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Sector 

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Infrastructure Sector 

26 September 2011 

Light At The End Of The Tunnel 

The infrastructure sector has witnessed many pitfalls in the last two years 

which have hurt investor sentiment. We believe the valuation of the sector is 

close to the bottom as the stocks of infrastructure companies have corrected 

between 60%-75% in the period July 2010 to August 2011. Post correction, they 

are trading 33%-47% below their five-year historical average price-to-earnings of 

20x-44x. We believe slower order inflow, rising interest rates, regulatory issues 

and earnings downgrade have been largely discounted by the market. Although 

we believe the earnings will not improve significantly, concerns over rising 

interest rates, regulatory issues and execution risks are likely to subside in the 

short term, thereby leading to outperformance by infrastructure stocks. 

Fundamentals versus valuation: We believe the infrastructure sector is currently 

moving from a moderation phase to a slowdown phase, and the slowdown has started 

hurting profitability (as seen from a sharp decline in earnings in 1QFY12 by 97% YoY) 

which will continue in the short term. However, as the slowdown has already been 

factored in (stock prices have declined by around 60%- 75% between July 2010 

& August 2011), we believe the sector is set for a re-rating as FY13 net profit for 

our universe of companies is set to grow by 44%. 

Stability in interest rate cycle to aid performance: To curb rising inflation, the 

Reserve Bank of India (RBI) raised its repo rate by 25bps in September 2011 (175 

bps since January 2011), the 12th hike in the past two years, to 8.25%, which is 

75bps below the peak witnessed in October 2008. As per consensus estimate, the 

repo rate may be hiked further by 25bps and then it may stabilise at that level (not 

correct sharply as in the previous FY09 cycle). Historically, whenever interest rates 

peak, the infrastructure stocks outperform. 

Further earnings downgrade due to rising interest rates unlikely: Between 

January 2010-September 2011, revenue estimates of our universe of companies 

(Bloomberg consensus) have been downgraded by 11% for FY12 and 5% for FY13 

and PAT estimates cut by 33% and 31% for FY12 and FY13, respectively. As per our 

analysis, we believe the market has already discounted higher interest rates and 

further earnings downgrade is unlikely. 

Uncertainty in order execution in near term, but FY13 to witness strong growth: 

Despite a strong order book, revenue growth was muted during the past one year due 

to order execution-related issues. The market believes these issues will continue to 

impact the growth of the sector. However, we believe the order execution will improve 

because these issues are more technical (short-term in nature) rather than structural. 

Coverage universe: We initiate coverage on five companies with a Buy rating on IRB 

Infrastructure, Reliance Infrastructure, GMR Infrastructure and IVRCL, as we 

believe they are best placed in terms of execution track record, Balance Sheet 

strength and valuation parameters. Despite attractive valuation, we assign a Hold 

rating to HCC as we believe that higher leverage and the Lavasa issue will cap any 

upside. 

View: Positive 

Amit Srivastava 

amit.srivastava@nirmalbang.com 

+91-22-3926 8116 

Nitin Arora 

nitin.arora@nirmalbang.com 

+91-22-3926 8169 

One Year Indexed Performance 

230 

210 

190 

170 

150 

130 

110 

90 

70 

50 

Source: Bloomberg 

Nifty 

Infra index 

Market cap CMP Target Up/ EPS (Rs) P/E (x) RoE (%) 

Company Rating Rsbn US$ bn (Rs) price Down (%) FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E 

IRB Infra Buy 54.1 1.1 163 235 44 13.6 14.0 18.0 12.0 11.7 9.1 18.6 16 17.1 

Reliance Infra Buy 116 2.3 434 724 67 58.0 60.6 72.6 7.4 7.1 5.9 6.6 6.5 7.3 

GMR Infra Buy 110.4 2.2 28 39 39 (0.3) 0.2 1.2 NA 134.4 22.8 NA 1.0 5.8 

HCC Hold 17.4 0.38 29 33 14 1.2 0.8 1.5 23.9 33.1 18.7 4.7 3.3 5.7 

IVRCL Buy 10 0.20 38 59 55 5.9 5.1 6.7 6.3 7.3 5.6 8.2 6.6 8.1 

Source: Company, Nirmal Bang Institutional Equities Research


Table of Contents 

Cyclical nature of infrastructure sector………………………………………………………………...….03 

Stress case valuation level indicating downturn is already priced in.........…………………….……..04 

Our mode of valuation………………………………………………………………………….……….….07 

RoE trend of BOT projects…………………………………………………………………………………09 

Further earnings downgrade due to rising interest rates to be limited………………………..………11 

Our estimates versus consensus: Improvement expected in FY13…………………………..………12 

Short-term hiccups in order inflow, but long-term growth intact…………………………………….…13 

Road segment: Improvement in order inflow, but at a cost………………………………………….…15 

Power segment: Capacity up, but operational issues hurt future valuation …………………………19 

Key operational issues in power sector and our view ………………………………………….………20 

Funding problems for big scale 12th Plan infrastructure spending ………………………….….……22 

Project execution uncertainty in near term, but FY13 to witness strong growth…………….………23 

Initiating coverage on five infrastructure companies………………………………….……….……….25 

Companies 

IRB Infra……………………………………………………………………………….…………..….……27 

Reliance Infra………………………………………………………………………………...…….….…..41 

GMR Infra……………………………………………………………………………………………..……55 

HCC. ………………………………………………………………………………...………….……….…67 

IVRCL ………………………………………………………………………………...………….……..….79 

2 Infrastructure Sector


Exhibit 1: Fundamentals versus valuation 

Cyclical nature of infrastructure sector 

The infrastructure industry tracks the cyclical nature of the economy, which we have described in phases in 

Exhibit No. 1, and accordingly the valuation parameters change. During FY10-11, the industry shifted from 

the growth phase to the moderation phase because of macro factors like monetary tightening, rising interest 

rates, trimmed gross domestic product (GDP) estimate and slack demand tracking the global slowdown. 

Lower GDP growth, cancellation of orders, subdued Index of Industrial Production (IIP) growth and declining 

profitability of companies are indicating that sector fundamentals are moving from the moderation phase to 

the slowdown phase. We believe it would remain under the slowdown phase in the short term. However, the 

sector’s valuation has already factored in the slowdown phase, as the stocks of infrastructure companies 

have corrected between 60%-75% in the past one year (July 2010-August 2011) & trading at 33% to 47% 

below their five-year historical average PE of 20x-44x and at 0.6x-1.2x their book value of our universe of 

stocks. 

Going ahead, even if the companies’ earnings are subdued in the short term, their stock prices will 

start factoring in the recovery phase expected in FY13. Hence, we believe the stocks are trading at 

below stress case level valuation and provide a good investment opportunity for investors. 

Fundamentals 

moving from 

moderation to 

slowdown 

Current valuation 

Source: Nirmal Bang Institutional Equities Research 


Jan-09 

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Feb-11 

Apr-11 

Jun-11 

Sep-11 


Stress case valuation level indicating downturn is already priced in 

During the past one year, the infrastructure sector’s revenues (infrastructure developers and construction 

companies) have gone up by 17% and earnings by 6.3%. However, given the multiple issues such as slower 

order inflow, rising interest rates, regulatory issues, delay in project execution and depressed return ratios, the 

stock prices of infrastructure companies have corrected by around 60% to 75% between July2010-August 

2011. Post correction, the stocks are trading at 33% to 47% discount to their five-year historical average PE of 

20x-44x and at 0.6-1.2x book value, thereby appearing attractive for investment. The stocks are trading 

below their historical trough valuation, close to the levels witnessed after the Lehman collapse, which 

we believe is unjustified (as the companies are better placed in terms of order book-to-bill ratio, 

leverage and return ratios). If we adjust the embedded value of investments in stock prices of construction 

companies, they are trading at a PE multiple of 4x-6x on FY13. Hence, we believe the infrastructure stocks are 

trading below stress case valuation level and have factored in the worst case scenario. 

Exhibit 2: Stock price returns 

Stock returns (%) 

Companies Revenue (YoY %) PAT (YoY %) 1 month 3 months 6 months 1 year 

IRB Infrastructure 43.0 17.0 3.8 4.0 (12.8) (42.7) 

IVRCL 2.6 (25.0) 1.6 (40) (49) (77.8) 

GMR Infrastructure 26.0 N/A 0.5 (8.2) (11.2) (51.7) 

HCC 12.3 37.0 2.9 (1.6) (20.6) (51.9) 

Reliance Infrastructure 2.7 2.1 (3.7) (20.0) (31.9) (59.2) 

Source: Bloomberg, Nirmal Bang Institutional Equities Research 

Exhibit 3: Infrastructure stocks versus Nifty performance 

330 

280 

230 

180 

130 

80 

30 

Over-expectation post Congressled 

government in majority 

Dubai ,Telangana issues 

Scams 

Rising interest 

rates & earnings 

cut 

Exhibit 4: Coverage universe 


Investment comfort based on valuation parameters 

In FY12, we expect the construction companies to report a decline in return ratios following moderate growth 

in earnings. However, during FY13, these companies would report robust growth driven by ongoing 

concerns waning and the low base of FY12, thereby improving the return ratios. We believe the current 

valuation indicates the risks and concerns have been factored in and investor sentiment towards the 

sector is at its lowest level. Hence, we expect a re-rating of the sector to take place. Based on the riskreward 

structure, the infrastructure sector provides a good investment opportunity. 

Market cap CMP Target Up/ EPS (Rs) P/E (x) RoE (%) 

Company Rating Rsbn US$ bn (Rs) price Down (%) FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E 

IRB Infra Buy 54.1 1.1 163 235 44 13.6 14.0 18.0 12.0 11.7 9.1 18.6 16 17.1 

Reliance Infra Buy 116 2.3 434 724 67 58.0 60.6 72.6 7.4 7.1 5.9 6.6 6.5 7.3 

GMR Infra Buy 110.4 2.2 28 39 39 (0.3) 0.2 1.2 NA 134.4 22.8 NA 1.0 5.8 

HCC Hold 17.4 0.38 29 33 14 1.2 0.8 1.5 23.9 33.1 18.7 4.7 3.3 5.7 

IVRCL Buy 10 0.20 38 59 55 5.9 5.1 6.7 6.3 7.3 5.6 8.2 6.6 8.1 

Source: Company, Nirmal Bang Institutional Equities Research 

GMR Infra R-Infra IVRCL IRB Infra HCC Nifty 



Exhibit 5: IVRCL – Valuation trend 

(x) 

25 

20 

15 

10 

5 

0 

Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 

EV/EBITDA 

5 year avg 


(x) 

40 

35 

30 

25 

20 

15 

10 

5 

0 


P/E 

5 year avg 

Exhibit 6: IRB Infrastructure –Valuation trend 

(x) 

16 

14 

12 

10 

8 

6 

4 

2 

0 

Sep-08 Sep-09 Sep-10 Sep-11 

EV/EBITDA 

4 year avg 

(x) 

30 

25 

20 

15 

10 

5 

0 


P/E 

4 year avg 


Exhibit 7: HCC-Valuation trend 

(x) 

25 

20 

15 

10 

5 

0 


EV/EBITDA 

5 year avg 


(x) 

100 

90 

80 

70 

60 

50 

40 

30 

20 

10 

- 


P/E 

5 year avg 

Exhibit 8: GMR Infrastructure *–Valuation trend 

(x) 

60 

50 

40 

30 

20 

10 

0 

Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 

EV /EBITDA 

5 year avg 


(x) 

5.0 

4.5 

4.0 

3.5 

3.0 

2.5 

2.0 

1.5 

1.0 

0.5 

0.0 


Note: *PE chart not given as GMR reported loss for past 2 quarters 

P/B 

5 year avg 



Exhibit 9: Reliance Infrastructure – Valuation trend 

(x) 

120 

100 

80 

60 

40 

20 

0 


EV/EBITDA 

5 year avg 


(x) 

60 

50 

40 

30 

20 

10 

0 


P/E 

5 year avg 


Stocks trading below book value 

Exhibit 10: Reliance Infrastructure P/BV 

(x) 

5.0 

4.5 

4.0 

3.5 

3.0 

2.5 

2.0 

1.5 

1.0 

0.5 

0.0 



Exhibit 12: IRB Infrastructure P/BV 

(x) 

4.5 

4.0 

3.5 

3.0 

2.5 

2.0 

1.5 

1.0 

0.5 

0.0 

P/B 

5 year avg 

Sep-08 Jun-09 Mar-10 Dec-10 Sep-11 

P/B value 

4 year avg 


Exhibit 11: IVRCL P/BV 

(x) 

5.0 

4.5 

4.0 

3.5 

3.0 

2.5 

2.0 

1.5 

1.0 

0.5 

0.0 



Exhibit 13: HCC P/BV 

(x) 

4.0 

3.5 

3.0 

2.5 

2.0 

1.5 

1.0 

0.5 

0.0 


P/B 

5Y average 


P/B 

5 year avg 



Exhibit 14: SOTP Valuation 

Our mode of valuation 

We have used the SOTP method for valuation of infrastructure stocks. We have valued core construction 

business on a one-year forward PE and assigned the multiple at a discount to five-year historical average 

based on company fundamentals and financial situation. We have valued the BOT (Build, Own, Transfer) 

projects (like road, power, airport and metro rail) on either the P/BV method or DCF (discounted cash flow 

method), depending on project visibility. For DCF valuation, we have taken cost of equity (CoE) of 15% to 

17%, depending on the status of the project. We believe DCF is the best method to value infrastructure asset 

portfolio, given its capital intensive and longer duration predictable cash flow. However, in some cases, we 

have taken the P/BV valuation. Listed subsidiaries are valued at a 25% to 30% holding discount to their 

current market prices. 

Coverage universe 

We initiate coverage on five companies with a Buy rating on IRB Infrastructure, Reliance Infrastructure, 

GMR Infrastructure and IVRCL, as we believe they are best placed in terms of execution track record, 

Balance Sheet strength and valuation parameters. Despite attractive valuation, we assign a Hold rating to 

HCC as we believe that higher leverage and the Lavasa issue will cap any upside. 

