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IRB INFRASTRUCTURE
PRICE: RS.139 RECOMMENDATION: BUY
TARGET PRICE: RS.220 FY13E P/E: 9.9X
We recently met the management of IRB Infrastructure to get an insight
about order inflow scenario for the road sector as well as status of existing
projects.
q Company believes that competition has eased in the recent road project
bids in terms of number of bidders; however pressure on IRRs still continues.
q Going forward, company is targeting new order inflows from NHDP
phase III or V projects. It is also pursuing the opportunities coming in the
road segment for buying out stake in road assets from other players.
q Revenue visibility stays strong and new order inflows to aid growth going ahead.
q We had expected Goa-Karnataka project to commence from FY13 but
based on continued uncertainty, we now remove it from our revenue
execution estimates. We arrive at a revised price target of Rs 220 (Rs 231
earlier). We continue to remain positive on the company and maintain
BUY on the stock.
Key highlights about the meeting
Order inflow scenario
IRB Infrastructure has an order book of Rs 96.3 bn diversified across its ongoing BOT
projects (Rs 39 bn), BOT projects in O&M phase (Rs 21 bn) and recently awarded
Ahmedabad-Vadodara project (EPC worth Rs 36 bn). Significant proportion of current order book will be executed by FY13 while growth in construction revenues
from FY14 and onwards would be led by execution of Ahmedabad-Vadodara project
and future order inflows.
NHAI targets to award nearly 7300 km of road projects during current fiscal. NHAI
has already awarded projects close to 3500-4000km in the current fiscal till date and
is confident of meeting its full year target. IRB infrastructure has been continuously
bidding for new projects. However, company has not been able to bag any new
project in the recently announced bids by NHAI since it is not bidding too aggressively as it already has sufficient projects in hand. But it is confident of getting new
projects during FY13. Company is targeting equity IRR of nearly 18% and projects
mainly from NHDP phase III and V. Along with this, company is also pursuing opportunities in the road segment for buying out stake in road assets from other players.
Status of key projects
n Surat-Dahisar project - Construction work on Surat-Dahisar project is nearly
complete (with just a few structures left where land was handed over late to the
company) so revenue booking from this project would be reflected in the current
fiscal itself. Toll collections from Surat-Dahisar project stands at nearly Rs 10 mn
per day. Though it is lower than the initial estimates for the company, but with
completion of construction work, it now expects toll collections from this project
to improve going forward. Along with this, work on flyover over ThaneGhodbunder section, which has resulted in traffic diversion and is impacting
Surat-Dahisar toll collections, is expected to complete in next six months. This is
also expected to improve overall toll collections from this project.
n Construction work on Jaipur-Deoli, Talegaon-Amravati and AmritsarPathankot project is progressing as per schedule. Appointed dates for these
projects were Jun 2010, Sep 2010 and Dec 2010 respectively so company is expecting work would be completed on schedule. Since appointed date for
Amritsar-Pathankot project is Dec, 2010 so we expect the project execution to
spillover during FY14 also while construction work on Jaipur-Deoli and TalegaonAmravati project is expected to get over by end of FY13.
n Tumkur - Chitradurg project - Toll collection from Tumkur-Chitradurg project
at Rs 43 lakh per day is marginally lower than company's initial estimate of Rs 45
lakh per day. Mining ban in Tumkur and Chitradurg districts has not impacted
company's toll collection significantly but if it gets lifted, it would enable higher
collections.
n Ahmedabad-Vadodara project - Financial closure of Ahmedabad-Vadodara
project is expected by Q4FY12 and construction work is expected to commence
from Q1FY13. Company is planning to avail ECB for the construction work for
this project. Traffic volumes are dependent upon overall GDP growth. However,
company expects traffic volumes to improve over a period of time for this project
since Gujarat contributes significant proportion to overall GDP growth.
n Kolhapur project - Kolhapur road project has received the completion certificate and is now awaiting toll notification.
Financial outlook
n We tweak our revenue estimates to factor in continued delays in Goa-Karnataka
project. We had expected the project to commence execution from FY13. We
now remove our execution assumptions from this project. We also incorporate
spillover of execution of Amritsar-Pathankot project in FY14 and we thus expect
consolidated revenues to grow at a CAGR of 30% between FY11-FY13.
n Construction division revenues are expected to remain strong at 24% during
FY12. We expect construction division margins to decline to 20% during FY13.
On a consolidated basis, we expect margins to be 44.1% and 37.5% for FY12
and FY13 respectively.
n Interest and depreciation charges will continue to remain high due to capitalization of costs for Surat-Dahisar project and Kolhapur project. Company had witnessed increase in interest outgo in past couple of quarters due to higher loans
availed by EPC arm. Also, MTM provisioning for interest rate currency swap for
Mumbai-Pune BOT also resulted in increasing overall interest outgo. Company
had availed ECB worth Rs 6 bn for Tumkur-Chitradurg, Amritsar-Pathankot and
Talegaon-Amravati project at LIBOR+450 bps. This is currently unhedged and
company will hedge it once hedging costs come down. However, it will not have
to provide for MTM loss/gain currently for unhedged ECB since the projects are
under-construction.
