Buy IRB Infrastructure : AnandRathi Institutional Research

IRB Infrastructure - Construction drives performance; Buy with a target price of Rs 297

Fast-stabilising construction at new projects and anticipated receipt of the appointed date for the Agra-Etawah project by early FY17 would mean the recently seen momentum in construction revenue of IRB Infra more than sustains. On the BOT side of the business, we see a gradual up-move in traffic and commissioning of tolling at the Ahmedabad-Vadodara NH stretch (begun in Q3FY16) and Agra-Etawah (expected by early FY17) to keep the improvement going. Both (improved construction and toll collection) are likely to drive operating performance meaningfully. However, due to higher finance costs and amortisation charges (on commissioning of Ahmedabad-Vadodara), earnings are unlikely to mirror the growth envisaged in the operating figures. Nevertheless, we see service coverage ratios to be better. We maintain a Buy for the healthy backlog, established BOT portfolio and efforts underway (eyeing InvIT listing) to unlock value.

Construction led from the front; ably supported by BOT: During Q3 FY16, the construction segment, with strong 67% yoy revenue growth, helped deliver overall ~38% revenue growth. For the BOT vertical, traffic growth made a comeback (after having disappointed in Q2) to clock ~9% yoy growth in toll collection. Though the construction segment drove revenues meaningfully, its lower margins pulled down the blended EBITDA margin to ~51.6% (from ~57.6% yoy, ~52.6% qoq). Healthy growth in operating figures translated into ~28% yoy earnings growth.

Zozila Tunnel project - identifies intent: The company recently added its maiden BOT-Annuity project (in J&K), marking its entry into a ninth state). This 14km tunnelling project entails a TPC of ~Rs. 101bn (EPC pegged at ~Rs. 67bn) and is significant as it shows that the company is not shy of trying new areas and revenue models.

Valuation: To adjust for the better-than-anticipated traction in construction and actuals for Ahmedabad-Vadodara, we raise our earnings estimates ~1%/5%/4% for FY16/FY17/FY18. On our revised estimates, the stock trades at PBV of 1.6x FY17e and 1.5x FY18e. Risk: Less-than-expected traffic growth.

Shares of IRB INFRASTRUCTURE DEVELOPERS LTD. was last trading in BSE at Rs.238.45 as compared to the previous close of Rs. 243.55. The total number of shares traded during the day was 146960 in over 2294 trades.

The stock hit an intraday high of Rs. 246.4 and intraday low of 236.2. The net turnover during the day was Rs. 35661026.

Source : Equity Bulls

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