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IRB Infrastructure
Performance Highlights
Y/E March (` cr) Net sales Op. profit Net profit 2QFY12 735.9 321.5 110.1 2QFY11 490.3 236.4 99.1 1QFY12 801.3 329.4 134.2 % chg (yoy) 50.1 36.0 11.1 % chg (qoq) (8.2) (2.4) (18.0)
ACCUMULATE
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Infrastructure 5,429 1.2 263/132 379,540 10 17,193 5,169 IRBI.BO IRB@IN
`163 `182
12 Months
For 2QFY2012, on a consolidated basis, IRB Infrastructure (IRB) reported a healthy set of numbers on all fronts, in-line with our estimates. We have marginally tweaked our estimates for FY2013 and SOTP target price to factor the removal of Goa Karnataka project (EPC `698cr) from the order book and high interest cost due to increased rates. We recommend Accumulate on the stock. Robust performance: IRB reported strong top-line growth of 50.1% yoy to `735.9cr (`490.3cr), marginally ahead of our estimate of `686.9cr. IRBs EBITDAM for the quarter came in at 43.7% (48.2%), lower than our estimate of 45.2%, due to higher than expected contribution from the relatively low-margin C&EPC segment. Interest cost come in at `141.1cr (`69.3cr), up 103.7%/20.2% yoy/qoq because of elevated debt levels (increase of `1,455cr since FY2011) and MTM loss of ~`14cr. IRB reported decent growth of 22.1%/11.1% to `147.6cr (`120.9cr) and `110.1cr (`99.1cr) on a yoy basis at the PBT/PAT levels, respectively, in line with our estimate of `147.1cr/`107.3cr, respectively. Outlook and valuation: NHAI has awarded ~3,300km of projects so far in FY2012 in the road segment; and as per IRBs management, NHAI would finish the year by awarding more than 6,000km of projects. Further, management believes that aggressive bidding has started to come down, as witnessed in some recent projects. Against this backdrop we believe IRB being one of the leaders in the road segment is going to benefit in the medium to long term. Moreover, IRB has a robust order book (excluding O&M orders and Goa Karnataka project) of `7,568cr (4.5x FY2011 C&EPC revenue), which lends high revenue visibility for the next twothree years and, hence, management has indicated that internal benchmark to bid is equity IRRs of ~18%. We have arrived at an SOTP-based target price of `182/share, which implies an upside of 11.2%. Hence, we recommend an Accumulate rating on the stock.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 74.9 6.8 13.6 4.8
3m
1yr
FY2010 1,705 71.9 385.4 119.2 46.9 11.6 14.1 2.7 20.4 13.2 4.6 9.8
FY2011 2,438 43.0 452.4 17.4 44.9 13.6 12.0 2.2 20.2 14.2 3.6 8.1
FY2012E 3,037 24.6 395.3 (12.6) 43.3 11.9 13.7 2.0 15.2 11.6 3.5 8.1
FY2013E 3,781 24.5 434.0 9.8 40.4 13.1 12.5 1.7 14.7 10.4 3.1 7.7
Shailesh Kanani
022-39357800 Ext: 6829 shailesh.kanani@angelbroking.com
Nitin Arora
022-39357800 Ext: 6842 nitin.arora@angelbroking.com
2QFY12 735.9 414.4 321.5 43.7 141.1 62.9 30.1 147.6 36.7 110.9 0.8 110.1 15.0 3.3
2QFY11 490.3 253.9 236.4 48.2 69.3 54.4 8.2 120.9 19 101.8 3 99.1 20.2 3.0
% chg(yoy) 50.1 63.2 36.0 (450)bp 103.7 15.5 265.8 22.1 8.9 (70.3) 11.1 (520)bp 11.1
1QFY12 801.3 471.9 329.4 41.1 117.4 60.2 28.2 180.0 44.3 135.7 1.6 134.2 16.7 4.0
% chg(qoq) (8.2) (12.2) (2.4) 260bp 20.2 4.4 6.6 (18.0) (18.3) (48.0) (18.0) (170)bp (18.0)
1HFY12 1,537.2 886.3 650.9 42.3 258.6 123.1 58.3 327.6 80.9 246.6 2.4 244.2 15.9 7.3