Valuation and recommendation
n At current price of Rs 139, stock is trading at 10.9x and 9.9x P/E and 6.6x and
7.4x EV/EBITDA on FY12 and FY13 estimates.
n We tweak our estimates and arrive at a revised price target of Rs 220 (Rs 231
earlier). We continue to maintain BUY on IRB Infra based on sum of the parts
valuations.
n We continue to remain positive on the company and believe that IRB is best
positioned to capture upcoming opportunities in the road segment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IRB INFRASTRUCTURE
PRICE: RS.139 RECOMMENDATION: BUY
TARGET PRICE: RS.220 FY13E P/E: 9.9X
We recently met the management of IRB Infrastructure to get an insight
about order inflow scenario for the road sector as well as status of existing
projects.
q Company believes that competition has eased in the recent road project
bids in terms of number of bidders; however pressure on IRRs still continues.
q Going forward, company is targeting new order inflows from NHDP
phase III or V projects. It is also pursuing the opportunities coming in the
road segment for buying out stake in road assets from other players.
q Revenue visibility stays strong and new order inflows to aid growth going ahead.
q We had expected Goa-Karnataka project to commence from FY13 but
based on continued uncertainty, we now remove it from our revenue
execution estimates. We arrive at a revised price target of Rs 220 (Rs 231
earlier). We continue to remain positive on the company and maintain
BUY on the stock.
Key highlights about the meeting
Order inflow scenario
IRB Infrastructure has an order book of Rs 96.3 bn diversified across its ongoing BOT
projects (Rs 39 bn), BOT projects in O&M phase (Rs 21 bn) and recently awarded
Ahmedabad-Vadodara project (EPC worth Rs 36 bn). Significant proportion of current order book will be executed by FY13 while growth in construction revenues
from FY14 and onwards would be led by execution of Ahmedabad-Vadodara project
and future order inflows.
NHAI targets to award nearly 7300 km of road projects during current fiscal. NHAI
has already awarded projects close to 3500-4000km in the current fiscal till date and
is confident of meeting its full year target. IRB infrastructure has been continuously
bidding for new projects. However, company has not been able to bag any new
project in the recently announced bids by NHAI since it is not bidding too aggressively as it already has sufficient projects in hand. But it is confident of getting new
projects during FY13. Company is targeting equity IRR of nearly 18% and projects
mainly from NHDP phase III and V. Along with this, company is also pursuing opportunities in the road segment for buying out stake in road assets from other players.
Status of key projects
n Surat-Dahisar project - Construction work on Surat-Dahisar project is nearly
complete (with just a few structures left where land was handed over late to the
company) so revenue booking from this project would be reflected in the current
fiscal itself. Toll collections from Surat-Dahisar project stands at nearly Rs 10 mn
per day. Though it is lower than the initial estimates for the company, but with
completion of construction work, it now expects toll collections from this project
to improve going forward. Along with this, work on flyover over ThaneGhodbunder section, which has resulted in traffic diversion and is impacting
Surat-Dahisar toll collections, is expected to complete in next six months. This is
also expected to improve overall toll collections from this project.
n Construction work on Jaipur-Deoli, Talegaon-Amravati and AmritsarPathankot project is progressing as per schedule. Appointed dates for these
projects were Jun 2010, Sep 2010 and Dec 2010 respectively so company is expecting work would be completed on schedule. Since appointed date for
Amritsar-Pathankot project is Dec, 2010 so we expect the project execution to
spillover during FY14 also while construction work on Jaipur-Deoli and TalegaonAmravati project is expected to get over by end of FY13.
n Tumkur - Chitradurg project - Toll collection from Tumkur-Chitradurg project
at Rs 43 lakh per day is marginally lower than company's initial estimate of Rs 45
lakh per day. Mining ban in Tumkur and Chitradurg districts has not impacted
company's toll collection significantly but if it gets lifted, it would enable higher
collections.
n Ahmedabad-Vadodara project - Financial closure of Ahmedabad-Vadodara
project is expected by Q4FY12 and construction work is expected to commence
from Q1FY13. Company is planning to avail ECB for the construction work for
this project. Traffic volumes are dependent upon overall GDP growth. However,
company expects traffic volumes to improve over a period of time for this project
since Gujarat contributes significant proportion to overall GDP growth.
n Kolhapur project - Kolhapur road project has received the completion certificate and is now awaiting toll notification.
Financial outlook
n We tweak our revenue estimates to factor in continued delays in Goa-Karnataka
project. We had expected the project to commence execution from FY13. We
now remove our execution assumptions from this project. We also incorporate
spillover of execution of Amritsar-Pathankot project in FY14 and we thus expect
consolidated revenues to grow at a CAGR of 30% between FY11-FY13.
n Construction division revenues are expected to remain strong at 24% during
FY12. We expect construction division margins to decline to 20% during FY13.
On a consolidated basis, we expect margins to be 44.1% and 37.5% for FY12
and FY13 respectively.
n Interest and depreciation charges will continue to remain high due to capitalization of costs for Surat-Dahisar project and Kolhapur project. Company had witnessed increase in interest outgo in past couple of quarters due to higher loans
availed by EPC arm. Also, MTM provisioning for interest rate currency swap for
Mumbai-Pune BOT also resulted in increasing overall interest outgo. Company
had availed ECB worth Rs 6 bn for Tumkur-Chitradurg, Amritsar-Pathankot and
Talegaon-Amravati project at LIBOR+450 bps. This is currently unhedged and
company will hedge it once hedging costs come down. However, it will not have
to provide for MTM loss/gain currently for unhedged ECB since the projects are
under-construction.
Valuation and recommendation
n At current price of Rs 139, stock is trading at 10.9x and 9.9x P/E and 6.6x and
7.4x EV/EBITDA on FY12 and FY13 estimates.
n We tweak our estimates and arrive at a revised price target of Rs 220 (Rs 231
earlier). We continue to maintain BUY on IRB Infra based on sum of the parts
valuations.
n We continue to remain positive on the company and believe that IRB is best
positioned to capture upcoming opportunities in the road segment.
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