CMP Mkt Cap Construction Road Power Metro rail Airport Others Target Rating 

Companies Rs Rsbn Rs/share Price (Rs) 

IRB infrastructure 163 54.1 84.0 151.0 - - - - 235 Buy 

Reliance Infrastructure 434 116 121.0 149.0 373.0 27.0 - 54.0 724 Buy 

GMR Infrastructure 28 110.4 - 2.9 12.0 - 20.0 3.8 39 Buy 

HCC 29 17.4 11.0 14.0 - - - 8.0 33 Hold 

IVRCL 38 10 53.0 - - - - 6.0 59 Buy 




Exhibit 15: Comparable valuation 

Construction Company HCC IVRCL 

Infrastructure developers 

Sadbhav 

Engineering* 

NCC* 

Patel 

Engineering* 

Simplex 

Infra* 

Stock price (Rs) 29 38 133 66 97 230 

Market cap (Rsbn) 17.4 10 19.9 16.8 6.7 11.3 

Market cap ($ bn) 0.38 0.2 0.42 0.35 0.14 0.24 

Revenue 

FY12E (Rsbn) 47.4 63.7 27.6 57.1 29.9 54.3 

FY13E 55.3 75.0 32.0 66.4 66.4 62.0 

EPS (Rs/stock) 

FY12E 0.8 5.1 9.6 5.8 14.4 24.3 

FY13E 1.5 6.7 11 7.1 14.9 30.5 

Book Value (Rs/stock) 

FY12E 25.1 76.8 52.2 97.2 216.3 246.3 

FY13E 26.8 82.8 61.8 103.3 211.0 275.2 

P/E (x) 

FY12E 34.2 7.3 13.9 11.3 6.7 9.5 

FY13E 19.4 5.6 12.1 9.4 6.5 7.6 

P/BV (x) 

FY12E 1.1 0.5 2.6 0.7 0.4 0.9 

FY13E 1.0 0.4 2.2 0.6 0.5 0.8 

EV/EBITDA (x) 

FY12E 9.2 5.7 8.0 7.3 6.7 5.2 

FY13E 8.8 5 6.8 6.3 6.5 4.5 

RoE (%) 

FY12E 3.6 6.6 20.8 6.3 6.3 10.4 

FY13E 5.7 8.1 20.1 7.1 5.9 11.8 

Infrastructure Developers GMR Infra IRB Infra Reliance Infra L&T GVK Power JP Associates 

Stock price (Rs) 28 163 434 1,451 16.6 67 

Market cap (Rs bn) 110.4 54.1 116.5 886.9 26.2 143.0 

Market cap ($ bn) 2.2 1.1 2.3 18.8 0.55 3.0 

Revenue 

FY12E (Rsbn) 71.1 31.9 186.1 633 22 146 

FY13E 105.3 45.9 221.9 752.1 27.6 168.2 

EPS (Rs/stock) 

FY12E 0.2 14.0 60.7 83.1 1.3 4.3 

FY13E 1.2 18.0 72.8 98.5 1.6 5.6 

Book Value (Rs/stock) 

FY12E 24.7 87.2 925.0 436.3 25.5 50.8 

FY13E 26.0 105.1 989.4 505.9 27.4 54.5 

P/E (x) 

FY12E 144 11.7 7.1 17.4 13.0 15.8 

FY13E 24.4 9.1 5.9 14.0 10.5 12.1 

P/B V (x) 

FY12E 1.2 1.9 0.5 3.3 0.7 1.3 

FY13E 1.2 1.6 0.4 2.9 0.6 1.2 

EV/EBITDA (x) 

FY12E 15.6 4.0 5.5 12.2 10.9 9.3 

FY13E 9.5 3.2 4.5 10.4 7.2 12.1 

RoE (%) 

FY12E 1.0 16.0 6.5 19.6 5.0 8.7 

FY13E 5.9 17.1 7.3 19.8 5.9 10.4 

Note: *Bloomberg consensus 




Exhibit 16: ABC expressway 

RoE trend of BOT projects 

Infrastructure projects are capital intensive, highly leveraged, have a long gestation period and a low operating 

cost. Therefore, in the initial phase, post commercial operation capacity charges (depreciation and interest 

costs) are higher, which suppresses margins and thereby the return ratios. However, infrastructure projects 

generally have a predictable cash flow, long-term inflation-linked income stream and a low loan default rate 

and therefore we look at the returns generated by the project in terms of equity IRR and value in terms of 

DCF. 

Case study 

We have analysed here a BOT road project costing Rs12.9bn having a concession period of 15 years. We 

have assumed traffic growth of 5% and interest rate of 11% per annum. Based on our analysis, we have seen 

that in the initial five years the company’s returns ratio was low, but the next five years’ returns ratio was high. 

Hence, earnings-based valuation will not give the right valuation for its assets. We think the DCF model is the 

best way to value BOT assets, as it takes into account long-term free cash flows after factoring in capex 

phasing, debt repayment and working capital requirement. BOT projects have a predicable future cash flow 

and a definite concession period, giving a fixed valuation horizon and also there is no need to assume longterm 

growth rate. 

ABC Expressway 

Length of the highway (km) 206 

Total project cost (Rsmn) 12,920 

Equity (Rsmn) 3,230 

Debt (Rsmn) 9,690 

Total 12,920 

Concession period (Year) 15 

Traffic growth rate (%) 5% 

Interest rate on term loans (%) 11% 

Discounting rate for FCFE (%) 15% 

Exhibit 17: Project RoE, RoCE trend 

(%) 

30 

25 

20 

15 

10 

5 

0 

(Yr) 

Low return ratio 

High return ratio11 

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 

RoE (%) RoCE (%) 


Exhibit 18: Infrastructure companies’ RoCE trend 


Exhibit 19: Infrastructure companies’ RoE trend 

(%) 

16 

(%) 

25 

14 

12 

10 

8 

6 

4 

2 

0 

FY08 FY09 FY10 FY11 FY12E FY13E 

IRB Infra Reliance Infra GMR Infra HCC IVRCL 

20 

15 

10 

5 

0 

(5) 

(10) 

(15) 


Loss reported due to higher 

capacity charges 

IRB Infra Reliance Infra GMR Infra HCC IVRCL 





Further earnings downgrade due to rising interest rates to be limited 

Rising interest rates have a two-way impact on infrastructure companies. On the one hand, it increases the 

interest outflow which impacts profitability and on the other, the rise in cost of equity lowers the intrinsic value 

of a project. During January 2010 & September 2011, FY12 revenue estimates (Bloomberg consensus) have 

been downgraded by 11% and FY13 revenue estimates by 5%. PAT estimates have been downgraded by 

33% and 31% for FY12 and FY13, respectively. Based on our analysis, a 100bps rise in interest rate impacts 

the pure EPC players profit by 6% to 7%. Therefore, we believe the higher earnings downgrade than the 

actual impact of the increase in interest rates was due to expectations of a further hike in rates. We also 

believe that even in a worst case scenario, when interest rates increase by 50bps, the earnings downgrade 

will be limited. 

Exhibit 20: Bloomberg consensus 

Revenue (Rsmn) EBITDA (Rsmn) EBITDA margin (%) PAT (Rsmn) 

FY12E Jan-2010 Sep-2011 YoY(%) Jan-2010 Sep-2011 YoY(%) Jan-2010 Sep-2011 Jan-2010 Sep-2011 YoY(%) 

GMR Infrastructure 60,432 64,878 7.4 27,066 22,134 (18.2) 44.8 34.1 4,903 375 (92.4) 

HCC 57,607 46,505 (19.3) 7,564 6,035 (20.2) 13.1 13.0 2,088 416 (80.1) 

IRB Infrastructure 36,669 32,838 (10.4) 14,079 13,412 (4.7) 38.4 40.8 5,050 4,952 (1.9) 

IVRCL 88,954 60,719 (31.7) 8,487 5,402 (36.3) 9.5 8.9 4,003 1,315 (67.2) 

Reliance Infrastructure 203,087 189,703 (6.6) 24,818 27,745 11.8 12.2 14.6 18,868 16,275 (13.7) 

Total 446,748 394,643 (11.7) 82,014 74,727 (8.9) 18.4 18.9 34,912 23,333 (33.2) 

FY13E 

GMR Infrastructure 89,218 91,958 3.1 42,310 36,915 (12.8) 47.4 40.1 11,691 3,552 (69.6) 

HCC 66,723 52,972 (20.6) 8,740 6,878 (21.3) 13.1 13.0 2,400 703 (70.7) 

IRB Infrastructure 34,614 42,961 24.1 16,495 16,097 (2.4) 47.7 37.5 4,557 5,534 21.4 

IVRCL 122,396 70,199 (42.6) 11,619 6,481 (44.2) 9.5 9.2 5,108 1,695 (66.8) 

Reliance Infrastructure 203,693 231,309 13.6 34,928 34,680 (0.7) 17.1 15.0 23,411 21,095 (9.9) 

Total 516,643 489,399 (5.3) 114,091 101,049 (11.4) 22.1 20.6 47,166 32,579 (30.9) 

Source: Bloomberg 

Impact of high interest rates on construction, infrastructure companies 

As per our analysis, a 100bps hike in interest rates impacts pure EPC (engineering, procurement and 

construction) profits by 6% to 7% and FCFE by 4% to 5%. Looking at the earnings downgrade and price 

correction in the past one year, we believe the market has already discounted higher interest rates than the 

actual rise in rates. Therefore, in case the interest rates increase by 50bps, they will not impact the consensus 

earnings and the target price. On the other hand, if the interest rates stabilise after rising by 25bps (consensus 

estimate), the stock prices of infrastructure companies should react positively. 

Key assumptions common across different asset classes: 

• Asset portfolio: Debt-equity ratio of 70:30 

• Working capital of 30% and asset turnover of 1.5x 

• Interest rate of 11% per annum 

• We have kept everything constant except the interest rate. 

Exhibit 21: Interest impact sensitivity 

(Rsmn) Construction B/S 

Interest rate (%) 10 11 12 Asset turnover 1.5x 

Revenue 100 100 100 Assets 66.7 

EBITDA 10 10 10 Debt 33.33 

Interest costs 3.3 3.7 4 

Depreciation 1.7 1.7 1.7 

PBT 5 4.7 4.3 

Tax @33% 1.7 1.5 1.4 

PAT 3.4 3.1 2.9 

Change (%) (6.3) (6.7) (7.1) 




Stability in interest rate cycle should lead to gains in stock prices 

The government gave a clear indication in the Economic Survey-2011 that in the short-term there will be 

higher growth, higher inflation and higher interest rates. To curb rising inflation, RBI raised the repo rate by 

350bps between January 2010 & September 2011, which is 75bps lower than the previous peak witnessed in 

July 2008. Interest rate is one of the key factors that influence growth in infrastructure investments, especially 

from the private sector. Consensus estimate expects the interest rates to go up by another 25bps and then 

stabilise at that level (may not correct sharply as in the previous cycle of FY09). Historically, whenever the 

interest rates peak, the infrastructure stocks outperform (during FY06, interest rates stabilised and it led to 

outperformance of these stocks). Hence, we believe that when the interest rates stabilise, the infrastructure 

sector stocks should outperform. 

Exhibit 22: Bond yield vs Infrastructure stock prices 

320 

280 

240 

200 

160 

120 

80 

40 

Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 

Bond yield GMR Infra R-Infra IVRCL IRB Infra HCC 

Source: Bloomberg, Company, Nirmal Bang Institutional Equities Research 

Exhibit 23: Repo rate trend 

(%) 

10 

9 

8 

7 

6 

5 

4 

3 


Source: Reserve Bank of India 



NBIE estimates versus consensus: Improvement expected in FY13 

Bloomberg consensus estimate on net profit has been downgraded by 31% for FY13 between January 

2010 & September 2011 for our universe of companies, in which net profit for pure EPC players has been 

downgraded by around 65% to 75% in order to factor in the impact of slowdown in revenue growth and 

higher interest costs. We believe the expectations have clearly been negative. 

• Our FY13 earnings estimate for companies in our universe is higher than the consensus, as we are 

expecting the full benefits of pick-up in order execution. 

• We believe infrastructure companies would report revenue CAGR of 16% during the period FY11-13 

(higher than FY09-11 CAGR of 13%) driven by low base and pick-up in order execution. 

Exhibit 24: Consensus estimate vs our estimate 

FY12E 

Revenue (Rsmn) Bloomberg cons. NBIE est. Variance (%) Bloomberg Cons. NBIE est. Variance (%) 

GMR Infra 64,878 71,096 9.6 91,958 105,284 14.5 

HCC 46,505 47,414 2.0 52,972 55,267 4.3 

IRB Infra 32,838 31,941 (2.7) 42,961 45,863 6.8 

IVRCL 60,719 63,748 5.0 70,199 74,998 6.8 

R-Infra 189,703 205,805 8.5 231,309 248,878 7.6 

Total 394,643 420,004 6.4 489,399 530,290 8.4 

FY13E 

EBITDA (Rsmn) FY12E FY13E 

GMR Infra 22,134 21,644 (2.2) 36,915 38,014 3.0 

HCC 6,035 5,903 (2.2) 6,878 6,936 0.8 

IRB Infra 13,412 13,543 1.0 16,097 17,247 7.1 

IVRCL 5,402 5,487 1.6 6,481 6,585 1.6 

R-Infra 27,745 28,681 3.4 34,680 36,884 6.4 

Total 74,727 75,258 0.7 101,049 105,666 4.6 

PAT (Rsmn) FY12E FY13E 

GMR Infra 375 811 116.4 3,552 4,777 34.5 

HCC 416 514 23.5 703 907 29.0 

IRB Infra 4,952 4,642 (6.3) 5,534 5,967 7.8 

IVRCL 1,315 1,350 2.7 1,695 1,777 4.9 

R-Infra 16,275 17,140 5.3 21,095 22,678 7.5 

Total 23,333 24,457 4.8 32,579 35,323 8.4 



Dec-04 

Mar-05 

Jun-05 

Sep-05 

Dec-05 

Mar-06 


Jun-06 

Sep-06 

Dec-06 

Mar-07 

Jun-07 

Sep-07 

Dec-07 

Mar-08 

Jun-08 

Sep-08 

Dec-08 

Mar-09 

Jun-09 

Sep-09 

Dec-09 

Mar-10 

Jun-10 

Sep-10 

Dec-10 

Mar-11 

Jun-11 

Sep-11 

Exhibit 25: IIP vs repo rate 

(%) 

16 

14 

12 

10 

8 

6 

4 

2 

0 

Source: Reserve Bank of India, MOSPI 

Short-term hiccups in order inflow, but long-term growth intact 

During FY10-11, concerns over the global macro environment (EU sovereign debt crisis) decelerated the 

corporate capex cycle, while domestic factors like corruption-related investigations, high fiscal deficit, state 

assembly elections, rising interest rates and environmental clearance issues postponed the infrastructure 

investment plans of the government. Infrastructure spending so far has played catch up with the rise in GDP – 

going up from around 5% of GDP in 2002 to 8.5% in FY10. GDP growth is now seen slowing by nearly 100 

bps to around 7.5% in FY12 from 8.5% in FY11. The impact of slowing growth on construction companies is 

already visible, while on the other hand, effective interest rates have gone up by over 350 bps, thereby 

impacting the profitability of the sector. This has led to slower growth in incremental order book of 

infrastructure companies in the past one year. We believe that in the short term, the pressure on incremental 

order inflow will continue. 

Jan-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 

IIP 

Repo rate 

12th Plan (FY12-17) infrastructure target of US$1trn 

Exhibit 26: Order inflow trend 


Based on initial estimates of the Planning Commission, under the 12th Plan, total investment on infrastructure 

is estimated at US$1,000bn. Even if we consider a slippage of 25%, it is still 100% higher investment 

opportunity for infrastructure companies over the 11th Plan. Based on our sectoral analysis for expected 

investment under the 12th Plan, road and power segments would account for around 45% of total investment, 

showing some improvement in order inflow, but these segments are currently facing a lot of problems. 

Exhibit 27: 12th Plan infrastructure investment and GDP growth 

Year 2012-13 2013-14 2014-15 2015-16 2016-17 12th Plan 

GDP at market prices($bn) 1,720.6 1,875.5 2,044.3 2,228.3 2,428.8 10,297.5 

Rate of GDP growth (%) 9.0 9.0 9.0 9.0 9.0 9.0 

Infrastructure investment as a % of GDP 9.0 9.5 9.9 10.3 10.7 10.0 

Infrastructure investment ($bn)@Rs40/$ 154.9 178.2 202.4 229.5 259.9 1,024.8 

Source: Planning Commission 

(%) 

60 

50 

40 

30 

20 

10 

0 

Impact of credit crisis 

Corruption-related investigations and rise in interest 

rates 

EU sovereign debt concern 

Pick-up in NHAI 

orders 

Exhibit 28: Segmental investment allocation 

(Rsbn) 

16,000 

14,000 

12,000 

10,000 

8,000 

6,000 

4,000 

2,000 

- 

Electricity 

Roads 

&Bridges 

Telecom Railways Irrigation Water 

supply & 

12th Five Year Plan 

sanitation 

11th Five Year Plan 

Others 

Source: Planning Commission, Nirmal Bang Institutional Equities Research 

Exhibit 29: Infrastructure investment to surge higher 

(%) (US$bn) 

12 

1,200 

9.5 

9.9 

10.3 10.7 

10.0 

10 

9.0 

1,000 

8.4 

8 

800 

6 

600 

4 

400 

2 

200 

0 

0 

2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 12th Plan 

Infrastructure investment as % of GDP Infrastructure Investment 



4.1 

IRB Infrastructure 

3.1 

2.5 

HCC 

5.7 

3.0 

IVRCL 

3.1 

3.3 

3.3 

L&T 

6.1 

3.5 

Sadhbav Engineering 

4.6 

2.8 

2.9 

Patel Engineering 

4.9 

2.1 


Nagarjuna Construction 

5.5 

Ahluwalia Contracts 

4.2 

3.2 

4.1 

Supreme Infrastructure 

2.6 

Simplex Infrastructure 

4.6 

3.8 

2.9 

Infrastructure average 

3.7 

3.1 

Despite slowdown in order inflow, order book/bill at around3.3x 

Infrastructure spending has a higher correlation with GDP growth and subsequently, on order inflow. As per 

Bloomberg consensus estimate, GDP growth is seen slowing by nearly 100bps to around 7.5% in FY12 from 

8.5% in FY11 coupled with effective interest rates rising by 350bps over FY10 till date. This has impacted 

order inflow growth in the past one year. However, due to robust order inflow during FY10 ( around 65% to 

75% of order book) and slower project execution, the current order book of the sector stands at around 3.3x, 

thereby providing comfort on earnings visibility for the next three years. 