1HFY11 1,002.3 516.7 465.7 46.5 135.4 108.1 29.9 #20.0 272.0 49.4 222.7 6.0 216.6 21.6 6.5
% chg(yoy) 53.4 71.5 39.8 (420)bp 90.9 13.8 95.0 20.4 64.0 10.8 12.8 (570)bp 12.8
Source: Company, Angel Research; Note: Dividend of `20cr from SPV is deducted from operating profit and has been put under extraordinary income, *Interest cost for 2QFY2012 includes ~`14cr and 1QFY2012 includes `8cr10cr MTM loss on the Mumbai Pune project
2QFY12 527.5 238.5 766.0 139.9 211.6 351.6 26.5 88.8 45.9 31.9 109.2 141.1 14.0 48.8 62.9 93.9 53.6 147.6 65.5 44.5 110.1
2QFY11 295.4 203.2 498.5 71.0 173.6 244.6 24.0 85.4 49.1 6.8 62.5 69.3 11.8 42.6 54.4 52.5 68.4 120.9 37.0 64.5 101.6
% chg 78.6 17.4 53.6 97.0 21.9 43.7 250bp 340bp (320)bp 372.6 74.6 103.7 18.8 14.5 15.5 79.1 (21.6) 22.1 76.9 (31.0) 8.4
1QFY12 597.2 232.4 829.5 154.8 202.9 357.7 25.9 87.3 43.1 28.5 88.9 117.4 13.7 46.5 60.2 112.6 67.4 180.0 76.6 57.6 134.2
% chg (11.7) 2.6 (7.7) (9.6) 4.3 (1.7) 60bp 150bp 280bp 12.2 22.8 20.2 2.3 5.0 4.4 (16.6) (20.5) (18.0) (14.4) (22.7) (18.0)
1HFY12 1,124.7 470.8 1,595.5 294.7 414.5 709.2 26.2 88.0 44.5 60.4 198.1 258.6 27.7 95.4 123.1 206.5 121.0 327.6 142.1 102.1 244.2
1HFY11 625.5 406.7 1,032.2 166.2 349.3 515.6 26.6 85.9 49.9 12.6 122.8 135.4 22.8 85.3 108.1 130.8 141.2 272.1 93.0 129.4 222.4
% chg 79.8 15.8 54.6 77.3 18.7 37.6 (40)bp 210bp (540)bp 378.5 61.4 91.0 21.7 11.7 13.8 57.9 (14.3) 20.4 52.8 (21.1) 9.8
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
C&EPC
BOT
2QFY12
2QFY12 93.9 99.7 14.5 6.9 5.5 3.9 3.5 1.9 1.9 34.7 38.7 305.1
$
2QFY11 82.8 80.3 12.2 6.5 5.3 3.1 3.5 2.0 1.5 30.5 227.7
% chg 13.4 24.2 18.9 6.2 3.8 25.8 (5.0) 26.7 13.8 34.0
1QFY12 94.2 98.6 15.6 7.0 5.6 4.3 3.7 2.0 2.3 33.6 11.4 278.3
% chg(qoq) (0.3) 1.1 (7.1) (1.4) (1.8) (9.3) (5.4) (5.0) (17.4) 3.3 239.5 9.6
1HFY12 188.1 198.3 30.1 13.9 11.1 8.2 7.2 3.9 4.2 68.3 50.1 583.4
^
1HFY11 171.0 160.5 25.5 13.7 10.1 6.7 7.3 3.7 3.4 60.3 462.2
% chg(yoy) 10.0 23.6 18.0 1.5 9.9 22.4 (1.4) 5.4 23.5 13.3 26.2
Kaman Paygaon BOT Project ** Khambatki Ghat BOT Project * Tumkur Chitradurga# Total
February 20, 2009,
Source: Company, Angel Research; Note: * Concession period of Khambatki Ghat BOT project ended on May 3, 2009, November 22, 2009, # Tumkur Chitradurga Project commissioned on June 4, 2011
Surat-Dahisar commissioned on
Bharuch Surat BOT project commissioned on September 25, 2009, ** Kaman-Paygaon BOT project concession period stopped from
Lower EBITDAM and higher interest cost leads to modest earnings growth
IRBs EBITDAM came in at 43.7% (48.2%), lower than our estimate of 45.2%, due to higher than expected contribution from the relatively low-margin C&EPC segment. The construction segment posted EBITDA margin of 26.5% for the quarter, reporting a yoy jump of 250bp. Also, on the BOT front, the company reported EBITDAM of 88.8% (85.4%). Going ahead, the management has guided that the company would be able to maintain such kind of margins. Interest cost come in at `141.1cr (`69.3cr), up 103.7%/20.2% yoy/qoq because of elevated debt levels (increase of `1,455cr since FY2011) and MTM loss of ~`14cr. IRB reported decent growth of 22.1%/11.1% to `147.6cr (`120.9cr) and `110.1cr (`99.1cr) on a yoy basis at the PBT/PAT levels, respectively, in line with our estimate of `147.1cr/`107.3cr for PBT and PAT, respectively.
