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IRB Infrastructure Developers |
Positives round the corner |
ACCUMULATE
CMP: Rs224 Target Price: Rs304
n After a lull of 6 months, NHAI’s awarding activity is expected to pick up - Govt planning award of at least 25 road projects worth Rs360 in Q4FY11
n 10 projects have average ticket, size of Rs20 bn+ v/s Rs9.9 bn for projects awarded in Q1FY11. Expect large developers like IRB with scale and strong balance sheet to be key beneficiary
n IRB management confident of bagging projects worth Rs45 bn over next 1 year. Execution in E&C segment to pick in H2FY11, Q1FY12 to see 18% Toll hike for ‘Mumbai–Pune Expessway’
n Recent stock underperformance provides attractive entry point to play positive triggers over next 2-3 quarters. Maintain ACCUMULATE - Target Price of Rs304
Road awarding activity to pick up-Rs360 bn projects lined up in Q4FY11
After a lull of 6 months, Govt is looking to award 25 projects worth Rs360 bn in the
Q4FY11. About 13 proposals worth ~Rs220 bn covering 2050 kms have been sent to the
Public-Private Partnership Appraisal Committee (PPPAC) for approval with additional
projects expected to be sent next month.
Large road projects on the anvil – average ticket size of ~Rs15 bn
We notice that the average ticket size for the upcoming 25 projects is ~Rs14.5 bn as
compared to average ticket size of Rs8.8 bn for projects awarded in FY10 and Rs9.9 bn for
Projects awarded in Q1FY11. In fact we would like to highlight that out of the 13 project
awaiting approval from PPPAC, 10 projects have average tickets size of Rs20 bn+. With
such a large size project on the anvil, we expect large developers like IRB with scale and
strong balance sheet to be key beneficiary.
IRB management confident of bagging new projects worth USD 1bn
IRB management expects pick up in NHAI project awarding activity by mid Jan 2011.
Management also highlighted that there could be bunching up of BOT road projects over
next 3-6 months. Given IRB’s huge prequalification status of Rs205 bn and balance sheet
strength, management remains confident of bagging new projects worth Rs45 bn over next
one year, without equity dilution. We would like to highlight that IRB FY10 project wins
included a total grant of Rs8.35 bn (19% of Project Cost), leading to very comfortable
leverage of 1.95X. This coupled with strong FY11 net D:E of 1.55X and cash flows of
~Rs17 bn over FY11-12E leaves significant room for IRB to leverage its balance sheet for
funding further growth opportunities.
Execution in E&C segment to pick
Management is confident of delivering strong traction in its E&C segment over next 2
quarters driven by pick up in execution in key projects like Jaipur-Deoli and Surat- Dahisar.
IRB’s Construction order backlog at the end of Q2FY11 stood at Rs 95 bn out of which
Rs 71.6 bn is the backlog related to 7 own BOT project. Work is apace on 5 out of these 7
BOT projects and construction activity on 2 projects (Goa Karnataka and Tumkur-
Citradurga) is expected to commence in the 4QFY11E.
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