Exhibit 30: FY11 Order book-to-bill ratio 

(x) 

5.0 

4.0 

3.0 

2.0 

4.6 

4.2 

3.7 

3.1 3.0 

3.7 

3.2 

2.0 

3.7 

3.0 

3.3 

1.0 

0.0 

Source: Company,Nirmal Bang Institutional Equities Research 

Exhibit 31: Order book-to-bill ratio of construction companies 

(x) 

7.0 

6.0 

5.0 

4.0 

3.0 

2.0 

1.0 

0.0 

FY07 FY08 FY09 FY10 FY11 

HCC IVRCL NCC Patel Engg. Simplex infra 




Exhibit 32: NHAI projects awarded recently 

Road segment: Improvement in order inflow, but at a cost 

In the past six months (April 2011 onwards), NHAI (National Highways Authority of India) awarded projects 

worth Rs164bn (around 1,851km) and gave a clear timeline (with project-wise details) for awarding projects 

worth nearly Rs483bn during the next six months. However, the delay in order NHAI pick-up in FY11 and 

lack of momentum in other sectors, coupled with existing projects nearing completion, increased the 

competition for projects. This is visible in the bidding pattern for nine projects awarded this year (NHAI had 

estimated aggregate outflow as grants, but on the other hand the developers promised a certain premium in 

most of the projects). 

Traction in road segment’s order inflow 

NHAI is expected to tender road projects of around 24,000km in the next three years, out of which around 

8,000km road projects are expected to be awarded in FY12. During the past six months (April 2011 onwards), 

NHAI awarded projects worth Rs164bn (around 1,851km) and gave a clear timeline (with project-wise details) 

for awarding projects worth around Rs483bn in the next six months. During FY10-11, NHAI had planned to 

award around 18,800km, but only 8,450km of road projects (around 50% of planned projects) were awarded 

due to a variety of reasons like (land acquisition problems, shifting of utilities, inaccurate preparation of 

detailed plan report (DPR), non-receipt of environmental, forest and railway clearances, cost over-run, delay in 

commissioning, legal disputes and corruption cases). We believe that most of the issues relating to the project 

have been resolved after the implementation of the B. K. Chaturvedi report recommendations (refer Exhibit 

no.36) and NHAI seems better placed to speed up the award of projects and meet its target unhindered. The 

recent momentum in awarding projects (~25% of planned projects in four months) and newer achievable 

targets give us more confidence. 

NHDP status (as on 30 April 2011) Phase Total 

I II III IV V VI VII 

Total length (km) 7,609 7,300 12,109 14,799 6,500 1,000 700 50,017 

Completed till date (km) 7,076 5,683 2,294 0 596 - - 15,649 

Completion rate as a % of total 93.0 77.8 18.9 - 9.2 - - 31.3 

Completion from 30 April 2010- 31 March 2011 (km) 97 616 645 - 353 - - 1,711 

Under implementation (UI) (km) 513 1,038 5,805 765 1,918 0 41 10,080 

UI as a % of total 6.7 14.2 47.9 5.2 29.5 0.0 5.9 20.2 

Balance length for award (BFA) (km) 20 421 4,010 14,034 3,986 1,000 659 24,130 

BFA as a % of total 0.3 5.8 33.1 94.8 61.3 100.0 94.1 48.2 

Investments ($bn) 1.26 6.60 9.97 8.85 3.71 3.71 34.09 

Source: NHAI, Nirmal Bang Institutional Equities Research 

Exhibit 33: State-wise PPP road projects 

Completed Ongoing Upcoming 

Length Project cost Length Project cost Length Project cost Project cost 

(km) (Rsmn) (km) (Rsmn) (km) $ bn Rsbn 

Rajasthan 416 1,200 352 6,600 1,309 0.4 17.20 

Madhya Pradesh 1,629 14,200 974 24,900 914 0.4 17.70 

Karnataka 63 1,900 238 5,800 2,650 1.3 56.43 

Gujarat 507 32,600 644 29,300 329 0.5 21.30 

Maharashtra 403 25,000 2,267 50,500 1,839 1.6 74.20 

Andhra Pradesh 45 2,100 655 55,900 2,086 1.4 60.90 

Tamil Nadu 113 600 52 15,000 251 - - 

Uttar Pradesh - - 1,117 400 2,924 3.9 177.00 

Total 3,176 77,600 6,299 1,88,400 12,302 9.4 424.7 



FY02 

FY03 

FY04 

FY05 

FY06 

FY07 

FY08 

FY09 

FY10 

FY11 

Apr'10-Jul'10 

Jul'10-Mar'11 

Apr'11-Aug'11 

FY12E 

FY13E 

FY14E 

FY15E 


Exhibit 34: Award of orders per day (km) 

25 

( Order awarding Kms/day) 

21.9 21.9 21.8 

20 

15 

10 

5 

0 

10.4 

1.0 0.9 

3.6 

13.0 

4.8 3.4 1.8 

9.2 

14.0 

7.4 6.6 

12.3 

16.8 

Exhibit 36: Recent policy reforms 


Exhibit 35: Summary of award of contracts (2011-12) 

Month Number of projects Project cost (Rsbn) 

April 2011-Aug 2011 (awarded) 10 163 

September 2011 7 66 

October 2011 7 31 

November 2011 12 91 

December 2011 5 37 

January 2012 5 53 

February 2012 7 91 

March 2012 4 37 

Total (km) 7,994 569 

Award of annuity and EPC projects 1,000 - 

Award of projects - state governments 1,000 - 

Total contracts awarded in FY12(km) 9,994 - 


100% FDI under the automatic route is permitted for all road development projects 

100% income tax exemption for a period of 10 years 

NHAI agrees to provide grants/viability gap funding for marginal projects 

The maximum grant provided will be 20% of the project cost. In case the grant is inadequate for making a project commercially viable, an additional grant of 

up to a maximum of 20% of the project cost is possible. 

The time required for construction (typically 24-30 months) is included in the concession period. A concessionaire starts earning revenue from COD, and this 

gives the concessionaire an incentive for early completion of construction. 

A time limit of 180 days is set for achieving financial closure by the concessionaire. In the event of failure, the bid security stands forfeited. 


NHAI project target achievable in FY12 

NHAI has planned month-wise award schedule for BOT (toll) road projects totaling 8,000km for the first 10 

months of FY12. These 59 BOT road projects, having aggregate project cost of Rs647bn, would be developed 

on toll basis. To ensure that the target is met, the government has kept a buffer with an overall pipeline of 

10,000km. Importantly, the calendar is front-ended, with 67% of the 8,000km (Rs569bn) BOT road projects 

scheduled to be awarded by January 2012, which would take care of any delay in the award of projects. 

Looking at the recent momentum in awarding projects (around 25% of planned) and project pipeline at the 

bidding stage, we believe the FY12 target will be achieved. 



Exhibit 37: Projects to be awarded in FY12 

Project Name State Estimated Project Cost (Rsbn) 

Eastern Peripheral Expressway Uttar Pradesh/Haryana 27.0 

Kundapur-Karnataka/Goa Border Karnataka 19.7 

Jabalpur-Katani-Rewa Madhya Pradesh 19.1 

Vijaywada-Elluru-Gundugolanu Andhra Pradesh 17.4 

Barwa Adda-Panagarh West Bengal 16.7 

Allahabad Bypass-Varanasi Uttar Pradesh 15.2 

Etawah-Chakeri Uttar Pradesh 14.9 

Agra-Etawah Bypass Uttar Pradesh 14.9 

Chakeri-Allahabad Uttar Pradesh 14.3 

Panikoili - Rimuli Orissa 14.1 

Varanasi-Sultanpur Uttar Pradesh 13.5 

Chnadikhole-Dubari-Talchar Orissa 12.9 

Maharashtra/Karnataka Border-Sangareddy Karnataka 12.5 

Solapur-Maharashtra/Karnataka Border Maharashtra 12.4 

Angul-Sambalpur Orissa 12.2 

Raipur-Bilaspur Chhattisgarh 12.2 

Vikravandi-Kumbakonam-Thanjavur Tamil Nadu 11.7 

Patna-Buxar Bihar 11.3 

Cuttack-Angul Orissa 11.2 

Madurai-Parmakudi-Ramanathapuram Tamil Nadu 11.0 

Amravati-Dhule-Gujarat Border Maharashtra 10.8 

Gwalior-Shivpuri Madhya Pradesh 10.6 

Hospet-Chitradurga Karnataka 10.5 

Aurangabad- Saraipally- Orissa Border Chhattisgarh 10.2 

Lucknow-Sultanpur Uttar Pradesh 10.1 

Rohtak-Hissar Haryana 9.5 

Solapur-Maharashtra/Karnataka Maharashtra 9.5 


Rising competition to impact return 

We have seen that delay in NHAI order pick-up, lack of momentum in other sectors coupled with existing 

projects nearing completion have increased the competition for infrastructure projects. This was visible in the 

bidding pattern for nine projects awarded this year (NHAI had estimated an aggregate outflow as grants, but 

on the other hand the developers promised a certain premium in most of the projects). We believe the trend of 

competitive bidding will be over as we have seen a pick-up in order inflow and visibility in the bulk of orders to 

be awarded by NHAI in FY12 and FY13. 

Exhibit 38: New projects awarded 

New projects awarded Total cost (Rsmn) Grant (premium) Rsmn Company name 

Kota-Jhalawar 5,300 35 Keti Construction 

Nagpur- Wainganga Bridge 4,841 274 JMC Projects 

Dhankuni-Kharagpur 14,000 1261 Ashoka Buildcon 

Ahmedabad-Vadodara 49,200 (3,090.00) IRB Infrastructure 

Beawar-Pali-Pindwara 26,000 (2,510.00) L&T 

Kishangarh-Udaipur-Ahmedabad 5,387 (636.00) GMR Infrastructure 

BarwaAdda-Panagarh 16,700 1060 DS Construction 

Jabalpur- Lakhnadon 7,800 VGF-370 Gannon Dunkerley 

Krishnagiri-Tindivanam 6,200 Semi-annual payments of Rs400mn Transstroy-OJSC consortium 

Shivpuri-Dewas 28,150 1809 GVK Infrastructure 

Total 163,578 - - 




Exhibit 39: Competition intensifies 

Projects 

Premium (Rsbn) 

Rsbn L1 L2 L3 

Ahmedabad-Vadodra 3.09 1.90 1.40 

Beawar-Pali-Pindwara 2.50 2.30 2.10 

Kishangarh-Udaipur-Ahmedabad 6.36 5.20 4.30 

Shivpuri-Dewas 1.80 1.10 1.00 

Source: Company,NHAI, Nirmal Bang Institutional Equities Research 

Delay in awarding projects 

NHAI has published the results of its annual pre-qualification exercise for PPP projects in the road segment. 

The 102 developers pre-qualified through this exercise are not required to submit applications for projectspecific 

qualification. The annual pre-qualification would enable NHAI to reduce the award cycle for new 

projects and help meet its target of awarding projects totaling 8,000km in FY12. NHAI is trying to further 

shorten the award cycle by shifting to e-tendering new projects. It has taken up three pilot projects to test the 

system from August 2011, and going ahead all tenders will be awarded through the e-tendering route. 

Exhibit 40: Pre-qualification criteria for companies 

Range (Rsbn) 

No of companies 

0-10 47 

20-10 21 

20-30 11 

30-40 10 

40-50 5 

50-60 4 

60-70 1 

70-80 1 

80-90 1 

90-100 1 

Source: NHAI 

Exhibit 41: Projects to be awarded on e-tendering basis 

Projects km Bidders 

Jowai-Meghalaya/Assam Border 104 29 

Hospet-Chitradurga 120 37 

Raipur-Bilaspur 125 33 

Agra-Etawa 124 33 

Etawah-Chakeri 160 24 

Rampur-Kathgodam 102 35 

Source: NHAI 


FY03 

FY04 

FY05 

FY06 

FY07 

FY08 

FY09 


FY10 

FY11 

FY12E 

FY13E 

FY14E 

FY15E 

Power segment: Capacity up, but operational issues hurt future valuation 

During the past two years, the power sector witnessed a slowdown in investments due to delay in obtaining 

environmental clearances, financial closure issues relating to equity contribution, timely supply of critical 

components for thermal projects, sourcing of fuel linkage and deteriorating SEBs’ financial status leading to 

low demand. All these factors postponed the investment plans of the government as well as private players. 

We expect the issues related to land acquisition, obtaining various clearances and fuel security to persist. 

However, we have analysed the project portfolios which are at development and planning stage on certain 

landmarks like financial closure, land clearance and equipment order placement. Based on our analysis, we 

have come to the conclusion that around 76GW of projects are going to be commissioned by FY15 even after 

considering 20% to 25% of slippage in ongoing projects. This translates into a CAGR of 20% and completion 

of around 21GW/year of incremental capacity in the first three years of the 12th Plan period. This provides 

strong visibility of accelerated capacity addition in the next three years. Apart from this, the postponed capacity 

would give a push to announcement of new projects during FY12-15. 

Exhibit 42: Achievement ratio of power capacity addition 

Five Year Plan Target (MW) Deficit (MW) Achievement ratio (x) 

7th Plan 22,245 1,193 0.95 

8th Plan 30,538 13,808 0.55 

9th Plan 40,245 20,994 0.48 

10th Plan 41,110 13,827 0.66 

FY08 16,335 7,072 0.57 

FY09 11,061 7,608 0.31 

FY10 14,507 4,922 0.66 

FY11 21,441 9,281 0.57 

Source: CEA 

Exhibit 43: Plan-wise capacity addition 

Break-up (MW) Central sector State sector Pvt sector Total Pvt sector (%) 

FY04 3,035 798 974 4,807 20% 

FY05 2,210 1,169 70 3,449 2% 

FY06 1,420 1,488 661 3,569 19% 

FY07 4,630 1,671 552 6,853 8% 

FY08 3,240 5,273 750 9,263 8% 

FY09 750 1,850 853 3,453 25% 

FY10 2,180 3,118 4,287 9,585 45% 

FY11 4,280 2,759 5,121 12,160 42% 

FY12E 4,750 1,000 6,698 12,448 54% 

FY13E 7,300 3,500 10,780 21,580 50% 

FY14E 7,212 3,500 10,450 21,162 49% 

FY15E 6,600 4,000 10,360 20,960 49% 

Source: CEA, Nirmal Bang Institutional Equities Research 

Exhibit 44: 21 Capacity addition trend 

(GW) 

25 

20 

21.5 21.0 21.0 

15 

10 

6.8 

9.2 

9.5 

12.1 12.5 

5 

3.0 

3.9 3.4 3.5 

3.4 

0 




Key operational issues in power sector and our view 

Mounting losses of SEBs denting power demand 

State electricity boards’ (SEBs) losses have almost doubled from US$6bn to US$12bn in the past three years 

due to increase in the spread between average cost of supply and average power tariff and T&D (transmission 

and distribution) losses. This has led to lower demand from SEBs for merchant power at a higher price. 

Recently, the government passed a resolution to arrest and reverse growing losses of SEBs. As per the 

resolution, SEB loans will be converted into equity to improve their networth, pass-through of any increase in 

power purchase costs, state governments to release subsidies to discoms for ‘below cost’ power supply to 

agriculture and rural households in advance and opening up of discoms for competition through input-based 

distribution franchisee system. We believe the worst is over for SEBs and going forward, their finances will 

gradually improve due to increased power availability via long-term contracts, tariff hike and lower T&D losses. 