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
EBITDA (` cr)
2QFY12
FY2013E Earlier estimates Revised estimates Variation (%) 3,980.2 38.3 465.9 3,781.2 40.4 434.0 (5.0) 210bp (6.8) (110)bp (5.1)
NHAI has awarded ~3,300km of projects so far in FY2012 in the road segment; and as per IRBs management, NHAI would finish the year by awarding more than 6,000km of projects. Further, management believes that aggressive bidding has started to come down, as witnessed in some recent projects. Against this backdrop we believe IRB being one of the leaders in the road segment is going to benefit in the medium to long term. Moreover, IRB has a robust order book (excluding O&M orders and Goa Karnataka project) of `7,568cr (4.5x FY2011 C&EPC revenue), which lends high revenue visibility for the next twothree years and, hence, management has indicated that internal benchmark to bid is equity IRRs of ~18%. We have arrived at an SOTP-based target price of `182/share, which implies an upside of 11.2%. Hence, we recommend an Accumulate rating on the stock.
Source: Company, Angel Research; Note: Goa Karnataka has been removed from the SOTP calculation given the persistent delay in awarding of the same.
Source: Company, Angel Research, Note: #Once in three years; $ IRB had shared 38% of its FY2011 revenue with NHAI and the same increases by 1% every year; @ IRB is expected to pay a sum of `309.6cr to NHAI from FY2013 and the sum increases by 5% every year
11.9 13.1
Investment arguments
Vast opportunity in the road sector IRB the prime beneficiary: IRB has some of the very high-density, strategically aligned road stretches in its gamut. These high-density stretches reduce the average payback period for a typical road BOT project. Further, given the large number of projects that are still to be bided in the road sector, the magnitude of opportunity for the players cannot be undermined and IRB being one of the market leaders is expected to gain from the same. Integrated road play: IRB has an integrated business model, wherein the internal construction arm, MRMPL, undertakes EPC work related to secured road BOT projects. While the time-bound construction work of secured road BOT projects lends revenue visibility for the construction arm, any prior completion of construction work ushers in revenue upsides from the road BOT (toll) segment. We believe via this integrated business model, the company captures the complete value chain of road development.
Concerns
Delay in order awarding: IRB being a road-focused player is dependent on NHAI for road awarding activity. Thus, any slowdown from NHAIs end would affect IRBs order inflow. However, given the huge bidding pipeline of NHAI, IRB should perform well, as it is one of the market leaders. Interest rate: BOT projects are inherently high-leverage projects. Hence, IRBs business model is vulnerable to interest rate fluctuations, and any hike in interest rates could increase the companys interest costs. Commodity risks: Road players are facing pressures from the recent price inflation in commodities such as cement and steel, which directly affect margins.
13,832 15,092 17,683 9,585 10,992 5,095 2,602 5,286 3,272 1,959 5,169 6,139 2,768 6,178 3,587 2,512 6,609
- Neutral
- Neutral
1,331 1,714
10
11
12
Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) W.cap cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage 0.9 3.6 1.6 1.2 4.7 2.3 1.2 3.0 2.5 1.4 3.1 2.4 1.9 3.9 1.8 2.0 4.1 1.8 0.3 15 39 118 78 0.4 47 5 77 87 0.5 40 5 58 48 0.6 25 5 87 15 0.5 22 5 96 17 0.5 22 6 90 18 9.3 14.3 11.4 8.1 13.8 10.5 13.2 20.3 20.4 14.2 24.4 20.2 11.6 19.6 15.2 10.4 17.0 14.7 42.3 76.0 0.3 8.1 6.6 3.3 13.4 32.6 82.4 0.3 7.6 5.0 1.1 10.3 36.2 96.8 0.4 14.2 8.9 1.2 20.4 35.6 80.6 0.5 13.3 7.6 1.3 20.6 32.4 76.3 0.4 10.7 7.3 1.6 16.4 28.4 74.0 0.4 9.0 6.0 1.9 14.8 3.4 3.4 6.5 0.0 48.8 5.3 5.3 8.7 1.5 52.1 11.6 11.6 17.1 1.5 61.4 13.6 13.6 20.4 2.0 73.2 11.9 11.9 21.8 2.0 83.3 13.1 13.1 26.7 2.0 94.5 47.7 25.2 3.3 0.0 9.5 16.8 1.9 30.9 18.7 3.1 0.9 7.6 17.1 1.7 14.1 9.6 2.7 0.9 4.6 9.8 1.5 12.0 8.0 2.2 1.2 3.6 8.1 1.2 13.7 7.5 2.0 1.2 3.5 8.1 1.1 12.5 6.1 1.7 1.2 3.1 7.7 1.1 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E
13
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
IRB Infra No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns):
14