while margins were
slightly lower). Tumkur-Chitradurga project started tolling in June this quarter.
Mumbai-Pune traffic grows ~5% YoY in Q1; pick-up in Bharuch-Surat
Mumbai-Pune traffic growth was 5.1% (4.9% in Q1FY11). Traffic growth was
higher-than-expectations (we forecast 5-7% across assets) at 8-9% in some of the
key stretches of Thane-Bhiwandi, Pune-Nasik and Bharuch-Surat (highest YoY
growth so far) in our estimate. Surat-Dahisar traffic growth was about 2%. While
traffic declined in our estimate by 2-4% in some of the other roads like Nagar-
Karmala, Pune-Solapur and Thane-Godbunder.
Construction segment EBITDA margins at ~23%; revenues up 83% y/y
Margins in the construction business continue to remain robust (UBS-e of ~18%
for FY12 and beyond; FY09/10/11 has been 16%/17%/23%). Visibility remains
high given the large order backlog of ~Rs91bn (~4x 1-yr forward revenues).
Valuation: Buy rating, SOTP-based PT of Rs225
IRB is well-positioned to leverage sectoral growth opportunities (pls refer our note
India Infrastructure: Positive momentum in power and roads dated 30-Jun-11).
IRB Infrastructure Developers
IRB Infrastructure Developers (IRB) is one of the large BOT toll road operators
in India, managing 14 road projects through 11 subsidiaries. It is vertically
integrated with its construction subsidiary undertaking most aspects of BOT
road development. Its road assets are in the high economic-activity states of
Maharashtra and Gujarat. Its construction business caters primarily to in-house
projects with few third-party contracts. It has recently ventured into real estate
development through a township project near Pune.
Statement of Risk
Any slowdown in traffic growth will severely dent cash generation in IRB’s
assets. As toll roads are typically financed at a 70:30 debt equity ratio, any
interest rate increase will significantly increase cash outflows. Surat-Dahisar is
the largest project undertaken by IRB till date and may pose its own execution
challenges. IRB’s township project is unlikely to generate returns in near term
and therefore any further investment will depress return ratios. Any slowdown in
ordering activity of NHAI will affect IRB’s growth opportunities as it is
leveraged only to the road sector in India.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
IRB Infrastructure Developers
R obust construction segment performance
Q1FY12 - Beats expectations; robust execution/margins in construction
IRB reported Q1FY12 revenues of Rs8bn (+57% y/y), operating profit of Rs3.3bn
(+32% y/y, UBS-e Rs3bn) and PAT of Rs1.3bn (+14% y/y, UBS and consensus
estimate of Rs1.1bn). Excluding derivative contract related losses of Rs60m, PAT
would be Rs1.4bn. The beat was led by higher-than-expected revenues and
margins in the construction business. The BOT segment operating profit was inline
with our expectations (toll revenues were slightly higher while margins were
slightly lower). Tumkur-Chitradurga project started tolling in June this quarter.
Mumbai-Pune traffic grows ~5% YoY in Q1; pick-up in Bharuch-Surat
Mumbai-Pune traffic growth was 5.1% (4.9% in Q1FY11). Traffic growth was
higher-than-expectations (we forecast 5-7% across assets) at 8-9% in some of the
key stretches of Thane-Bhiwandi, Pune-Nasik and Bharuch-Surat (highest YoY
growth so far) in our estimate. Surat-Dahisar traffic growth was about 2%. While
traffic declined in our estimate by 2-4% in some of the other roads like Nagar-
Karmala, Pune-Solapur and Thane-Godbunder.
Construction segment EBITDA margins at ~23%; revenues up 83% y/y
Margins in the construction business continue to remain robust (UBS-e of ~18%
for FY12 and beyond; FY09/10/11 has been 16%/17%/23%). Visibility remains
high given the large order backlog of ~Rs91bn (~4x 1-yr forward revenues).
Valuation: Buy rating, SOTP-based PT of Rs225
IRB is well-positioned to leverage sectoral growth opportunities (pls refer our note
India Infrastructure: Positive momentum in power and roads dated 30-Jun-11).
IRB Infrastructure Developers
IRB Infrastructure Developers (IRB) is one of the large BOT toll road operators
in India, managing 14 road projects through 11 subsidiaries. It is vertically
integrated with its construction subsidiary undertaking most aspects of BOT
road development. Its road assets are in the high economic-activity states of
Maharashtra and Gujarat. Its construction business caters primarily to in-house
projects with few third-party contracts. It has recently ventured into real estate
development through a township project near Pune.
Statement of Risk
Any slowdown in traffic growth will severely dent cash generation in IRB’s
assets. As toll roads are typically financed at a 70:30 debt equity ratio, any
interest rate increase will significantly increase cash outflows. Surat-Dahisar is
the largest project undertaken by IRB till date and may pose its own execution
challenges. IRB’s township project is unlikely to generate returns in near term
and therefore any further investment will depress return ratios. Any slowdown in
ordering activity of NHAI will affect IRB’s growth opportunities as it is
leveraged only to the road sector in India.
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