Exhibit 45: Yawning gap between ACS, ARR 

Rs/unit FY07 FY08 FY09 

Average cost of supply(ACS) 2.76 2.93 3.4 

Average revenue realised(ARR) 2.27 2.39 2.62 

Revenue GAP (0.49) (0.54) (0.78) 

Gap with subsidy 0.25 0.23 0.33 

Gap on revenue and subsidy realised basis 0.34 0.35 0.6 

Source: PFC, Nirmal Bang Institutional Equities Research 

Exhibit 46: SEBs’ losses 

FY07 FY08 FY09 

Power distribution companies (Rsbn) 

Total income (excluding subsidy) 1,319 1,495 1,704 

Total expenditure 1,599 1,836 2,213 

PAT (without subsidy) (279) (342) (506) 

PAT (with subsidy) (151) (178) (322) 

Subsidy received 128 165 184 

Subsidy as a percentage of revenue (%) 9.7 11.0 10.8 

Subsidy booked 136 195 297 

Subsidy as a percentage of revenue booked (%) 10.3 13.0 17.4 

Genco, transmission and trading P&L A/c (Rsbn) 

Total income (excluding subsidy) 812 862 961 

Total expenditure 795 833 974 

PAT (without subsidy) 11.6 22.0 (20.0) 

PAT (with subsidy) 11.9 22.0 (20.0) 

Total SEB losses (Rsbn) 

Total income (excluding subsidy) 2,131 2,357 2,665 

Total expenditure 2,394 2,669 3,187 

PAT (without subsidy) (267) (320) (526) 

PAT ( with subsidy) (139) (156) (342) 

Total debt (Rs trn) 1.28 1.54 2.4 

Source: PFC, Nirmal Bang Institutional Equities Research 

Pressure on merchant power tariff to continue 

Merchant power rates primarily depend on the deficit level (difference between demand and short-term power 

supply). During 1QFY11, merchant power tariff declined from Rs7-8/unit to Rs3-4/unit (barring assembly 

election states) due to decline in the deficit level. As significant power generation growth is expected across 

central and state government utilities and the private sector, we expect the base deficit to decline meaningfully 

in FY13. Hence, we believe the pressure on merchant rates would continue in future and we have factored in 

Rs 4.25/unit for FY12 and Rs 4.00/unit FY13 in our model. 


Mar-09 

Apr-09 

May-09 

Jun-09 

Jul-09 

Aug-09 

Sep-09 

Oct-09 

Nov-09 

Dec-09 

Jan-10 

Feb-10 

Mar-10 

Apr-10 

May-10 

Jun-10 

Jul-10 

Aug-10 

Sep-10 

Oct-10 

Nov-10 

Dec-10 

Jan-11 

Feb-11 

Mar-11 

Apr-11 

May-11 

Jun-11 

Jul-11 

Aug-11 

Sep-11 

FY02 

FY03 


FY04 

FY05 

FY06 

FY07 

FY08 

FY09 

FY10 

FY11 

FY12E 

FY13E 

FY14E 

FY15E 

Exhibit 47: Merchant power tariff 

(Rs/KWh) June - Sep 09 

12 

Rs5.9KWh 

10 

8 

6 

4 

2 

0 

June - Sep 10 

Rs3.2KWh 

June - Sep 11 

Rs2.82KWh 

Source:IEX 

Fuel security is critical issue 

Currently, 65% of India’s installed power capacity (112GW) is coal-based and 80% of coal requirement is met 

through domestic sources. Going ahead, the commissioning of incremental capacity of 82GW (70% of 

incremental capacity addition-thermal based) in the next three years would push up incremental coal imports 

to 124mtpa over FY11-15E. We believe that constrained infrastructure at ports and unavailability of railway 

wagons to despatch coal to the hinterland would be a major hurdle in the import of coal. Hence, lower coal 

imports and moderate growth in domestic coal production would compel power plants to operate at a lower 

PLF (plant load factor). Based on our analysis in respect of capacity addition and fuel requirement, the power 

plants would operate in the range of 75% to 79% of their capacity. 

Exhibit 48: Coal demand for power generation 

Merchant prices 

FY10 FY11E FY12E FY13E FY14E FY15E 

Coal demand (mt) 411 445 484 553 631 719 

Generation capacity (mw) 84,198 93,918 102,631 117,737 132,550 147,222 

PLF (%) 77.5 76.0 76.0 76.0 77.0 79.0 

Operating capacity (mw) 65,254 71,378 78,000 89,480 102,064 116,306 

Units produced (mn) 571,623 625,271 683,279 783,848 894,079 1,018,838 

Gross calorific value (Kcal/kg) 3,600 3,600 3,600 3,600 3,600 3,600 

Heat rate (kWh/ Kcal) 2,588 2,560 2,550 2,542 2,540 2,540 

Source: CEA, Energy Statistics, Nirmal Bang Institutional Equities Research 

Average 

Exhibit 49: Thermal coal import for power generation 

Y/E March (mt) 

FY10 FY11E FY12E FY13E FY14E FY15E 

Exhibit 50: PLF trend 

(%) 

81 

Coal demand (for power generation) 411 445 484 553 639 728 

79 

Coal production (for power generation) 367 385 404 429 454 482 

Incremental coal production - 18 19 24 26 27 

Thermal coal imports 44 60 80 125 185 246 

Imports ( adjusted for calorific value) 27 37 49 77 115 153 

77 

75 

73 

71 

69 

Incremental imports - 9 12 28 37 38 

Source: CEA, Energy Statistics, Nirmal Bang Institutional Equities Research 




Funding problems for big scale 12th Plan infrastructure spending 

The Planning Commission expects the private sector to contribute 50% of 12th Plan infrastructure spending 

target. Based on our analysis on order inflows in the next two years, road and power segments, in particular, 

are likely to witness a sharp increase in private sector investment. We have assumed that private sector 

investment will be 70% debt-funded and 30% equity-funded and 25% slippage in US$1trn infrastructure 

spending target under the 12 th Plan. Based on this approach, the private sector will raise Rs2.4trn of debt and 

it will be required to pump in Rs1trn as equity per annum. Market has concerns that despite rising bank credit 

to infrastructure projects, banks are unable to fund such projects to the extent of over 50% of their requirement 

and thereby delay financial closure. We agree with the market’s concerns that bank credit is unable to fund the 

projects. However, we believe the recent reforms related to the debt market and financing of infrastructure 

projects would ease raising debt for funding the projects. 

Recent reforms which will ease project funding: 

IIFCL take-out financing is a major development as it addresses the banking sector’s asset-liability 

duration mismatch in lending to infrastructure companies. 

Government has announced the setting up of Infrastructure Debt Funds (IDFs) with an initial corpus of 

US$10bn, which will attract long-term offshore funds at a lower interest rate, 

Introduced tax-free infrastructure bonds - tax exemption of an additional Rs20,000 for individuals. 

Government’s proposal to classify loans to the infrastructure sector as secured lending, which will 

increase the flow of funds towards the sector. 

IIFCL allows raising Rs400bn through tax-free bonds. 

Government and IIFCL to refinance 60% of commercial banks’ loans for PPP (public-private partnership) 

projects over the next 15-18 months 

RBI has introduced a new category of infrastructure financing company with relaxed borrowing limits and 

lower risk weight for borrowing from banks. 

Finance ministry proposes to allow private sector firms to issue long-term infrastructure bonds to raise 

funds for investment in the infrastructure sector. 

Infrastructure bonds can be held to maturity and need not be mark-to-market. 

RBI has changed the classification of build-operate-transfer (BOT) projects to secure from unsecured. 

Government’s expert committee proposes India Infrastructure Fund to refinance bank lending to 

infrastructure projects where construction has been completed. 

RBI allows take-out financing through ECBs for refinancing of rupee loans availed from domestic banks. 

Exhibit 51: Bank credit to power, road and port projects (% of total lending to industry) 

(x) 

25 

23.3 

20 

15 

11.1 

14.4 

16.9 16.9 

18.2 

19.9 

10 

5 

5.0 

6.5 

8.6 

0 

FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 

Source: RBI 



Exhibit 52: Revenue growth 

(%) 

80 

70 

60 

50 

40 

30 

20 

10 

0 

Project execution uncertainty in near term, but FY13 to witness strong growth 

Despite strong order book, the revenue growth was muted during the past one year due to project executionrelated 

issues. The market believes the project execution issues would continue to impact the growth of the 

sector. However, we believe the execution would improve because these issues were more technical (short 

term) rather than structural in nature. 

Reasons for slow execution during last four quarters and our view: 

Companies received the projects, but delays in government-related processes such as formulation of 

contract structures, environmental clearance and land acquisitions slowed down execution. The 

government implemented a number of measures over the past one year like award of a project if 80% of 

land acquisition is completed and one-time technical qualification. We believe these measures would 

ease pre-execution delay and improve project execution. 

During FY10, the ratio of new orders in the overall executable order backlog for the year (i.e. order 

backlog at the beginning of the year plus order inflow during the year) increased. Higher the proportion of 

new orders in the order backlog, lower will be the blended execution, as the new orders take time to reach 

maturity in revenue recognition. 

Other issues like payment issues in Andhra Pradesh, Dubai property crisis and state assembly elections 

slowed down project execution. During the past one year, infrastructure companies have reduced the 

exposure of their order book to the Andhra Pradesh region. The Dubai property crisis has shown signs of 

improvement and state assembly elections are also over now, which will help realty companies. 

Rising contribution of lower execution cycle projects to improve project execution 

During the past two years, the order inflow was biased towards the road segment. This has changed the order 

book composition of most companies and increased the weight of road segment projects in the order backlog. 

Typically, the execution period for a road project is 24-30 months as against a hydro-power project which has 

an execution period of 48-60 months. Shift in order book composition towards lower execution cycle projects 

would improve the conversion ratio in 2HFY12 and FY13. Apart from that, we expect incremental order inflow 

to be driven by road segment projects, which will keep the growth momentum intact. 

FY09 FY10 FY11 FY12E FY13E 

IRB infrastructure Reliance Infrastructure GMR Infrastructure HCC IVRCL 

Exhibit 53: EBITDA growth 

(%) 

120 

100 

80 

60 

40 

20 

0 

(20) 


IRB infra Reliance Infra GMR Infra HCC IVRCL 

Source: Planning Commission, Nirmal Bang Institutional Equities Research 


Exhibit 54: EBITDA margin trend 

(%) 

50 

45 

40 

35 

30 

25 

20 

15 

10 

5 

0 


IRB infra Reliance Infra GMR Infra HCC IVRCL 




Exhibit 55: Recent order inflow trend (April 2011 till date) 

Apr-11 Companies Rsmn Order description 

Sadbhav Engineering. 2,362 EPC project work for Sardar Sarovar Narmda Nigam, Gandhinagar, Gujarat 

Ahluwalia Contracts 5,350 Construction of residential commercial, institutional buildings 

Supreme Infrastructure 3,600 Construction of building complex for Oswal Chemicals 

Punj Llyod 1,140 Railway contract 

Unity Infrastructure 893 Construction of office building in Hyderabad for IRDA 

Pratibha Industries 2,415 Construction and rehabilitation of transmission main for Goa water supply authority 

Pratibha Industries 606 Secures contract for construction of residential building 

Pratibha Industries 1,010 Secures water supply project 

May-11 Companies Rsmn Order description 

HCC 2,986 Construction work of Limbdi branch canal in Gujarat 

Unity Infrastructure 1,980 Construction order 

L&T 35,000 Secures gas-based power plant EPC order from PPN Power 

L&T 14,500 Gets GSPC contract for offshore process platform in KG basin 

Pratibha Industries 2,381 Design and construction of tunnel for Delhi MRTS project 

Unity Infrastructure 1,437 Construction of city road in Nagpur, construction of hostel in Pune 

IVRCL 2,947 Water supply authority order 

5,175 Building construction order 

442 Power plant construction order 

373 Order from the transportation segment 

Valecha engineering 3,214 Order for road construction 

Jun-11 Companies Rsmn Order description 

Punj Llyod 8,900 Onshore oil operations for carrying out EPC in South East, Abu Dhabi. 

ARSS Infrastructure 2,075 Two orders from Madhya Pradesh Road Development Corporation for road construction 

Punj Llyod 6,780 EPC nuclear power contract from NPCIL 

L&T 13,660 Orders from the Gulf for power transmission, constructing sub-station 

L&T 26,000 Concession agreement with NHAI 

L&T 41,000 Constructing office building, factories 

L&T 16,100 Metallurgical and material handling system for Tata Steel, Indiabulls Power 

Punj Llyod 8,260 Offshore contract from GSPC 

HCC 7,010 Construction of Tehri pumped storage project plant, Uttarakhand 

Unity Infrastructure 997 Construction of Harsi high level main canal 

Jul-11 Companies Rsmn Order description 

NCC 8,150 Rs2,150mn order from Rail Vikas Nigam, Rs1,590mn order from CIDCO 

Punj Llyod 990 Kolkata West International City contract 

L&T 12,100 Construction order from Qatar in the electrical space 

Ahluwalia Contracts 4,820 Construction of residential, commercial, institutional buildings 

Punj Llyod 2,100 Civil contract for thermal power project of NTPC, Assam 

Pratibha Industries 12,490 Order from Delhi Jal Board 

Valecha Engineering 1,480 Construction of roads in Madhya Pradesh, Kota 

Jaypee Associates 20,790 Secures two contracts from Punatsangchhu-II Hydro-electric Project Authority, Bhutan 

Punj Llyod 3,300 To build process facilities for crude oil storage cavern in Mangalore 

Aug-11 Companies Rsmn Order description 

McNally Bharat Engineering 1,093 Order from BECL for design, engineering, commissioning of ash handling system package for 2X 250MW thermal plant 

ARSS Infrastructure 2,335 Order for development, O&M of Ropar-Chamkaur Sahib -Neefon-Dorah road on DBFOT basis 

Jyoti Structures 4,380 M. P. Vidyut Vitran Companies Limited for feeder separation programme 

L&T 40,005 Hydrocarbon order from Abu Dhabi gas industry 

Sadbhav Engineering 2,020 Road and irrigation project from Bihar Road State Development 

L&T 13,400 Construction of residential and commercial buildings 

Sep-11 Companies Rsmn Order description 

NCC 6,290 Order from Water Resources Division at Raigarh, Chhattisgarh, and MSEDCL, Mumbai, for turnkey contracts 

L&T 10,150 Order for construction of office building, factories 

L&T 7000 Bagged order from Petroleum Development Oman LLC 

IVRCL 22289 Construction of road and building ,water transportation project. 




Management commentary on delay in project execution: 


Competitive bidding due to slowdown in NHAI project award activity. 

Land acquisition delayed Goa-Karnataka project. 

Reliance Infrastructure 

Not accruing any regulatory asset from the third quarter in Mumbai electric supply operations 

EPC business reached inflection point and starting 1QFY12, there will be significant increase in the topline 

and profits of EPC projects. 

Three road projects were delayed due to NHAI land clearance issue. 

GMR Infrastructure 

Issues regarding determination of aeronautical charges and collection of airport development fee to 

recover Delhi airport costs. 

Lower plant load factor due to shortage of natural gas. 

Realty demand slowdown impacting further monetisation of Delhi land parcel. 

HCC 

Environment clearance delay for hydro-power projects hit EPC projects. 

Irrigation projects in Andhra Pradesh slowed down due to delayed payment. 

IVRCL Infrastructure 

Projects delayed due to problems in land clearance. 

Delayed payment issue in the Andhra Pradesh region. 

Slower execution during state assembly elections. 

Projects which witnessed major delays are Goa-Maharashtra and Panvel-Sion road projects, Andhra 

Pradesh irrigation project, and Hogenakkal and Koyna hydro-power projects. These are the key projects 

where substantial revenue was lost, amounting to almost Rs25bn. 



