Hold IRB Infrastructure - Management Meet Update - Target Price Rs.282

PINC Research Team recently met with IRB Infrastructure's Chairman and Managing Director, Mr. Virendra Mhaiskar, to discuss management's vision and growth strategies. Important highlights of our discussion are as follows:

* IRB can add a billion dollar of BOT projects annually, i.e. ~4-6 projects, without stretching its balance sheet; whereas if it targets for 10% market share, it can garner Rs230bn of projects with some dilution.

* IRB will continue to concentrate on road projects. It plans to maintain a healthy balance sheet and awaits the consolidation phase, which we expect over the next few years.

* EPC margins will continue to be healthy in the near term because of lower raw material cost as against prices that prevailed during the time of bidding; especially the Dahisar-Surat project is likely to benefit to the extent of 10-15% of project cost.

* Work on Jaipur-Deoli and Amritsar-Pathankot has already started and the Amravati-Talegaon project recently commenced operation; IRB will book EPC revenue from these projects in Q3FY11. The company has invested about Rs140cr in equity in these projects and the debt portion is Rs400-500cr.

VALUATIONS & RECOMMENDATION

We have valued the company at Rs282 using SOTP methodology (BOT projects: Rs159; construction business: Rs98; and land valued at Rs10 and cash on books at Rs15). We maintain our 'HOLD' recommendation on IRB, but we have not factored in the Kolhapur Hotel and the Sindhudurg Airport projects.

Source : Equity Bulls

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