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IRB Infrastructure
Performance Highlights
Y/E March (` cr) Net sales Op. profit Net profit 1QFY12 801.3 329.4 134.2 1QFY11 512.0 229.3 117.5 4QFY11 767.0 314.7 102.8 % chg (yoy) 56.5 43.7 14.2 % chg (qoq) 4.5 4.7 30.6
NEUTRAL
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 6,212 1.1 312.8/145.1 449,681 10 18,502 5,567 IRBI.BO IRB@IN
`187 -
IRB Infrastructure (IRB) on a consolidated basis reported a strong performance on all fronts, which was in line with our estimates, but well ahead of consensus. Top-line growth was led by a whopping 80.9% yoy jump in C&EPC revenue. The bottom line also reported impressive performance on account of robust top-line growth, higher other income and lower tax provision (24.6%). Impressive show on all fronts: IRB reported robust top-line growth of 56.5% yoy to `801.3cr (`512.0cr), marginally ahead of our estimate of `766.6cr. This stellar performance was led by stupendous 80.9% yoy growth in the C&EPC segments revenue to `597.2cr (`330.1cr), against our expectations of `533.5cr. We believe the construction segment has posted robust numbers due to significant contribution (50 60%) from the Surat Dahisar project, which is nearing completion, and pick-up in execution of other under-construction projects. IRBs operating margin came in at 41.1% (44.8%), slightly lower than our estimate of 42.3%, due to higher contribution from the low-margin C&EPC segment. Interest cost come in at `117.4cr (`66.1cr), up 77.6% yoy because of increased debt (`380cr400cr) and MTM loss of `8cr10cr. IRB reported healthy yoy growth of 19.1% to `180.0cr (`151.2cr) and 14.2% to `134.2cr (`117.5cr) at the PBT and PAT levels, respectively, against our estimates of `168.1cr and `117.8cr. Outlook and valuation: NHAI has begun FY2012 on an aggressive note by awarding projects of ~1,000kms in April and May 2011. This is in-line with NHAIs revised target of ~11,000kms for FY2012, an increase of whopping 117% over FY2011. IRB, being one of the market leaders, is expected to gain from the same. Further, IRB has a robust order book (excluding O&M orders) of `11,171cr (6.7x FY2011 construction revenue), which lends high revenue visibility for the next twothree years. However, owing to the recent run-up in the stock price (IRBs stock has increased by ~16.1% in the last one month as against a return of 5.7% by the Sensex), we believe the upside from current levels is limited and, hence, we recommend Neutral.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 74.8 6.6 13.7 4.9
3m (5.0)
1yr 3.5
(7.0) (31.2)
FY2010 1,705 71.9 385.4 119.2 46.9 11.6 16.1 3.0 20.4 13.2 5.1 10.8
FY2011 2,438 43.0 452.4 17.4 44.9 13.6 13.7 2.6 20.2 14.2 4.0 8.8
FY2012E 2,999 23.0 423.2 (6.5) 44.4 12.7 14.7 2.2 16.2 12.1 3.7 8.3
FY2013E 3,995 33.2 482.9 14.1 38.3 14.5 12.9 2.0 16.2 11.9 3.1 8.1
Shailesh Kanani
022-39357800 Ext: 6829 shailesh.kanani@angelbroking.com
Nitin Arora
022-39357800 Ext: 6842 nitin.arora@angelbroking.com
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 4QFY2011 includes `54cr of MTM loss on the Mumbai Pune project and 1QFY2012 includes MTM loss of `8cr10cr
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
1QFY11 330.1 203.6 533.7 95.2 175.8 271.0 28.8 86.3 50.8 5.9 60.2 66.1 11.0 42.7 53.7 78.4 72.8 151.2 56.0 61.6 117.5
% chg 80.9 14.2 55.4 62.6 15.4 32.0 (290)bp 100bp (770)bp 385.3 47.6 77.6 24.8 9.0 12.2 43.7 (7.4) 19.1 36.9 (6.4) 14.2
4QFY11 578.4 211.5 789.9 146.0 191.6 337.6 25.2 90.6 42.7 25.2 114.6 139.8 14.9 43.8 58.7 105.8 33.2 139.0 73.4 29.4 102.8
% chg 3.2 9.9 5.0 6.0 5.9 6.0 70bp (330)bp 40bp 12.8 (22.4) (16.0) (8.1) 6.2 2.6 6.4 103.0 29.5 4.4 96.1 30.6
FY2011 1,670.4 832.2 2,502.6 428.3 730.1 1,158.4 25.6 87.7 46.3 54.1 303.1 357.2 52.4 173.0 225.4 321.8 254.0 575.9 224.3 228.0 452.4
FY2010 1,024.2 729.7 1,753.8 200.6 647.4 848.0 19.6 88.7 48.4 22.5 226.8 249.4 52.1 129.9 181.9 126.0 290.7 416.7 101.2 284.2 385.4
% chg 63.1 14.1 42.7 113.5 12.8 36.6 600bp (100)bp (210)bp 139.8 33.6 43.2 0.7 33.2 23.9 155.4 (12.6) 38.2 121.8 (19.8) 17.4
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1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
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1QFY12
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
$
1QFY11 88.2 80.2 13.3 7.2 4.8 3.6 3.8 1.7 1.9 29.8 234.5
% chg 6.8 22.9 17.3 (2.8) 16.7 19.4 (2.6) 17.6 21.1 12.8 18.7
4QFY11 98.2 80.2 15.0 7.4 5.5 4.2 3.7 2.1 2.1 35.1 253.5
% chg(qoq) (4.1) 22.9 4.0 (5.4) 1.8 2.4 (4.8) 9.5 (4.3) 9.8
FY2011 364.7 321.5 54.3 28.4 21.2 14.4 14.6 7.7 7.4 130.2 964.4
^
FY2010 333.7 306.3 47.2 27.7 18.1 13.3 13.5 6.3 6.7 66.3 2.2 1.2 842.5