Initiating coverage on five infrastructure companies 

IRB Infrastructure: On The Road To Success 

IRB Infrastructure, a premier toll road developer and operator with in-house integrated execution capabilities, 

will be the biggest beneficiary of traction in the road segment. We believe the company is offering a good 

blend of growth and sustainable cash flow (EPC business to drive revenue CAGR of 37% between FY11-13 

and toll revenue will provide sustainable operating cash flow of around Rs12bn to meet the equity 

commitment of new projects without equity dilution). We assign a Buy rating and a TP of Rs235 to its stock 

based on SOTP valuation. 

Reliance Infrastructure: Core earnings to improve 

Renewal of Mumbai discom licence and the recent tariff hike in Delhi electricity distribution business are 

likely to eliminate the overhang on Reliance Infrastructure’s valuation with respect to its power distribution 

business. The EPC segment has an order book of Rs280bn, which would drive revenue growth in coming 

years. Infrastructure projects are now turning from the development stage to the revenue generation stage 

with the commissioning of six road projects, Mumbai metro rail phase I and one transmission project in the 

next six months. However, the stock is currently trading at a P/BV of 0.5x, which we believe is unjustified 

and below stress case valuation. We assign a Buy rating and a target price of Rs724 to the stock. 

GMR Infrastructure: On Recovery Path 

GMR Infrastructure, a leading infrastructure company, has underperformed the Nifty in the past three years 

by 55% because of multiple issues like Balance Sheet concerns post leveraged buyout of Intergen, funding 

constraints for mega expansion plan, overhang of regulatory issues and pressure on profitability. Looking at 

the recent developments like adequate raising of capital for near-term expansion, sale of Intergen stake and 

expected other positive developments like improvement in profitability and clarity on regulatory issues, we 

believe the concerns have been largely priced in the CMP of GMR Infrastructure and provides a good 

investment opportunity for long-term investors. We assign a Buy rating and a target price of Rs39 to the 

stock based on SOTP valuation. 

HCC: Downside Risk Limited 

We assign a Hold rating and a target price of Rs33 to HCC as we believe the company’s sales would grow 

moderately due to higher working capital requirement and greater leverage. Lavasa, a marquee project, is in 

trouble due to dispute with the environment ministry, which has given a big jolt to its valuation. We believe 

the downside risk is limited (as the recent transaction relating to divestment of stake in HCC Concessions is 

valued equal to the market capitalisation of the parent company), but lack of triggers and the company’s 

focus on consolidating its business due to higher leverage would cap any upside. 

IVRCL Infrastructure: Project Execution To Gain Momentum 

IVRCL Infrastructure, a well established construction company with an order backlog of Rs230bn, which is 

3.8x FY11revenue, provides strong revenue visibility. Project execution is poised to pick up from 2HFY12, 

driven by commencement of billing in three new projects, increase in shorter execution cycle projects in total 

order book and increase in sub-contracting post stability in interest rates, which will drive 17% yoy revenue 

growth and 32% yoy earnings growth during FY13. The company is also in advance stage of talks for sale of 

stake in the special purpose vehicle of IVRCL Assets & Holding (IVRCLAH) and monetisation of real estate, 

which would ease funding needs. We assign a Buy rating and a target price of Rs59 to the stock based on 

SOTP valuation. 


Initiating Coverage 



Reuters: IRBI.BO Bloomberg: IRB IN 

On The Road To Success 

IRB Infrastructure, a premier toll road developer and operator with in-house 

integrated execution capabilities, will be the biggest beneficiary of traction in the 

road segment. We believe the company is offering a good blend of growth and 

sustainable cash flow (EPC business to drive revenue CAGR of 37% between 

FY11-13 and toll revenue will provide sustainable operating cash flow of around 

Rs12bn to meet the equity commitment of new projects without equity dilution). 

We assign a Buy rating and a TP of Rs235 to its stock based on SOTP valuation. 

Biggest beneficiary of traction in road segment: NHAI is expected to tender road 

projects of around 24,000km in the next three years and has given a clear timeline 

(with project-wise details) to award projects worth around Rs483bn in the next six 

months. As India’s largest integrated player in the road space, the company is a 

natural beneficiary. During the past six months (April 2011 onwards), NHAI has 

awarded projects worth Rs 164bn (around 1,851km) in which the company has 

secured one mega project worth Rs49bn and is targeting incremental orders worth 

Rs25bn to Rs30bn in FY12 which would translate into around 13% of projects awarded 

by NHAI in FY12. 

Strong operating cash flow to drive future growth: IRB Infrastructure has a 

portfolio of 17 projects with a daily gross toll collection of Rs30mn, which is growing at 

around 14-16% per annum. The company has witnessed a significant growth in its 

operating cash flow, from Rs2.5bn in FY08 to Rs10bn in FY11, which is expected to 

be in the same range until FY13. On the other hand, for existing projects, the equity 

commitment could be in the range of Rs11bn over FY12-13, which could be funded 

through internal accruals. Thus, existing cash flows are sufficient to meet equity 

funding requirements of its projects without any dilution. However, on completion of 

existing projects, the debt/equity ratio would increase to 1.9x in FY13. 

EPC order book of Rs117bn to drive robust growth: The company has an order 

book of Rs117bn, (7x FY11 construction revenue), which is expected to be executed 

over the next three years. Robust order book coupled with four projects under active 

phase (worth Rs46.8bn and executable by FY13), would drive revenue CAGR of 37% 

over FY11-13. However, we expect the net profit to show a CAGR of 11% due to 

higher interest costs and depreciation charges on completion of BOT assets worth 

Rs82bn. 

SOTP-based target price of Rs235: We assign a Buy rating with a target price of 

Rs235 to IRB Infrastructure based on SOTP valuation, comprising Rs151 (64% of 

SOTP, based on FCFE) for BOT assets and Rs84 (36% of SOTP, PE ratio of 8x) for 

the EPC business. Accordingly, we have arrived at a valuation of Rs235. 

Y/E Mar (Rsmn) FY09 FY10 FY11 FY12E FY13E 

Net Sales 9,919 17,049 24,381 31,941 45,863 

YoY (%) 35.4 71.9 43.0 31.0 43.6 

EBITDA 4,374.0 7,990.2 10,939.3 13,542.7 17,247.3 

EBITDA margin (%) 44.1 46.9 44.9 42.4 37.6 

Net Profit 1,759 3,855 4,524 4,642 5,967 

YoY (%) 54.4 119.2 17.4 2.6 28.5 

EPS (Rs) 5.3 11.6 13.6 14.0 18.0 

PER (x) 31.0 14.1 12.0 11.7 9.1 

P/BV (x) 3.2 2.7 2.2 1.9 1.6 

ROCE (%) 6.2 11.8 9.8 8.4 8.9 

ROE (%) 10.2 18.9 18.6 16.0 17.1 

Source: Company, Nirmal Bang Institutional Reearch 


BUY 

Sector: Infrastructure 

CMP: Rs163 

Target Price: Rs235 

Upside: 44% 



+91-22-3926 8116 

Nitin Arora 


+91-22-3926 8169 

Key Data 

Current Shares O/S (mn) 332.4 

Mkt Cap (Rsbn/US$bn) 54.1/1.1 

52 Wk H / L (Rs) 290/132 

Daily Vol. (3M NSE Avg.) 1,772,290 

Share holding (%) 

3QFY11 4QFY11 1QFY12 

Promoter 75.0 74.8 74.8 

FII 13.5 14.3 13.7 

DII 3.4 3.9 4.0 

Corporate 4.0 2.6 2.7 

General Public 4.2 4.5 4.9 

One Year Indexed Stock Performance 

Price Performance (%) 

1 M 6 M 1 Yr 

IRB Infra 3.8 (12.8) (42.7) 

Nifty Index (1.6) (11.2) (18.3) 

Source: Bloomberg


Exhibit 2: Project portfolio 

SOTP-based target price of Rs235 

We assign a Buy rating with a target price of Rs235 to IRB Infrastructure based on SOTP valuation. We have 

valued the stock via the SOTP route using FCFE methodology for BOT assets and relative valuation (PE ratio) 

for the EPC business. We believe the FCFE model is the best way to value road assets as BOT projects have 

a definite concession period and long-term predictable cash flow with a definite capex and debt repayment 

structure. Accordingly, we have arrived at a value of Rs235, comprising Rs151 (64% of SOTP) for BOT assets 

and Rs85 (36% of SOTP) for the EPC business. We have not done any valuation for the company’s 

investment in real estate and airport development, as these projects are still at the planning stage. 

Exhibit 1: SOTP valuation 

Rs./share 

Operational DCF based at CoE of 14% 97 

Under development DCF based at CoE of 16% 54 

EPC businesst PE ratio (FY13, 8x) 84 

Total - 235 


BOT assets valued at Rs 151/share (64% of SOTP) 

Our BOT projects model assumes 5-7% of traffic growth and toll rate increase of 5%. We have discounted the 

FCFE at a COE of 14% for operational projects and 16% for under-development projects. The BOT business 

of IRB Infrastructure has one of the most lucrative portfolios in the industry, with 11 projects currently earning 

revenue (construction completed) and six others in the construction phase. 

Project name Project name Stake Equity value (Rsmn) Rs/share 

Mhaiskar Infrastructure Mumbai - Pune 100% 10,761 32.4 

IDAA Infrastructure Bharuch- Surat 100% 5,158 15.5 

Aryan Toll Road Pune -Solapur 100% 1,045 3.1 

ATR Infrastructure Pune- Nashik 100% 1,955 5.9 

IRB Infrastructure Patalganga( Kharpada River Bridge 100% 255 0.8 

NKT Road & Toll Ahmednagar-Karmala-Temburni Road 100% 555 1.7 

Thane Ghodbunder Toll Road Thane -Ghodbunder Road 100% 2,291 6.9 

MMK Toll Road Mohol-Kurul-Kamti-Mandrup Road 100% 408 1.2 

Ideal Road Builders Thane- Bhiwandi Bypass 100% 2,942 8.9 

IRB Surat Dahisar Tollway Surat Dahisar 90% 4,045 12.2 

IRDP Kolhapur IRDP Kolhapur 100% 2,674 8.0 

Operational projects - total - 32,089 97 

Projects under implementation 

IRB Amritsar Pathankot Amritsar Pathankot 100% 3,534 10.6 

IRB Jaipur Tonk Deoli Jaipur Tonk Deoli 100% 7,271 21.9 

IRB Talegaon Amravati Talegaon Amravati 100% 3,293 9.9 

IRB Tumkur Chitrudurga Tumkur Chitudurga 100% 3,829 11.5 

Total Projects under implementation - 17,927 54.0 

Total BOT asset portfolio - 50,016 151 


Two operational projects (32% of BOT asset value and 48% of toll revenue) 

The company has a portfolio of 17 BOT assets, of which 11 projects are operational and 6 are under 

implementation. However, two operational projects - Mumbai-Pune and Bharuch-Surat - contribute around 

48% of toll revenue and 32% of the value of BOT assets. Surat-Dahisar project has started tolling and 

contributes around 34% of toll revenue, but the project would be commissioned in 2HFY12. During 1QFY12, 

theTumkur-Chitradurga project started toll collection and the project would be completed by the end of FY14. 

The remaining projects account for only 19% of toll revenue. The three new projects (Jaipur – Deoil, Amritsar 

– Pathankot, Telegaon – Amravati) will start contributing to revenue from 2HFY13. We expect these projects 

to account for around 22% of total toll revenue in FY14, which would be the first full year of operations of these 

projects. 

28 IRB


Exhibit 3: Project-wise toll revenue trend 

Net sales (Rsmn) FY09 FY10 FY11 FY12E FY13E FY14E 

Mumbai-Pune 1 2,882.6 3,062.6 3,215.7 3,916.7 4,112.6 4,318.2 

Bharuch-Surat - 662.8 1,396.5 1,586.3 1,796.4 2,016.7 

Pune -Solapur 127.1 133.0 147.5 185.4 198.4 219.0 

Pune -Nashik 164.0 180.7 228.6 250.1 288.0 314.9 

Patalganga (Kharpada) River Bridge 70.5 67.2 68.6 73.4 78.6 84.1 

Ahmednagar-Karmala-Temburni Road 113.5 134.6 154.3 165.1 202.2 224.9 

Thane-Ghodbunder Road 268.6 277.3 330.1 353.2 377.9 489.3 

Mohol-Kurul-Kamti-Mandrup Road 65.5 63.0 68.6 73.4 89.5 99.5 

Thane-Bhiwandi Bypass 586.6 567.2 564.1 638.4 683.0 730.6 

Surat-Dahisar 208.3 2,069.3 2,261.1 2,503.4 2,678.7 2,866.2 

IRDP Kolhapur - - - 302.5 529.1 566.1 

Amritsar-Pathankot - - - - - 1,081.0 

Jaipur Tonk Deoli - - - - 342.1 1,529.3 

Talegaon- Amravati - - - - - 711.3 

Tumkur- Chitudurga - - - 223.7 324.6 478.0 

Total toll collection 4,487 7,218 8,435 10,272 11,701 15,729 

YoY (%) - 61 17 22 14 34 


Mumbai-Pune project 

The company secured Mumbai - Pune Expressway and NH-4 projects on BOT basis in August 2004 for a 

concession period of 15 years. The project involved four-laning and improvement of NH-4 (completed in 

September 2006), toll collection and operation and maintenance of Mumbai- Pune Expressway. The total cost 

of the project was Rs13bn, which included an upfront fee of Rs9.2bn to MSRDC (Maharashtra State Road 

Development Corporation). The project was funded through equity of Rs1.05bn, debt of Rs11.8bn and internal 

accruals of Rs 152mn. This is the most significant asset in the company’s portfolio, which contributes around 

35% of BOT revenue and 21% of BOT value. 

Exhibit 4: Mumbai-Pune Expressway details 

(Rsmn) (%) 

Project cost 12,920 CoE 14 

Debt 11,870 Interest rate (Fixed) 10.5 

Equity 1,050 Equity IRR 68 

Concession period 15Year Traffic growth 5 

Equity value 10,761 Toll rate hike 16% (every third year) 


Exhibit 5: Mumbai-Pune Expressway- financials 

(Rsmn) FY09 FY10 FY11 FY12E FY13E FY14-20E 

Toll revenue 2,883 3,063 3,216 3,917 4,113 38,194 

YoY (%) 23.0 6.2 5.0 21.8 5.0 - 

EBITDA 2,332 2,551 2,618 3,208 3,368 31,301 

PAT 508 611 840 1,293 1,485 20,601 


Bharuch-Surat project 

The company got this project in January 2007 to expand and improve NH-8 on BOT basis for a concession 

period of 15 years. The total project cost was Rs14.6bn, including an upfront fee of Rs5bn to NHAI. The 

project was funded through equity and internal accruals of Rs1.9bn and debt of Rs12.7bn. The project has 

started tolling from 15 September 2009, contributing around 12% of BOT revenue and 11% of BOT asset 

value. 

29 IRB


Exhibit 6: Bharuch-Surat project details 

Rsmn (%) 

Project cost 14,040 COE 14 

Debt 12,110 Interest rate 10.75 

Equity 1,930 Equity IRR 32 

Concession period 15 Years Traffic growth 7 

Equity value 5,158.22 Toll rate hike WPI linked 


Exhibit 7: Bharuch-Surat project financials 

(Rsmn) FY10 FY11 FY12E FY13E FY14-22E 

Toll revenue 1,396 1,586 1,796 2,017 28,898 

YoY (%) 111 14 13 12 - 

EBITDA 1,191 1,384 1,581 1,449 23,023 

PAT (385) 56 192 342 11,287 


EPC segment valued at 8x on PE ratio 

The company’s EPC business derives revenue from in-house projects and enjoys a higher margin. For most 

construction players, road project is a low-margin business where they typically have 8-12% EBITDA margin. 

However, IRB Infrastructure registers 20-25% margin due to efficiencies it has built up over the years, like 

mining licence for aggregates, minimal sub-contracting, and its own fleet of construction equipment. We have 

valued the E&C business of the company at a PE multiple of 8x FY13E earnings (lower end of five year 

historical range of 8x-16x for EPC players). 

