IRB Infrastructure Developers - Marginal disappointment : Religare

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IRB Infrastructure Developers Ltd
Marginal disappointment on subdued expectations
IRB reported 38% YoY revenue growth (3.6% lower than est.) driven by 51%
YoY growth in construction revenues and 22% YoY growth in toll revenues
(6% lower than est.). Higher than expected operating margins (in construction
segment) led to 35% YoY growth in EBITDA. PAT growth was 40% YoY, 4.5%
below estimates. Construction segment revenues for Q2 were subdued (due to
heavy rains), after slower progress in Q1FY11. While we have revised down
FY11 revenue estimates (primarily in construction segment), we have revised up
construction segment EBITDA margin estimates (from 17 to 20%) based on H1
performance. We have rolled forward our target price to Sep ’11, which now
stands at Rs 290. Maintain Hold due to limited upside.
Lower than expected growth in toll revenues: Toll revenue growth of 22% yoy,
-2.3% QoQ was 6% lower than expected. YoY growth was supported by
Bharuch-Surat project, which was operational for only six days in base quarter.
Construction revenues met subdued expectations: Construction revenues grew
51% YoY, marginally lower than our subdued expectations, as heavy monsoons
impacted pace of work in Q2.
Rise in construction EBITDA margins will not sustain in H2: EBITDA margins in
construction segment moved up 560 bps yoy to 23.9%. Our FY11 margin
estimate was lower at 17%. We are revising up our margin estimate for the full
year to 20% to take into account H1 performance. We believe that H2 margins
will not be as high (24.3% in H1) due to rise in commodity prices as well as
higher sub contracting levels (Rs 13bn of revenues expected v/s Rs 6bn in H1).
PAT growth of 40% YoY: Higher interest cost was partly offset by lower tax rate.
PAT growth of 40% YoY was 4.5% lower than estimates.
Change in revenue, EBITDA margin estimates: We have revised down our FY11
revenue estimates, to take into account slower progress on construction segment
in H1. We have revised up construction segment EBITDA margin estimates by
3ppt for FY11 and 1ppt for FY12. These changes have led to earnings revision of
-1% in FY11 and +3% in FY12.
Maintain Hold due to limited upside: We have rolled over price target to Sep
’11. Our price target of Rs290/sh comprises of a) valuing the road BOT projects
on NPV basis at Rs 120 b) valuing the construction business at Rs 120 (10x P/E
on Sep-12 construction EPS). In our opinion, the current valuations factor in the
strong fundamentals. Maintain Hold.