IRB Infrastructure Developers Ltd. – Initiating Coverage – Antique Stock Broking

February 20, 2012

On the right path

Investment rationale

Robust order book provides visibility

IRB Infrastructure Developers Ltd. (IRB) has an order-book of INR91.3bn as on Dec 2011, executable over the next 3-4 years. The order-book comprises INR33.9bn worth of EPC contracts on ongoing BOT projects, INR36.8bn on BOT projects where construction is yet to commence, and INR20.6bn on projects in O&M phase. High order-book coverage (~4.1x TTM EPC revenues) provides enough visibility for the next few years.

Largest operational BOT portfolio

IRB has the largest operational road BOT portfolio in the country at 4,097 lane kms. It also has some of the most commercially remunerative projects like the Mumbai-Pune expressway, Surat-Dahisar, etc. In FY11, IRB earned a daily gross toll collection of INR26m, which we expect to go up to INR36m in FY13e and INR50m in FY15e.

Robust revenue mix

On a consolidated basis, while EPC operations will drive the revenue growth for the next 2-3 years, BOT operations will start contributing significantly to revenues post that with the commissioning of Jaipur-Tonk-Deoli, Amristar-Pathankot, Talegaon – Amravati and NH-8 section of Ahmedabad-Vadodara (from FY16e).

Integrated and efficient project execution capabilities

IRB has an in-house construction business under its wholly-owned subsidiary Modern Road Makers (MRM) which undertakes EPC work for its BOT projects. In-house execution of the entire project with minimal subcontracting and ownership of aggregate mines has enabled MRM to enjoy high margins (9MFY12 margins stood at 26.8%).

Valuation and outlook

At the CMP of INR170, the stock trades at a P/E and EV/EBIDTA of 12.4x and 7.3x, discounting its FY13e numbers respectively. Given the size, scale and ability to bid for large projects, IRB is well placed to capitalise on the potential robust order awarding by NHAI going forward. We initiate coverage on the stock with a BUY recommendation and arrive at an SOTP based target price of INR217.

Source: www.equitybulls.com