Exhibit 8: EPC business performance 

(Rsmn) FY09 FY10 FY11 FY12E FY13E 

Net sales 5,672 12,124 16,704 20,906 33,322 

YoY (%) 113.8 37.8 25 .2 59 .4 

EBITDA 1,013 2,746 4,283 4,704 7,331 

EBITDA margin (%) 17.9 22.6 25.6 22.5 22.0 

PAT 490 1,542 2,243 2,341 3,615 

Order book 58,978 89,592 117,412 - - 


Multiples based on consolidated earnings 

Exhibit 9: P/BV valuation trend 

(x) 

4.5 

4.0 

3.5 

3.0 

2.5 

2.0 

1.5 

1.0 

0.5 

0.0 

Sep-08 Jun-09 Mar-10 Dec-10 Sep-11 

P/B value 

4 year avg 


Exhibit 10: P/E valuation trend 

(x) 

30 

25 

20 

15 

10 

5 

0 


P/E 

4 year avg 


30 IRB


Exhibit 11: BOT asset portfolio 

Investment Arguments 

Leading toll road operator with in-house execution facilities 

IRB infrastructure is a premier toll road developer and operator with in-house integrated project execution 

capabilities. The company has 17 road projects (11 are operational and 6 under implementation), or around 

11% of the Golden Quadrilateral project. The company’s road portfolio, as per lane km, comprises 40% in 

Maharashtra, 31% in Gujarat, 10% in Karnataka, 9% in Rajasthan, 6% in Punjab and 4% in Goa. It has an inhouse 

construction business which undertakes the construction of road projects and O&M activities, including 

toll collection, pertaining to BOT projects. This not only captures the entire value chain in-house, but also 

reduces the company’s dependence on third-party contractors/sub-contractors. Further, this also enables a 

better control over costs, timelines and quality. 

Project name Toll Length(km) % holding Project cost Project IRR(%) Equity IRR (%) 

Mumbai - Pune T 206 100% 12,920 21% 68% 

Bharuch-Surat T 65 100% 14,040 8% 32% 

Pune -Solapur T 26 100% 630 21% 75% 

Pune-Nashik T 30 100% 740 30% 221% 

Patalganga (Kharpada) River Bridge T 1 100% 320 17% 108% 

Ahmednagar-Karmala Temburni Road T 60 100% 368 27% 61% 

Thane-Ghodbunder Road T 15 100% 2,485 12% 61% 

Mohol-Kurul-Kamti-Mandrup Road T 33 100% 180 35% 84% 

Surat-Dahisar T 240 90% 25,870 6% 30% 

IRDP Kolhapur T 50 100% 4,300 3% 20% 

Panaji, Goa T 65 100% - - - 

Amritsa-Pathankot T 102 100% 14,417 10% 13.0% 

Jaipur Tonk Deoli T 146 100% 17,057 11% 16.2% 

Talegaon Amravati T 102 100% 8,851 11% 18.8% 

Tumkur-Chitradurga T 114 100% 10,800 14% 18% 

Ahmedabad-Vadodara T 108 100% 49,200 - - 


Exhibit 12: BOT project details 

Project 

Revenue share/Fee/Grant 

Concession 

Concession 

period(yrs) 

ending 

Toll rate hike 

Mumbai-Pune Upfront payment to MSRDC of Rs9.2bn 15 Aug-2019 18% every third year 

Bharuch-Surat Upfront fee to NHAI Rs5bn 15 Jan2022 WPI linked, reset every year(July) 

Thane Bhiwandi Bypass 18.5 May-2017 5-6% escalation 

Thane Ghodbunder Upfront fee to MSRDC of Rs1.4 bn 15 Dec-2020 5-6% escalation 

Pune-Solarpur 16 Mar-2019 5-6% escalation 

Pune Nashik 18 Sep-2021 5-6% escalation 

Karmala-Tembhurni 15 Dec-2015 5-6% escalation 

Kharpada Bridge 17.8 Aug-2015 5-6% escalation 

Mohol-Mandrup 16 May-2016 5-6% escalation 

Surat -Dahisar Revenue share of 38% 12 Feb-2021 WPI linked, reset every (September) 

IRDP Kohlapur Negative grant of Rs270mn 30 Jan-2039 5-6% escalation 

Tumkur Chitradurga 26 Jun-2037 3% +40% of WPI 

Under Construction 

Talegoan-Amravati Grant of Rs2.16bn 22 2031 3% +40% of WPI 

Jaipur Tonk Deoli Grant of Rs3.06bn 25 2034 3% +40% of WPI 

Amritsar Pathankot Grant of Rs3.06bn 20 2029 3% +40% of WPI 

Goa-Panaji 

3% +40% of WPI 

Ahmedabad--Vadodara Premium of Rs 3.09bn 24 3% +40% of WPI 


31 IRB


Exhibit 13: BOT toll revenue trend 

(Rsmn) (%) 

3,000 

30 

2,500 

25 

2,000 

20 

1,500 

15 

Exhibit 14: Project- wise toll revenue trend (1QFY12) 

Pune - Solapur; 1.5 

BOT Revenue (%) 

Pune - Nashik; 2.0 

NKT; 1.3 Kharpada; 0.8 

Thane - Ghodbunder; 

MMK; 0.7 

2.5 

Tumkur-Chitradurg; 4.1 

Mumbai - Pune; 35.4 

TBB - 4 (Mumbra); 5.6 

1,000 

500 

10 

5 

Bharuch-Surat; 12.1 

- 

1QFY11 2QFY10 3QFY10 4QFY10 1QFY12 

BOT revenue 

%YoY 

0 

Surat-Dahisar; 33.8 



Exhibit 15: State-wise market share 

IRB Infrastructure is top beneficiary of traction in road segment 

NHAI is expected to tender road projects of around 24,000km in the next three years, of which around 

6,000km is expected to be awarded in the next six months. During the past six months (April 2011 onwards), 

NHAI has awarded projects worth Rs164bn (around 1,851km) and has given a clear timeline (with project wise 

details) to award projects worth around Rs483bn in the next six months. Out of the recently awarded projects, 

the company has already secured one mega project worth Rs49bn (construction cost Rs36bn) with a 

concession period of 25 years. The company is targeting incremental orders worth Rs25bn to Rs30bn in 

FY12, which translates into 13% of projects that will be awarded by NHAI during the year. As one of India’s 

largest integrated players in the road space, the company would be a natural beneficiary of the multi-fold 

opportunity in the sector. 

States Maharashtra Gujarat Rajasthan Punjab Karnataka Goa 

NH/SH NH 3,4,8,9,17,50, SH,141,149 NH 8 , NE-1 NH12 NH15 MH 4 NH 4A 

Total km 633 390 146 102 114 69 

Total lane km 2672 2095 585 410 684 276 

Road Portfolio as per lane km (%) 47 19 10 7 12 5 

GQ length in km (comprising 11.07% of total GQ length) 246 287 - - 114 - 


Exhibit 16: NHDP project status 

Phase 

I II III IV V VI VII 

Total length (KM) 7,609 7,300 12,109 14,799 6,500 1,000 700 50,017 

Completed till date (KM) 7,076 5,683 2,294 0 596 - - 15,649 

Completion rate as a % of total 93.0 77.8 18.9 - 9.2 - - 31.3 

Completion from 30 April 2010- 31 March 2011 (KM) 97 616 645 - 353 - - 1,711 

Under implementation (UI) (KM) 513 1,038 5,805 765 1,918 0 41 10,080 

UI as a % of total 6.7 14.2 47.9 5.2 29.5 0.0 5.9 20.2 

Balance length for award (BFA) (KM) 20 421 4,010 14,034 3,986 1,000 659 24,130 

BFA as a % of total 0.3 5.8 33.1 94.8 61.3 100.0 94.1 48.2 

Investments ($ bn) 1.26 6.60 9.97 8.85 3.71 3.71 34.09 

Source: NHAI, Company, Nirmal Bang Institutional Equities Research 

Total 

32 IRB


Exhibit 18: Operating cash flow trend 

Exhibit 17: Projects likely to be awarded 

Project cost break up (Rsbn) RFP stage RFQ stage 

NHAI projects - Phase III 17.4 27.3 

Phase IV,IVA & IV B 32.5 135.4 

Phase V 51.3 28.4 

Phase VI - 11.3 

Phase VII - 2.7 

Nhai projects - BOT (annuity) - 7 

NHAI projects -OMT - 5.4 

NE-II - 26.9 

Other clients 18.8 51.7 

Total 120 296.1 


Strong operating cash flow for financing equity commitment 

IRB Infrastructure has a portfolio of 17 projects (11 projects are operational and 6 under implementation) with 

a daily gross toll collection of Rs30mn, which is growing at around 14-16% per annum. On the other hand, for 

the existing projects, including the recently awarded ultra mega project, the equity commitment could be in the 

range of Rs11bn over FY12-13, which could be funded through internal accruals. Thus, existing cash flows 

are sufficient to meet equity funding requirement of its projects without any dilution. 

Y/E March (mn) FY08 FY09 FY10 FY11 FY12E FY13E 

EBIT 3,623 3,526 6,661 9,331 9,678 12,166 

(Inc.)/Dec in working capital (1,586) (1,421) 1,849 1,314 (957) (610) 

Cash flow from operations 2,038 2,105 8,510 10,645 8,721 11,556 

Other income 1,435 1,148 2,009 2,918 761 837 

Depreciation 1,016 1,144 1,819 2,254 3,865 5,081 

Interest paid (-) (1,958) (1,377) (2,494) (3,572) (4,183) (4,862) 

Tax paid (-) (412) (405) (812) (1,463) (1,587) (2,115) 

Dividends paid (-) (15) (223) (429) (753) 

Net cash from operations 2,104 2,393 8,604 10,027 7,577 10,497 


However, on completion of existing projects, its debt/equity ratio would increase to 1.9x in FY13 (excluding the 

debt of the recently won Ahmedabad-Vadodara mega project). If we include the debt of the mega project, the 

debt-equity ratio would increase to 2.3x in FY16, without considering the incremental project. This would 

restrain growth and may lead to equity dilution. 

Exhibit 19: Debt/equity ratio 

(x) 

2.50 

2.00 

1.90 1.93 

1.86 

1.50 

1.44 1.43 

1.00 

0.50 

- 



33 IRB

Q1FY10 

Q2FY10 

Q3FY10 

Q4FY10 

FY10 

1QFY11 

2QFY11 

3QFY11 

4QFY11 

FY11 

1QFY12 


Partially hedged against sharp rise in interest rate 

During the past one year, Reserve Bank of India raised its key policy rate 12 times to 8.25%. This has 

increased the interest outflow for construction and infrastructure companies. However, IRB Infrastructure is 

hedged to some extent from the rise in interest rates. As many as 6 out of its 11 operational projects are debt 

free and 21% of total debt (Mumbai-Pune Expressway) is fixed at 10.6% for the remaining tenure of the loan. 

Other projects which are in the construction phase like Surat-Dahisar project (around 10% of total debt) and 

three new projects, namely Talegaon-Amravati, Amritsar-Pathankot and Panaji-Goa, are fixed at 10.5% for the 

construction period of 30 months, or the end of construction, whichever is earlier. 

Exhibit 20: Interest outflow vs average interest rate trend 

(Rsmn) (%) 

6,000 

5,000 

4,000 

3,000 

2,000 

1,000 

- 


10 

9 

8 

7 

6 

5 

Interest outflow 

Average interest rate 


Robust EPC order book of Rs117bn to drive revenue growth 

The company has order book of Rs117bn (EPC order book of Rs96.5bn and O&M order book (operation and 

maintenance of operational toll based projects) of Rs 20.8bn) to be executed over the next 3-4 years. EPC 

division’s order backlog stayed flat during 2QFY10-3QFY11, as it managed to win only one project in FY11 

(Tumkur-Chitradurga). Ahmedabad-Vadodara project increases the company’s backlog from Rs90bn at the 

end of 3QFY11 to around Rs119bn, improving revenue visibility. The company registers higher EBITDA 

margin for the EPC division, in the range of 18-25%, as compared to industry average of 8-12%. This is 

primarily driven by lower sub-contracting, large fleet of equipment, and stone aggregates from its own mines 

(40-42% of raw material costs for constructing roads). 

Exhibit 21: Order book trend –segment wise 

(Rsmn) 

140 

120 

100 

80 

60 

40 

20 

0 

EPC Ongoing BOT Project BOT Projects in O&M Phase BOT projects-LOA received (Const yet to commence) 


Exhibit 22: EPC segment financial trend 

(Rsbn) (%) 

35 

30 

30 

33 

25 

25 

20 

21 

15 

17 

20 

10 

12 

5 

6 

- 

15 


Net sales (LHS) 

EBIDTAM % (RHS) 


34 IRB


Exhibit 23: Project- wise order book 

1.3 

6.4 

31.6 

10.8 

9.7 

(%) 

Ahmedabad Vododra 

Tumkur Chitradurga 

Surat Dahisar 

IRDP kohlapur 

Panji Goa 

Amritsar Pathankot 

Jaipur Tonk Deoli 

Exhibit 24: Order book trend 

Amount (Rsbn) 

Ongoing BOT projects 46.87 

BOT projects in O&M phase 20.76 

BOT projects-LOA received, construction yet to commence 44.07 

Total 111.7 

Talegaon Amravati 

6.5 

0.3 

5.5 

9.3 

Sindhudurg Airport 



Exhibit 25: Company Structure 


35 IRB


1QFY12 performance 

Reported robust revenue growth of 57% (YoY) driven by the construction business. Construction revenue 

rose by 81% due to pick-up in project execution. 

EBITDA margin, at blended level, declined by 760bps to 41% due to higher revenue from the lower 

margin segment (EPC). 

Interest costs rose by 77.6% due to increased draw-down of debt for the Surat-Dahisar project. 

Exhibit 26: Quarterly performance 

Rsmn 1QFY11 4QFY11 1QFY12 (YoY %) (QoQ %) 

Net sales 5,120 7,670 8,013 56.5 4.5 

Total expenditure 2,627 4,523 4,719 79.6 4.3 

EBITDA 2,493 3,147 3,295 32.2 4.7 

EBITDA margin (%) 48.7 41.0 41.1 - - 

Interest costs 661 1,398 1,174 77.6 (16.0) 

PBDT 1,832 1,749 2,120 15.7 21.2 

Depreciation 537 587 602 12.1 2.6 

Other income 217 229 282 30.0 23.1 

PBT 1,512 1,390 1,800 19.0 29.5 

Tax 303 336 443 46.2 31.8 

PAT(before minority interest) 1,209 1,055 1,358 (52.0) (41.0) 

Minority interest 33 27 16 (51.5) (40.7) 

PAT(after minority interest) 1,176 1,028 1,342 14.1 30.5 


36 IRB


Financial performance 

Exhibit 27: Revenue trend segment-wise 

(%) 

120 

100 

80 

60 

40 

20 

0 

Revenue to witness a CAGR of 37% during FY11-13 

Out of Rs117bn order book of the EPC segment, Rs46.8bn worth of projects are in active stage of 

construction and would be completed by FY13, while Rs36bn worth Ahmedabad-Vadodara project would 

begin construction from 1QFY13, which has improved long-term revenue visibility. Based on this, we expect 

the EPC segment’s revenue to show a CAGR of 41% between FY11-13. BOT toll revenue is expected to 

witness a CAGR of 19%, primarily driven by revision in toll rate and completion of projects. Subsequently, we 

expect net sales to show a CAGR of 37% to Rs31.9bn and Rs45.8bn in FY12 and FY13, respectively. 

44 39 33 33 

56 61 67 67 

FY09 FY10 FY11 FY12 FY13 

Construction 

BOT Toll Revenue 


EBITDA to register CAGR of 26% 

26 

74 

Exhibit 28: Revenue growth trend 

(Rsmn) (%) 

50,000 

45,000 

40,000 

35,000 

30,000 

25,000 

20,000 

15,000 

10,000 

5,000 

- 


Net sales 

% YoY 


We expect EBITDA to grow at a CAGR of 26% to Rs 13.5bn in FY12 and 17.2bn in FY13 primarily driven by 

robust growth in revenue. However, EBITDA margin would come down by 700bps to 38% in FY13 from 45% 

in FY11 due to increase in the contribution of low margin EPC segment’s revenue to total revenue, from 67% 

in FY11 to 74% in FY13. 

