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IRB Infrastructure
Competitive Intensity Not Here to Stay
As a pure-play road developer, we view IRB as the
best pick in our coverage for the road opportunity.
Competition in the segment is peaking but we believe
bigger and experienced players – like IRB – with
balance sheet strength will be key beneficiaries of
increased supply.
Key Catalysts:
• Traffic growth on its road projects
• India’s rate of wholesale price index inflation, which
determines the toll rates.
• New project wins at IRRs > CoE
• IRB’s ability to refinance its loans at lower interest rates.
• Any real estate development plans announced by IRB.
Key Investor Debate: Investors have been worried about the
competitive intensity in the industry and the prevailing high
interest rates for developers. In our opinion, competition is
peaking in the sector as project supply rises following
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. Also existing players are currently
struggling with financial closures of recently won projects as
well traffic growth of projects in hand.
On concerns of high interest rate, we think that it is unfair to
apply the current high interest rates to the entire tenure of long
gestation infra assets spread across 20-30 years. We believe
IRB is a better position vs. its peers to weather the rising cost
of funds as it has managed to obtain fixed rates for Mumbai-
Pune project as well as its projects under construction. The
recent ECB raising should also provide some cushion to the
company.
Risks to our Call:
• Aggressive bidding for future project wins results in
sub-par projects
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