IRB Infrastructure - Doesn't stop surprising - Karvy

IRB reported strong 4QFY13 performance supported by robust execution a continuation of past several quarters trend. The bottoming out of BOT fundamentals and a more supportive yield curve augurs well for a cyclical recovery. IRB now trades at close to it BOT value and doesn't capture upsides on construction business valuation. We maintain BUY with Rs188/share target price.

Quarterly performance doesn't stop surprising

IRB's 4QFY13 consolidated Net revenue, EBIDTA & Net profit grew 11.8%, 11.0% & 31% YoY respectively, with revenue, EBIDTA marginally below our estimate by 4.5% and 1% respectively whilst Net profit being ahead of our estimates by 5.4%. EBIDTA margin contracted by 33bps YoY to 44.6% in line with our estimate. Contraction was on account of higher contract expenses (up 66.5% YoY). Net profits growth of 31.2% was higher than EBIDTA growth on account of lower interest cost & 25.5% YoY decrease in taxes. 4QFY13 was continuation of past many quarters positive surprise.

Trading below - BOTs valuation of Rs134

At the CMP, IRB is trading closer to its BOT valuation of Rs134 per share, implying zero value to EPC business. Upside on account of construction business (valued at Rs51 per share) is not reflected in CMP and may result in re-rating of the stock.

Strong competitive positioning to help tide current environment

IRB is a top quartile on competitive business positioning largely on account of superior execution capability and potential value-unlocking. IRB's cashflow position provides comfort on project equity requirement of the underdevelopment road BOTs (Rs17bn) over the next 3-4 years with limited reliance on external sources of equity funding. EPC order book of Rs84bn is 3.1x FY13 EPC revenue and lends sufficient visibility over FY14-15E.

Maintain "BUY" stance: cut target price to Rs188

Whilst we have marginally recalibrated our net profit estimates (0-1%) we have cut our target price by 9.6%. This is attributable to 25% cut in the standalone EPC valuation multiple owing to slowdown in EPC ordering activity from NHAI (largest client). We have valued the standalone IRB at a 5xFY15E EPS (Rs51/share vs Rs68/share earlier), IRB's BOT assets using DCF (Rs134/share) and Realty at book value (Rs3/share). We adopt an SOTP methodology to arrive at our target price of Rs188 per share.

Source : Equity Bulls

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