Exhibit 29: Consolidated EBITDA margin trend 

Exhibit 30: EBITDA and EBITDA growth 

80 

70 

60 

50 

40 

30 

20 

10 

0 

(%) 

50 

48 

46 

44 

42 

40 

38 

36 

34 

32 



(Rsmn) 

(%) 

20,000 

48 

18,000 

46 

16,000 

44 

14,000 

42 

12,000 

40 

10,000 

38 

8,000 

6,000 

36 

4,000 

34 

2,000 

32 

- 

30 


EBITDA 

Growth(YoY) 


Net profit to register CAGR of 11% 

Five BOT projects worth Rs82bn would be operational over FY12 to FY13, which would increase the 

depreciation and interest costs. Subsequently net profit growth would be subdued and grow at a CAGR of 

11% between FY11 to FY13. The decline in profitability and increase in debt post commissioning of BOT 

assets would depress the return ratios over the same period. We expect the RoE to come down by 160bps to 

17.3% and RoCE by 90bps to 8.9% in FY13 over FY11. 

37 IRB


Exhibit 31: Return ratio trend 

(%) 

20 

18 

16 

14 

12 

10 

8 

6 

4 


RoE (%) RoCE (%) 

Exhibit 32: Project details 


Appendix 

Ultra-mega Ahmedabad-Vadodara project – Call on traffic diversion 

IRB Infrastructure recently won NHAI’s Ahmedabad-Vadodara project worth Rs49bn. The project comprises 

six-laning of the two-lane Ahmedabad-Vadodara section of NH-8 (102km) and improvement of existing 

Ahmedabad-Vadodara Expressway (93km). The project would be based on the Design-Build-Finance- 

Operate-Transfer toll (DBFOT) basis with a concession period of 25 years. The total construction cost of the 

project is estimated at Rs36bn over a three-year period, starting from 1QFY13. The company’s bid to pay an 

annual premium of Rs3.1bn (annual increase of 5%) for tolling rights seems to be aggressive when compared 

with the L2 bidder. 

Category 

Scope of the project 

Project cost 

Concession period 

Toll collection rights 

Traffic 

Revenue 

Premium payable to NHAI 

Details 

Six-laning of Ahmedabad-Vadodara section on NH-8 (102km) and improvement of existing Ahmedabad-Vadodara expressway (93 km) 

Total project cost Rs49.2 bn (includes construction cost of Rs35bn) 

25 years ( including construction period of three years) 

Toll collection of expressway from April 2012 and from NH-8 on completion of construction. 

Management expects 47kPCUs on NH-8 and 37k PCUs on expressway in FY11. 

Management expects Rs1.4bn revenue in FY13 (from expressway) and toll collection on the NH-8 of Rs5.5bn in FY16. 

Rs3.1bn in FY13, going up by 5% every year. 


IRR of 14% with 30% traffic diversion 

NH-8 and the Expressway are competing roads. On completion of NH-8 in FY16, projected toll rate will be 

50% higher than the Expressway. This could lead to a traffic diversion to the Expressway and could potentially 

reduce returns due to lower utilisation of NH-8. The company has factored in 20% diversion while bidding and 

had targeted an IRR of 16%. However, we have factored in 30% of diversion and an IRR of 14%, at Rs 

14/share, which we have not included in our valuation. We expect the project to incur losses in the first nine 

years of its operations. 

Exhibit 33: Project specifications 

Parameter 

Details 

Total length of road (km) 195 

Six laning of Ahmedabad-Vadodara section of NH-8 102 

Improvement of existing Ahmedabad-Vadodara expressway 93 

Total project cost (Rsbn) 49.2 

Debt(Rsbn) 36.4 

Equity (Rsbn) 12.8 

Rs/share (based on DCF) 14 


38 IRB


Financials 

Exhibit 34: Income statement 

Y/E March (Rsmn) FY09 FY10 FY11 FY12E FY13E 

Net sales 9,919 17,049 24,381 31,941 45,863 

% growth 35.4 71.9 43.0 31.0 43.6 

Raw material costs 4,682 7,851 11,812 15,884 24,884 

Staff costs 425 710 929 1,375 2,120 

Other expenses 438 497 700 1,140 1,611 

Total expenditure 5,545 9,058 13,442 18,398 28,615 

EBITDA 4,374 7,990 10,939 13,543 17,247 

Growth (%) 6.2 82.7 36.9 23.8 27.4 

EBITDA margin (%) 44.1 46.9 44.9 42.4 37.6 

Other income 296 490 645 761 837 

Interest 1,377 2,494 3,572 4,183 4,862 

Gross profit 3,293 5,986 8,012 10,121 13,222 

Growth (%) 22.8 81.8 33.9 26.3 30.6 

Depreciation 1,144 1,819 2,254 3,865 5,081 

Profit before tax 2,149 4,167 5,759 6,256 8,141 

Tax 378 133 1,118 1,587 2,115 

Effective tax rate (%) 17.6 3.2 19.4 25.4 26.0 

Net profit 1,772 4,034 4,641 4,669 6,025 

Growth (%) 40.0 127.7 15.0 0.6 29.1 

Minority interest 13 179 117 27 58 

Net profit after MI 1,759 3,855 4,524 4,642 5,967 

Growth (%) 54.4 119.2 17.4 2.6 28.5 


Exhibit 36: Balance Sheet 


Equity 3,324 3,324 3,324 3,324 3,324 

Reserves 13,977 17,075 21,002 25,644 31,611 

Net worth 17,301 20,399 24,326 28,968 34,935 

Minority Interest 599 779 896 922 981 

Short-term loans 117 117 5,116 7,675 11,512 

Long-term loans 24,741 29,035 41,139 48,322 53,502 

Total loans 24,859 29,152 46,255 55,997 65,014 

Deff. tax liablity (net) 182 267 232 232 232 

Total liabilities 42,940 50,597 71,709 86,119 101,161 

Gross block 24,601 40,185 41,317 62,494 83,870 

Depreciation 4,440 5,511 7,695 11,560 16,641 

Net block 20,161 34,674 33,622 50,934 67,229 

Capital work-in-progress 14,545 8,802 25,085 25,085 25,085 

Long-term investments 1,108 451 551 633 728 

Inventories 2,054 1,698 1,638 2,625 3,770 

Debtors 130 297 397 525 754 

Cash 4,147 5,102 12,000 8,068 6,109 

Other current assets 3,995 4,380 6,349 8,751 12,565 

Total current assets 10,326 11,477 20,383 19,969 23,198 

Creditors 1,303 1,587 4,842 6,126 8,796 

Other current liabilities 1,908 3,229 3,099 4,375 6,283 

Total current liabilities 3,210 4,816 7,941 10,501 15,078 

Net current assets 7,116 6,661 12,443 9,468 8,120 

Misc. expenses. 10 9 9 - - 

Total assets 42,940 50,597 71,709 86,119 101,161 


Exhibit 35:Cash flow 


EBIT 3,526 6,661 9,331 9,678 12,166 

Inc./(dec) in working capital (1,421) 1,849 1,314 (957) (610) 

Cash flow from operations 2,105 8,510 10,645 8,721 11,556 

Other income 1,148 2,009 2,918 761 837 

Depreciation 1,144 1,819 2,254 3,865 5,081 

Interest paid (-) (1,377) (2,494) (3,572) (4,183) (4,862) 

Tax paid (-) (405) (812) (1,463) (1,587) (2,115) 

Dividends paid (-) (223) (429) (753) - - 

Net cash from operations 2,393 8,604 10,027 7,577 10,497 

Capital expenditure (-) (8,114) (10,604) (17,510) (21,177) (21,377) 

Net cash after capex (5,721) (2,000) (7,483) (13,600) (10,880) 

Inc./(dec.) in long-term borrowing 2,676 2,574 20,685 9,742 9,017 

Inc./(dec.) in investments 2,047 381 (6,382) (83) (95) 

Equity issue/(buyback) (96) 0 (4) - - 

Cash from financial activities 4,626 2,955 14,380 9,668 8,922 

Change in cash (1,095) 955 6,898 (3,932) (1,958) 

Opening cash 5,221 4,147 5,102 12,000 8,068 

Closing cash 4,147 5,102 12,000 8,068 6,109 


Exhibit 37:Key ratios 

Y/E March FY09 FY10 FY11 FY12E FY13E 

EPS (x) 5.3 11.6 13.6 14.0 18.0 

Valuations 

PE ratio (x) 31.0 14.1 12.0 11.7 9.1 

Price /CEPS (x) 18.8 9.6 8.0 6.4 4.9 

Price / BV (x) 3.2 2.7 2.2 1.9 1.6 

EV /sales (x) 7.5 4.6 3.6 3.2 2.5 

EV /EBITDA (x) 12.5 6.8 5.0 4.0 3.2 

Margins (%) 

EBIDTA margin 44.1 46.9 44.9 42.4 37.6 

EBIT margin 32.6 36.2 35.6 30.3 26.5 

PBT margin 21.7 24.4 23.6 19.6 17.8 

Net margin 17.7 22.6 18.6 14.5 13.0 

Returns (%) 

RoCE 6.2 11.8 9.8 8.4 8.9 

RoNW 10.2 18.9 18.6 16.0 17.1 

Working capital T/O days 

Inventory T/O 75.6 36.3 24.5 30.0 30.0 

Debtors T/O 4.8 6.4 5.9 6.0 6.0 

Loans and adv. T/O 147.0 93.8 95.0 100.0 100.0 

Creditors T/O 47.9 34.0 72.5 70.0 70.0 

DuPont method 

NPM (PAT/sales) 0.2 0.2 0.2 0.1 0.1 

Total asset T/O 0.2 0.3 0.3 0.4 0.5 

Equity multiplier 2.5 2.5 2.9 3.0 2.9 

Gearing ratio 

Net debt/equity (x) 1.1 1.2 1.4 1.6 1.7 

Total debt/equity (x) 1.4 1.4 1.9 1.9 1.9 


39 IRB


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40 IRB



Reliance Infrastructure 

Reuters: RELIN.BO Bloomberg: RELI IN 

Core earnings to improve 

Renewal of Mumbai discom licence and the recent tariff hike in Delhi electricity 

distribution business are likely to eliminate the overhang on Reliance 

Infrastructure’s valuation with respect to its power distribution business. The 

EPC segment has an order book of Rs280bn, which would drive revenue growth 

in coming years. Infrastructure projects are now turning from the development 

stage to the revenue generation stage with the commissioning of six road 

projects, Mumbai metro rail phase I and one transmission project in the next six 

months. However, the stock is currently trading at a P/BV of 0.5x, which we 

believe is unjustified and below stress case valuation. We assign a Buy rating 

and a target price of Rs724 to the stock. 

End of power distribution overhang: MERC has extended the company’s power 

distribution licence period in suburban Mumbai for the next 25 years, allowed charging 

cross-subsidy for migrated customers and also approved recovery of regulatory assets 

worth Rs23bn. Cross-subsidy charge will reduce the migration of high-end customers 

and recovery of regulated assets will reduce debt and improve cash flow. Recently, 

DERC hiked the power tariff by 21.7% after six years, which will ease the liquidity 

crunch faced by Delhi distribution units.We believe that overall it is a positive 

development that will eliminate the overhang with respect to electricity distribution 

business. 

EPC business with order book of Rs 280bn: The company’s order book stands at 

Rs 280bn, which is 7x FY11 EPC revenue. We believe EPC revenue is at inflexion 

point and will show a CAGR of 50% between FY12-13. We expect the company to 

maintain its EBITDA margin of 8% in the EPC segment driven by in-house designing, 

engineering capability and skilled manpower. 

Infrastructure projects’ earnings have started picking up: The company has a 

strong infrastructure portfolio that consists of eleven road projects, three metro rail 

lines and five power transmission projects worth Rs346bn. The execution of key 

infrastructure projects is on track and six road projects, Mumbai metro rail phase I and 

one transmission project will be commissioned during FY12. The company’s 

infrastructure portfolio is now turning from the development stage to the revenue 

generation mode. 

Stock trading below stress case valuation: Reliance Infrastructure is currently 

trading at a P/BV of 0.5x and if we adjust the value of stake in Reliance Power and 

cash on the books, the market appears to be assigning just 10% value to 

infrastructure, electricity and EPC projects, which we believe is unjustified and below 

stress case valuation. We assign a Buy rating and a target price of Rs724 to the stock. 


Net Sales 125,781 146,286 151,278 186,080 221,879 

YoY (%) 50.7 16.3 3.4 23.0 19.2 

EBITDA 6,299 12,264 14,981 30,729 40,056 

EBITDA Margin (%) 5.0 8.4 9.9 16.5 18.1 

Net Profit (Post MI & Associate) 13,532 15,194 15,516 16,201 19,432 

YoY (%) 14.9 12.3 2.1 4.4 19.9 

Adj. EPS 50.6 56.8 58.0 60.6 72.6 

PER (X) 8.5 7.5 7.4 7.1 5.9 

P/BV (x) 0.7 0.6 0.5 0.5 0.4 

ROCE (%) 1.0 2.3 2.5 4.6 5.8 

ROE (%) 8.0 7.3 6.6 6.5 7.3 

Source: Company, Nirmal Bang Institutional Reearch 


BUY 


CMP: Rs434 


Upside: 67% 

Amit K Srivastava 


+91-22-3926 8116 

Nitin Arora 


+91-22-3926 8169 

Key Data 


Mkt Cap (Rsbn/US$bn) 116/2.3 

52 Wk H / L (Rs) 1,135/402 




Promoter 48.1 47.7 47.7 

FII 17.1 16.8 16.3 

DII 21.0 21.3 22.2 





1 M 6 M 1 Yr 

Reliance Infra (3.7) (31.9) (59.2) 

Nifty Index (1.6) (11.2) (18.3) 

Source: Bloomberg


Assign Buy rating to stock with a target price of Rs724 

We assign a Buy rating and a target price of Rs724 to Reliance Infrastructure, implying 58% upside from the 

CMP, as the company’s business model comprises regulated returns, market driven returns, long gestation 

projects, and investments that cannot be captured by earnings-based multiple. Hence, we have used SOTP 

methodology, using a combination of price to book value (P/BV) and discounted cash flow (DCF) approach for 

the regulated business and infrastructure projects (road and metro rail projects), EV/EBITDA for EPC business 

and investment in Reliance Power at a 30% discount to the CMP. Our SOTP-based TP comprises: (1) 

Rs150/share from electricity business (Mumbai discom and Delhi discom), (2) Rs121/share from the EPC 

business, (3) Rs223/share from 38% stake in Reliance Power (4) Rs191/share as equity value of infrastructure 

projects (road, metro rail and transmission projects), and (5) Cash and investible surplus in the books at 

Rs40/share (at 50% discount). 


Valuation (Rsmn) Stake Method Multiple EBITDA EV Rs/share 

EPC segment - EV/EBITDA FY13, 5x 6,483.84 32,419 121 

Mumbai licence area - DCF-Equity CoE-14% - - 119 

R-Power 38% 30% disc. to CMP - - - 223 

Delhi distribution 49% DCF -Equity CoE-14% - - 31 

Metro rail projects - DCF -Equity CoE-16% - - 27 

Road projects - DCF -Equity CoE-16% - - 149 

Power transmission projects - DCF -Equity CoE-16% - - 14 

Net cash - - - - - 40 

Target price - - - - - 724 

Source: Company and Nirmal Bang Institutional Equities Research 

Stock trading below stress case valuation level 

Reliance Infrastructure has historically traded in the range of 0.7x to 4.5x P/BV, which has come down to 0.5x. 

