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India Equity Research Reports, IPO and Stock News
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IRB Infrastructure, an early entrant in the road development business is the most focussed toll road developer in the country today with presence across two major growth corridors of Mumbai – Gujarat & Mumbai – Pune. However, apart from the Mum-Pune Exp. project we expect the shareholder returns on other projects to remain sub-optimal due to lower than expected traffic growth. We believe there are limited commensurate growth opportunities for IRB in the balance NHDP awards and a highly competitive environment excerbates the situation. Also, we lower our base traffic assumption for Kolhapur project which has impacted our BOT valuation by ` 12. We downgrade our recommendation to Hold with a price target of ` 171.
Challenging to repeat success amidst declining scale of PPP projects & intense competition
NHAI has a planned balance awards program of 18,534kms with an estimated development cost of ` 1365bln. However, in spite of a significantly large opportunity, our analysis, points to reduced attractiveness under PPP mode, for majority of the planned awards. Our analysis suggests that only 6-lane projects under Phase V offer commensurate growth opportunities for large road BOT developers albeit in a highly competitive scenario.
Aggressiveness has always been the characteristic of business strategy
IRB Infrastructure’s Ahmedabad-Vadodara bid, the first of mega highway project bid out in 2011, was perceived to be aggressive stereotyping the company as being aggressive in its bidding strategy. However, we believe that Ahmedabad-Vadodara was not the only ‘aggressive’ bid by IRB, closer look at the Bharuch-Surat & Suart-Dahisar projects corroborates our view of aggressiveness being the underlying of IRB’s business strategy
EPC cashflows support non-dilutive growth
IRB Infra’s order backlog stands at ` 91.2bln. We estimate construction revenue to grow at a CAGR of 23% over FY11-14E mainly driven by projects won in FY10. The total equity requirement for IRB over FY12-15E stands at ` 26.5bln. Higher margins in the EPC division aids FCFE generation and supports equity investment in it’s under construction group projects. We estimate a cumulative equity funding gap of ` 4.8bln for FY12-FY14E.
Valuation
We believe there are limited upside triggers for the company and the current macro scenario also limits any new project win with higher IRR. Factoring delay & a discount to the base traffic in Kolhapur project coupled with lower multiple for EPC division (5x from 7x earlier) we downgrade our recommendation to Hold with a price target of ` 171. Key risks include higher than expected traffic growth across projects & decline in competitive intensity in sector.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IRB Infrastructure, an early entrant in the road development business is the most focussed toll road developer in the country today with presence across two major growth corridors of Mumbai – Gujarat & Mumbai – Pune. However, apart from the Mum-Pune Exp. project we expect the shareholder returns on other projects to remain sub-optimal due to lower than expected traffic growth. We believe there are limited commensurate growth opportunities for IRB in the balance NHDP awards and a highly competitive environment excerbates the situation. Also, we lower our base traffic assumption for Kolhapur project which has impacted our BOT valuation by ` 12. We downgrade our recommendation to Hold with a price target of ` 171.
Challenging to repeat success amidst declining scale of PPP projects & intense competition
NHAI has a planned balance awards program of 18,534kms with an estimated development cost of ` 1365bln. However, in spite of a significantly large opportunity, our analysis, points to reduced attractiveness under PPP mode, for majority of the planned awards. Our analysis suggests that only 6-lane projects under Phase V offer commensurate growth opportunities for large road BOT developers albeit in a highly competitive scenario.
Aggressiveness has always been the characteristic of business strategy
IRB Infrastructure’s Ahmedabad-Vadodara bid, the first of mega highway project bid out in 2011, was perceived to be aggressive stereotyping the company as being aggressive in its bidding strategy. However, we believe that Ahmedabad-Vadodara was not the only ‘aggressive’ bid by IRB, closer look at the Bharuch-Surat & Suart-Dahisar projects corroborates our view of aggressiveness being the underlying of IRB’s business strategy
EPC cashflows support non-dilutive growth
IRB Infra’s order backlog stands at ` 91.2bln. We estimate construction revenue to grow at a CAGR of 23% over FY11-14E mainly driven by projects won in FY10. The total equity requirement for IRB over FY12-15E stands at ` 26.5bln. Higher margins in the EPC division aids FCFE generation and supports equity investment in it’s under construction group projects. We estimate a cumulative equity funding gap of ` 4.8bln for FY12-FY14E.
Valuation
We believe there are limited upside triggers for the company and the current macro scenario also limits any new project win with higher IRR. Factoring delay & a discount to the base traffic in Kolhapur project coupled with lower multiple for EPC division (5x from 7x earlier) we downgrade our recommendation to Hold with a price target of ` 171. Key risks include higher than expected traffic growth across projects & decline in competitive intensity in sector.
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