IRB Infrastructure :: Phoenix rising; Estimate strong 1QFY12 revenue growth ::BNP Paribas

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Phoenix rising
ƒ Estimate strong 1QFY12 revenue growth led by construction
ƒ Concerns about pledged shares partially mitigated
ƒ Award activity momentum is likely to continue
ƒ TP INR250; BOTs INR186, Construction INR43; Others INR21
Estimating 41% revenue growth
We are estimating revenue growth of 41%
y-y in 1QFY12 driven primarily by
construction revenue (growth of 54% y-y).
IRB is currently executing five projects in
its portfolio. We expect the Surat-Dahisar
and Kolhapur projects to start commercial
operations during Q2FY12. We estimate
BOT revenue growth of 20% y-y, primarily
driven by an 18% toll increase at its
flagship project, Mumbai-Pune Highway
and the addition of toll revenue from
Tumkur Chitradurga. Our 1QFY12
consolidated EBITDA margin estimate of
42% is lower than 51% in the same period
last year primarily due to higher raw material costs and one-time dividend
income in the same quarter of the previous year. Consolidated interest
expense is likely to be 35% higher primarily due to higher interest rates.
Risk from pledged shares partially mitigated
Approximately 17% of the outstanding share capital that belongs to the
promoter group was pledged. Recent filings indicate roughly 4% of the
outstanding shares have been revoked, which reduces this risk.
Major road bids on the anvil, catalysts ahead
Major projects such as the Kishangarh-Ahmedabad (INR54b) and
Jabalpur-Rewa (INR19b) roads are coming up for bid in the next 30-45
days. IRB has bid for four projects (including the above two) worth
INR93b that are up for bidding in the near term. We expect any project
win to be a material catalyst for the stock.
Valuation
We continue to rate IRB as our top pick in this space. We believe
execution capabilities and access to financing are key differentiators. We
maintain our BUY rating and TP of INR250. Our TP is based on a SoTP
valuation of the construction business and the highway BOT portfolio. We
value the BOT portfolio using DCF (FCFE, 13.5% average cost of equity
over the life of the project) at INR186. The construction business
contributes INR43 based on 3.2x FY13E EV/EBITDA (implied P/E of
6.0x). Real estate and future projects contribute INR8 and INR13,
respectively. Risks to our TP include lower-than-expected traffic growth,
execution delays, and lower-than expected project wins.