IRB Infra: On the road to recovery

November 20, 2013

Jitendra Kumar Gupta  | 

 For the September quarter, IRB reported 11.1 per cent annual growth in revenues at Rs 939 crore


Better-than-expected numbers for the quarter ended September have turned analysts positive on IRB Infrastructure Developers, among India’s largest road construction and operating companies.

Both better execution of ongoing projects and strong growth in revenues from the BOT (build-operate-transfer) segment aided the performance. The growth momentum is expected to remain good, backed by revenues from the construction segment and the toll business, in which new projects will go on stream in the coming months.

Analysts believe valuations are reasonable and, therefore, there is room for appreciation. At Rs 90, the stock is trading at about five times its FY15 expected earnings and offers a dividend yield of 4.5 per cent, which is attractive considering the return on equity of about 18 per cent.

For the September quarter, IRB reported 11.1 per cent annual growth in revenues at Rs 939 crore and similar growth in operating profit at Rs 422 crore. The construction business, which accounted for 71 per cent of the consolidated revenues, recorded 11 per cent year-on-year growth, aided by better execution in the case of projects such as the Ahmedabad-Vadodara, Pathankot-Amritsar and Jaipur-Deoli ones. The company’s BOT revenues increased eight per cent, largely aided by new projects going on stream, which added to toll collections. Existing projects saw a slowdown in traffic, reflecting various economic woes, especially the fall in mining activity.

“Growth has certainly slowed, but with geographical advantages, we are still able to show good growth. For instance, the Surat-Dahisar and Mumbai-Pune projects, which account for 70 per cent of the toll collections, have seen traffic growth of about five per cent,” said chairman and managing Director Virendra D Mhaiskar.

While a recovery isn’t likely soon, given the tapering industrial and economic growth, analysts are hopeful. “Despite near-term concerns, we believe IRB is one of the best plays in India’s infrastructure story, with a stable balance sheet, high operating cash flow and a matured road portfolio,” said Mangesh Bhadang, who tracks the company at Quant Global Research.

Part of the concerns will be eased if the company sustains the pace of execution and adds more projects to its portfolio. It has already started toll collection in the case of the Jaipur-Deoli and IRDP Kolhapur projects, while the Amritsar-Pathankot project is expected to be commissioned by December.

Incrementally, these projects will add to the overall toll collections in the coming months and support growth. That apart, the company is sitting on an order book of Rs 5,053 crore, 1.85 times its FY13 construction revenue, providing medium-term revenue visibilities. This provides some relief, given the industry is going through a difficult phase because of the slowdown in project-awarding, the coming elections, lower traffic growth, execution issues and funding.

“Projects have been stuck for different reasons but now, reforms are taking place. Things have (been) delayed for 18-20 months. But again, since more clarity is emerging, the process of bidding will commence soon,” said Mhaiskar.

When the situation improves, IRB is well equipped to grab the opportunity, given its strong balance sheet and expertise in the business. From FY14, the company is expected to generate operating cash of Rs 1,000 crore annually, against Rs 945 crore in FY13. With such cash flows and assuming a 70:30 debt-equity ratio, the company can fund projects worth Rs 3,000-3,500 crore every year.

In Rs cr FY2013 FY2014E FY2015E
Net sales 3,687 3,772 4,191
% change 17.7 2.3 11.1
Adj.Net profit 557 485 502
% change 12.2 -12.9 3.5
EBITDA (%) 44.3 45.1 45.3
EPS (Rs) 16.7 14.6 15.1
P/E (X) 5.3 6.1 5.9
P/BV (X) 0.9 0.8 0.7
RoE (%) 18.2 14.2 13.4
OB*/sales (x) 2.4 3.1 3.5
Order inflows 2,595 3,384 3,574
% chg 30.4 5.6
Source: Angel Broking, * denotes order book 


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