% chg(yoy) 9.3 5.0 15.0 2.5 17.1 8.3 8.1 22.2 10.4 96.4 14.5
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
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
EBITDA (` cr)
20 July, 2011
1QFY12
FY2013E Earlier estimates Revised estimates Variation (%) 3,995.4 38.3 482.9 3,995.4 38.3 482.9 3.4 150bp 15.5
NHAI has begun FY2012 on an aggressive note by awarding projects of ~1,000kms in April and May 2011. This is in-line with NHAIs revised target of ~11,000kms for FY2012, an increase of whopping 117% over FY2011. Our valuation of `191/share for the consolidated business uses NPV/EV/EBITDAbased valuation for BOT assets and the C&EPC arm, respectively. We factor in CoE of 14% and a traffic growth rate of 5/6/7% for its BOT assets. Whilst we model revenue growth of 15.1% in FY2012, we expect revenue growth to improve to 45.8% in FY2013 for the C&EPC arm. We expect the C&EPC segments EBITDA margin to come down and normalise at 1921% (still higher than the industrys average on account of controlled costs with concentrated operations, high proportion of in-house projects and strong asset base with own quarries and RMC plants, among others) levels over FY201213. On the BOT front, margins are likely to remain stable even though EBITDA margin on the Ahmedabad Vadodra project is mere 40% for FY2013, given the projects relatively negligible contribution to overall BOT revenue. Overall, blended margins for the company are expected to fall on account of pressure on the C&EPC segments EBITDA margins and change in revenue mix in favour of the C&EPC segment. Moreover, IRBs construction arm has a robust order book of `11,171cr (6.7x FY2011 construction revenue), which lends high revenue visibility. However, owing to the recent run-up in the stock price (IRBs stock has increased by ~16.1% in the last one month as against a return of 5.7 % by the Sensex), we believe the upside from current levels is limited. Hence, we recommend Neutral on the stock.
20 July, 2011
Source: Company, Angel Research, Note: # Once in 3 years; $ IRB had shared 38% of its FY2011 revenues with the NHAI and the same increases by 1% every year; @ IRB is expected to pay a sum of `309.6cr to NHAI from FY2013 onwards and the sum increases by 5% every year
20 July, 2011
12.7 14.5
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. NHAI has targeted to award orders worth ~`57,000cr (~8,000kms) till January 2012 and another 1,000kms on Annuity/EPC basis projects are also expected to be awarded in FY2012. However, it should be noted that there has been a further increase in the yearly target for the NHAI with the intervention of PMO from ~9,000kms to ~11,000kms for FY2012, i.e. whopping 117% more than that awarded in FY2011. These additional projects will require investments worth `16,000cr. We believe these targets are aggressive, considering NHAIs past performance and capacity constraints. However, given the focus and impetus on 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 relating 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
1) 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. Commodity price increases: The increase in commodity prices cement (20%), steel (10%) and bitumen (15%) in the last 34 months has resulted in lower EBITDA margin across the sector. Any further increase would put more pressure on margins. However, due to the escalation clause built in the model, IRB has been able to hold on to its margins. Though to be on the conservative side, we have factored in a margin dip of 440bp and 230bp in the C&EPC arm for FY2012 and FY2013, respectively.
2)
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13,217 15,860 18,708 9,585 10,992 5,856 2,602 5,373 3,272 2,069 4,908 6,939 2,865 6,721 3,587 2,632 6,467
- Neutral
- Neutral
1,798 2,030
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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 1.7 3.6 2.1 1.9 4.0 2.1 0.3 15 39 118 78 0.4 47 5 77 87 0.5 40 5 58 48 0.5 25 5 87 15 0.4 22 6 118 17 0.5 21 5 103 25 9.3 14.3 11.4 8.1 13.8 10.5 13.2 20.3 20.4 14.2 20.4 20.2 12.1 15.2 16.2 11.9 14.9 16.2 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 31.4 76.0 0.4 10.5 6.7 1.6 16.4 27.5 74.0 0.5 9.5 6.3 1.8 15.4 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 12.7 12.7 24.4 2.0 83.5 14.5 14.5 27.5 2.0 95.7 54.5 28.8 3.8 0.0 10.5 18.7 2.1 35.3 21.4 3.6 0.8 8.4 18.9 1.9 16.1 10.9 3.0 0.8 5.1 10.8 1.7 13.7 9.2 2.6 1.1 4.0 8.8 1.3 14.7 7.6 2.2 1.1 3.7 8.3 1.3 12.9 6.8 2.0 1.1 3.1 8.1 1.2 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E
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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):
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