IRB - Strong traffic volume led growth… :: ICICI Securities, report

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Strong traffic volume led growth… • The topline at | 963.8 crore (9.9% YoY growth) was lower than our estimate of | 1028.7 crore. Construction revenues de-grew 14.4% YoY to | 485 crore whereas net toll revenue grew strongly by 54.3% YoY to | 479 crore (our estimate: | 453 crore) • The EBITDA margin of 57.6% was higher than our estimate of 54.4% due to higher proportion of the BOT division's contribution to topline than that of the construction division • The net profit at | 132.6 crore (22.2% YoY growth) was higher than our estimate of | 128.8 crore mainly due to lower-than-expected tax expense (effective tax rate: 20.9% vs. 26.3% in Q3FY14) • The management said the company’s current equity requirement is | 2,600 crore over the next three or four years, which would largely be met through internal accruals Healthy cash flow from well-built BOT projects to support equity need IRB’s gross toll collection has grown significantly at 24.9% YoY to | 547.1 crore in Q3FY15. Significant toll revenue growth was seen across all projects, led by strong traffic volume growth. A few key projects are Bharuch-Surat (14.3%), Surat-Dahisar (14.4%), Mumbai–Pune (33.6%) and Ahmedabad–Vadodara (29.8%). Going ahead, we expect IRB’s gross toll collection to grow at 20.3% CAGR in FY14-17E to | 8.1 crore/day. IRB being one of the largest BOT toll operators with 21 projects under its portfolio, we do not see any major funding issue for its existing equity requirement of ~| 2,600 crore. Strong construction performance on the way… Recently, IRB bagged four projects aggregating ~| 6,700 crore (Solapur Yedeshi - | 1317 crore, Yedeshi Aurangabad - | 2754 crore, Kaithal Rajasthan - | 2035 crore and Mumbai-Pune Phase II – 695 crore). The company achieved financial closure (FC) of the Solapur-Yedeshi project in Q2FY15. The management is expecting FC of Yedeshi Aurangabad shortly and that of Kaithal Rajasthan & Mumbai Pune (phase II) by the end of FY15E. These new order wins have taken the order book to ~| 11,082 crore, 5.3x TTM construction revenues, providing strong visibility over construction revenues in the next couple of years. Consequently, we expect construction revenues to grow at 14.7% CAGR to | 3856.7 crore during FY14-17E. Earnings to jump significantly on account of change in premium policy… From April, 2014, IRB changed the policy for premium booking due to premium rescheduling. Rather than booking net revenues (gross toll collection – NHAI Premium) in P&L, it has now created intangible assets for the premium payable (over the life of concession period), which will be amortised as per toll revenues. Consequently, we expect IRB’s net profit to grow at 13.5% CAGR to | 671.5 during FY14-17E. Positives already factored in; maintain HOLD… IRB being a leading player in the road space with a strong balance sheet is likely to be a key beneficiary of NHAI’s plan to roll out road projects of ~3,500 km in Q4FY15. Secondly, given the strong order of | 11,082 crore that provides strong revenue visibility, we expect its earning to grow at 13.5% CAGR during FY14-17E. However, we believe most of the positives have already been priced in the CMP. Hence, we maintain HOLD recommendation with an SOTP based target price of | 274/share.

LINK
http://content.icicidirect.com/mailimages/IDirect_IRBInfra_Q3FY15.pdf