IRB Infrastructure - Result ahead of expectation; valuation capped... - ICICI Direct

IRB's Q4FY12 performance was ahead of our estimates on account of a better than expected construction division performance (net sales up 8.6% YoY to Rs.600 crore with healthy EBITDA margin at ~27%). In the toll division, volume growth continues to remain muted at Surat Dahisar and Bharuch Surat due to traffic diversion. During Q4FY12, IRB entered into a definitive agreement to acquire a 68 km operational road asset in TN for a sum not exceeding Rs. 130 crore and indicates it would continue seek inorganic opportunities like this, which provides better IRR. Despite its strong Q4FY12 performance, relatively better financial position and attractive valuation, we assign a HOLD recommendation on IRB. We believe the stock's valuation multiples would be capped till further clarity emerges on promoters undergoing CBI's polygraph test in relation to an investigation in the matter of a murder of RTI activist Satish Shetty.

Result better than expectation led by construction division

IRB's net profit grew 17.1% YoY to Rs. 120.4 crore led by a better than expected performance in the construction division. While revenues of the division were up 8.6% YoY to Rs. 600 crore (showing better than expected ramp up on new projects), the EBITDA margin was also healthy at ~27%. On the other hand, net toll revenues grew 15.6% YoY to Rs. 248 crore. However, volume growth continued to remain negative in two of three key projects (Bharuch Surat and Surat Dahisar).

Acquired TN operational road asset for sum not exceeding Rs.130 crore

IRB has announced that it has entered into a definitive agreement for acquiring MVR Infrastructure & Tollways Pvt Ltd (MVRIT) for a sum not exceeding Rs. 130 crore. The higher end of the deal implies P/BV of 1.9x. MVRIT has an operational road asset of 68 km in Tamil Nadu with toll revenues of Rs. 54.8 crore and net loss of Rs. 0.4 crore in F12. The company expects equity IRR of 21% on this project.

Valuation

Though IRB is currently trading at attractive valuation despite a strong Q4 FY12 performance, we believe the stock's valuation multiples would be capped till further clarity emerges on promoters undergoing CBI's polygraph test in relation to an investigation in the matter of a murder of RTI activist Satish Shetty. Hence, we have assigned a HOLD recommendation on the stock.

Source : Equity Bulls

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