IRB Infrastructure Ltd - Centrum

Mixed quarter; recent rally factors in all positives, downgrade to hold, target Rs178

IRB reported mixed numbers for the quarter with lower revenue but higher PAT. This quarter like the earlier one is boosted by EPC financials. BOT projects are performing as per expectation. The only update during the quarter was the removal of Goa project by the company (We had sensed land acquisition problems in the state of Goa and hence did not accord any value to the project either in EPC or BOT). We maintain our investment thesis on the company and because of the recent rally of 23% since our upgrade on 10th January '12, we are downgrading our rating on the stock to Hold from Buy. Our target is Rs178 (just 3% upside from the current market price of Rs174).

We advice investors to consider ITNL and Sadbhav rather than IRB Infrastructure at this price for better risk-reward.

- Mixed financials: IRB posted mixed financials during the quarter with revenue 16% below our expectation but much higher than consensus. We were higher, because we believed execution would improve and final billings of Surat-Dahisar and Kolhapur IRDP would generate higher revenue. Profitability was boosted substantially by lower depreciation charge (probably no depreciation is being charged on Surat-Dahisar project), interest charge and other income also contributed to some extent. Order-book currently stands at Rs91bn with Ahmedabad-Vadodara contributing 40% of the total.

- BOT projects perform as per expectation: Revenue from BOT projects are in-line with our expectation. Four projects contribute 85% of the total BOT revenue namely 1) Mumbai-Pune (36%), Surat-Dahisar (23%), Bharuch-Surat (13%) and Tumkur-Chitradurga (14%). Ahmedabad -Vadodara will achieve financial closure by FY12-end and construction will start in April'12. The Per Km BOT revenue has shown a downward trend primarily on account of Surat-Dahisar becoming operational (though it was generating revenue earlier, due to its under development status it was not counted in per Km revenue).

Post our upgrade, from Hold to Buy, in our sector note dated 10th January 2012, IRB rallied by 23%, tuning risk-reward unfavorable. ITNL and Sadbhav are our top picks: We believe that the stock factors in all positives and post the rally, IRB does not present favorable risk-reward. We advice investors to consider ITNL & Sadbhav for better risk-reward. Both presents upside of 20% from their CMP. We have made marginal change in estimates and target price which stands at Rs178 (upside of just 3% from the CMP).

Source : Equity Bulls

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