Adjusted for the value of stake in Reliance Power and cash in its books; the market appears to be assigning 

just 10% value to infrastructure, electricity and EPC businesses combined, which we believe is unjustified. We 

believe the stock will be re-rated on successful commencement of infrastructure projects under development, 

deployment of cash in profitable infrastructure projects and improvement in execution of EPC order book. 

Exhibit 2: PE ratio trend 

(x) 

60 

50 

40 

30 

20 

10 

0 


P/E 

5 year avg 


Exhibit 3: P/BV trend 

(x) 

5.0 

4.5 

4.0 

3.5 

3.0 

2.5 

2.0 

1.5 

1.0 

0.5 

0.0 


P/B 

5 year avg 


Electricity business 

The company’s electricity business includes Mumbai discom (generation, transmission and distribution) and 

Delhi distribution which earns regulated return on equity. We have used the DCF model to value the electricity 

business. We have assumed 14% cost of equity and a terminal growth of 3%. Accordingly, we have derived a 

value of Rs119/share (implying a P/BV of 1.4x) for Mumbai discom and Rs 31/share (implying a P/BV of 

0.75x) for Delhi discoms. 

42 Reliance Infra


EPC segment valued at EV/EBITDA of 5x 

We have valued the EPC segment at 5x EV/EBITDA on FY13E earnings, which is 25% below the lower end of 

the average range for pure construction companies. The company has EPC order book of Rs280bn, which is 

primarily from Reliance Power. Hence, a 25% discount is justifiable as compared to a pure EPC player. 

Exhibit 4: EPC segment valuation 

EBITDA (FY13, Rsmn) 6,483.84 

Average EV/EBITDA 

6x-8x 

25% discount to lower band 5x 

EV 32,419 

Rs/share 121 


Infrastructure projects valued on P/BV, DCF 

The company has a portfolio of eleven road projects, three metro rail projects and five power transmission 

lines. We have valued the operational projects on DCF basis and under-development projects on P/BV basis. 

Though the infrastructure business contributes about 27% to our target price, we believe that going ahead this 

segment will be a key driver of valuation and earnings growth and the company best positioned in terms of 

Balance Sheet strength to support the equity commitment for future projects. 

Exhibit 5: Infrastructure projects valuation 

Infrastructure projects Model Rs/share 

Road projects BOT CoE-16% 149 

Metro rail projects BOT CoE-16% 27 

Power transmission projects BOT, regulated CoE-16% 14 

Total - - 191 


38% stake in Reliance Power 

Reliance Infrastructure has a 38% stake in Reliance Power, which is executing 18,840MW power generation 

project. We have valued Reliance Power stake at a 30% holding discount to the CMP and arrived at a 

valuation of Rs 223/share (around 60% CMP of Reliance Infrastructure). 

Exhibit 6: Reliance Power valuation 

CMP (Rs) 80 

No. of equity shares (mn) 2,805 

Mkt cap (Rsmn) 224,408 

Holding discount 30% 

Stake 38% 

Value of equity (Rsmn) 59,693 

Rs/share 223 


Exhibit 7: Reliance Power project portfolio 

Plant name Capacity (MW) Type 

Butibori 600 Coal 

Samalkot 2,400 Gas 

Sasan UMPP 3,960 Coal 

Krishnapatnam 3,960 Coal 

Chitrangi power project 3,960 Coal 

Tilaya UMPP 3,960 Coal 


43 Reliance Infra



Extension of licence period of Mumbai power distribution company 

Mumbai discom includes Dahanu power generation (500MW), transmission network from Dahanu to Mumbai 

area and the distribution network in Mumbai suburbs with regulated equity of Rs22bn. MERC has extended 

the licence period in suburban Mumbai (which had expired on 15 August 2011) by another 25 years. It was 

also clarified that new licencees shall have to lay their own distribution network for distributing electricity, as 

the existing network belongs to the company. We believe this is a positive development which will eliminate 

the overhang and lead to re-rating of Mumbai discom. We have valued the Mumbai suburbs power 

distribution business at Rs119/share (implied P/BV of 1.4x and accounting for 16% of our SOTP) at a 

CoE of 13.5%, given the fix return of 16% on regulated equity. 

Exhibit 8: Regulated equity 

Segment Regulated equity (Rsmn) RoE (%) 

Distribution 14,900 16 

Transmission 1,500 15 

Generation 5,500 23 

Total (Mumbai discom) 21,900 - 

Delhi discoms (BRPL&BYPL) 22,000 16 


Cross subsidy charges lead to reduction in subscriber migration 

MERC has approved cross-subsidy charges to customers who have migrated to Tata Power Company. Crosssubsidy 

charge would be levied over and above the wheeling charges. This would allow the company to 

charge a higher tariff to migrated customers in order to subsidise low-end customers. Earlier, Tata Power 

Company was able to poach high-end customers of Reliance Infrastructure as Tata Power Company’s tariff, 

even with wheeling charges, were lower. Once cross-subsidy charges are levied, there will not be much 

difference between Reliance Infrastructure and Tata Power Company’s tariff and hence, the cross-over of 

customers is expected to reduce. 

Exhibit 9: Customer base 

Exhibit 10: Electricity units sold 



Approval for regulated assets worth Rs 23bn should lead to reduction in debt 

The company’s accumulated regulatory assets (the gap between power cost and tariff to consumers) of Rs 

23bn has increased its debt by the same amount. MERC has approved regulatory assets of Rs 23bn, which 

will be recovered over a period of time. Apart from this, the company is now levying charges based on the cost 

of electricity and as result no regulatory assets are getting built. 

44 Reliance Infra


Exhibit 11: Regulatory assets 

Revenue gap 

Approved 

(Rsbn) 

Remarks 

Regulatory assets (FY05-FY09) 7.32 Already approved in past tariff orders but recovery was deferred 

Incremental revenue gap of FY09 0.96 - 

Incremental revenue Gap of FY10& 11 13.74 Impact of tariff stay and subsidy 

Impact of ATE order 0.91 ATE allowed carrying cost at SBI PLR(against 6% considered by MERC) 

Capitalisation 0.23 Recognising past year’s capitalisation 

Total gap 23.16 - 


Exhibit 12: Power procurement plan 

Medium-term 

Source Duration Capacity(MW) Levelised tariff (Rs/Unit) 

KSK Energy FY12-14(3 years) 260 4.85 

Abhijeet FY12-14(3 years ) 55 4.8 

R-Power (Butibori) FY13-14(3 years) 135 4.8 

DTPS Till FY17 500 Regulated 

Total - 950 - 


Exhibit 13: Power cost break-up 

2.81 3.76 4.26 5.43 7.40 6.59 6.40 

1.1 

1.11 1.11 1.16 1.28 1.53 1.64 

1.76 

2.72 3.22 4.36 6.12 5.06 4.76 

FY05 FY06 FY07 FY08 FY09 FY10 FY11 

Power purchase Distribution cost 


Delhi discoms area tariff hike by 21.7% to ease liquidity crunch 

The company has a combined 49% stake in BSES Rajdhani Power Limited (BRPL) and BSES Yamuna Power 

Limited (BYPL) units of Delhi power distribution business, which have regulated equity of around Rs22bn. Recently, 

DERC hiked the tariff by 21.7% after six years (last tariff hike of 6.6% was witnessed in 2005-06), which comes as a 

big respite for Delhi power distribution units (BRPL and BYPL) as they were facing a severe liquidity crunch due to 

rising gap between power cost and tariff charged to consumers. There was also a steep increase in debt level in 

order to fund capex and power procurement cost. We believe this move (the tariff hike) is a major positive towards 

improving the deteriorated financials of Delhi discoms and we expect further tariff hikes to happen, in tranches, in 

order to recover accumulated revenue deficit and ease the company’s liquidity position. We have valued Delhi 

power distribution business at Rs31/share (implied P/BV of 0.75x ) at a CoE of 13.5%, given the fixed return of 16% 

on regulated equity. 

45 Reliance Infra


Exhibit 14: EPC order book details 

EPC upcoming projects MW Remarks 

Internal projects 

600MW Butibori TPP 600 

2,400MW Samalkot power 

project 

6 x 660MW Sasan ultra mega 

power project 

Western Region strengthening 

project(ckm) 

External power projects 

EPC business order book at Rs 280bn 

The company has order book of Rs280bn in respect of its EPC arm, which is 7x FY11 EPC revenue. The 

order book is primarily driven by in-house orders of Reliance Power and construction work of infrastructure 

projects (seven power projects aggregating 9,900MW, one power transmission project of 3,285 circuit km and 

six road projects totaling 570km). We believe the EPC revenue is at inflexion point of growth and would show 

a CAGR of 50% over FY12-13. Some of the fast moving projects which would drive robust revenue growth are 

Samalkot and Butibori power projects, WRSS transmission project and road projects like Gurgaon-Faridabad, 

Jaipur-Reengus and Delhi-Agra. We expect the company to maintain its EBITDA margin of 8% in the EPC 

segment, driven by in-house designing, engineering capability and skilled manpower. 

We believe the company is currently going for in-house power and BOT projects. Going ahead, it would scale 

up the EPC segment by bidding for outside projects. We have valued the EPC business at 5x EV/EBITDA, 

which implies a valuation of Rs121/ share. 

80% engineering work completed, 90% of 220KV switchyard erection work completed All packages awarded and boiler drum lifting for both 

the units completed 

2,400 Major orders for gas and steam turbine, 90% packages awarded 

3,960 60% engineering work completed, further work stalled due to Indonesia coal price regime. Also, 20% of progress achieved in civil work 

3,285 

1,200MW Raghunathpur TPP 1,200 

1,200MW Rajiv Gandhi TPP* at 

Hisar 

500MW Parichha TPP* BOP 

package 

Solapur-Karad line in Maharashtra operational since February 2011. Limdi Vadavi line in Gujarat is operational since May 2011. Entire 

project to be commissioned in FY12 

Overall progress is 70% despite land acquisition delay. Boiler structure erection completed for both units of,400 KV. Switchyard in 

advanced stage of completion 

1,200 Trial run of both units completed and are under HPGCL commercial operations. 

500 90% progress achieved 


Infrastructure projects’ earnings to start gaining momentum 

The company has a strong infrastructure portfolio that consists of eleven road projects, three metro rail lines 

and five transmission projects worth Rs346bn. The execution of key infrastructure projects is on track. In the 

road portfolio, nine projects would be in revenue generation mode during FY12. In the metro rail portfolio, the 

Delhi metro is operational and Mumbai metro phase - I is likely to be commissioned by 4QFY12. In the power 

transmission portfolio, two lines of WRSS project have been commissioned and the full project is expected to 

be commissioned in FY12. We believe the company’s infrastructure portfolio is now turning from 

development stage to revenue generation stage. 

Exhibit 15: Infrastructure project portfolio 

Business Projects Cost (Rsbn) 

Road 11 120 

Metro rail 3 160 

Transmission 5 66 

Total 19 346 


Road projects: Six additional projects in revenue generation mode in FY12 

The company is developing eleven road projects worth about Rs120bn, of which three projects have started 

generating revenue and another six projects would do so in FY12. The company reported healthy revenue 

from toll collection of Rs1.16bn in 1QFY12 from its four road projects. We expect the revenue from road 

portfolio to start ramping up once heavy traffic toll projects like Delhi-Agra and Gurgaon-Faridabad get 

operational in FY12, followed by the four other road projects. The company also remains a beneficiary of 

upcoming NHAI projects, as it has achieved financial closure for all road projects. The contribution from road 

projects to our SOTP stands at Rs149/share. We have used the FCFE methodology to value Reliance 

Infrastructure’s portfolio of toll roads with a CoE of 14-16% and assuming traffic growth of 5-7%. 

46 Reliance Infra


Exhibit 16: Road project portfolio 

Road projects 

Length 

(kms) 

Concession period 

(yrs) 

Project cost 

(Rsbn) 

Debt 

(Rsbn) 

Grant/(Premium) 

(Rsbn) 

Equity 

(Rsbn) 

Revenue 

start 

Namakkal Karur 44 20 3.45 2.46 0.24 0.45 Operational 

Dindigul Samyanallore 53 20 4.15 3.32 0.31 0.52 Operational 

Trichy Karur 80 30 7.3 5.1 1.5 0.7 FY12 

Trichy Dindigul 88 30 5.37 3.22 1.07 1.08 FY12 

Salem Ulenderpet 136 25 10.61 6.37 2.12 2.12 FY12 

Gurgaon Faridabad 66 17 7.79 5.84 (1.5) 1.95 FY12 

Jaipur Reengus 52 18 5.56 3.89 1.03 0.64 FY12 

Pune Satara 140 24 19.85 10.9 (0.91) 8.9 Operational 

Kandla Mundra 71 25 11.28 7.9 (0.42) 3.38 Q4FY13 

Hosur Krishnagiri 60 24 9.24 6.47 (0.67) 2.77 FY12 

Delhi Agra 180 26 29.44 20.61 1.8 7.03 FY12 

Total 970 - 119.04 76.08 - 29.54 - 


Metro rail projects execution on track 

The company has a portfolio of three projects, of which Delhi Metro rail project was commissioned in February 

2011, Mumbai metro line phase– I is expected to be operational by 4QFY12 and Mumbai metro line phase -II 

by FY16. 

Delhi metro rail reported heavy traffic in June 2011 of 12,000 passengers/day (initially estimated as FY12 

traffic target) and leased out 25% of land parcels at New Delhi and Shivaji stations at Rs425/sq. ft. We have 

assumed passenger traffic of 28,000 in FY12 and average leasing rate of Rs325 /sq. ft. at a majority of real 

estate parcels in Dwarka. We have valued Delhi metro rail project based on FCFE methodology with a CoE of 

16%, which accounts for Rs 18/share in our SOTP valuation. 

Exhibit 17: Metro rail projects 

Metro rail projects 

Length Project cost Debt Grant Equity COD/Rev Concession 

(km) (Rsbn) (Rsbn) (Rsbn) (Rsbn) 

start period (years) 

Stake (%) 

Delhi 23 24.5 17.15 7.35 Feb-11 30 95 

Mumbai - Phase 1 11 25 12.75 6.75 5.5 Q4FY12 35 69 

Mumbai - Phase II 32 110 70.4 23.1 16.5 Within 5 year 35* 48 

Source: Company, Nirmal Bang Institutional Equities Research *could be extended for further 10 yrs 

Largest private player in power transmission projects 

The company is developing five power transmission projects worth about Rs66bn, which includes WRSS, 

Parabati-Koldam, Mumbai transmission, North Karanpura and Talcher II. The company has commissioned 

two lines of WRSS project, i.e. Solapur-Karad and Limbdi-Vadavi, and expects the entire project to be 

commissioned in FY12. We have valued the transmission business (WRSS project) at Rs14/share by 

assuming CoE at 16%. 

Exhibit 18: Power transmission projects 

Transmission 

projects 

Project cost 

(Rsbn) 

Tariff 

structure 

Stake 

(%) 

Remarks 

WRSS 13.8 Competitive 100 Commissioned two lines ,i.e Solapur Karad and Limbdi - Vadavi 

Parabati-Koldam 10.7 Regulated 74 Signed financing agreement with PFC and REC for debt amount of Rs7.7bn 

Obtained approval from MOP for commencement of work 

Construction activity has commenced at project site 

Mumbai transmission 18 Regulated 100 All major equipment orders such as for GIS, transformers, cables placed 

Three receiving stations already charged in FY11 

North Karanpura 15.5 Competitive 100 Acquisition process completed 

Talcher II 8.2 Competitive 100 Acquisition process completed 

Total 66.2 - - - 


Transmission licence received and project execution commenced 

Transmission license received and project execution commenced 

47 Reliance Infra


Other businesses at development stage 

Airport business 

Reliance Infrastructure, through Reliance Airport Developers (RAD), has won lease rights to develop and 

operate five brownfield airports in Maharashtra - at Nanded, Latur, Baramati, Yavatmal and Osmanabad – for 

a period of 95 years, for which an upfront premium of Rs630mn has been paid. Nanded and Latur airports 

have obtained aerodrome licence from the Directorate General of Civil Aviation (DGCA). At Baramati airport, 

the terminal building has been refurbished along with a VIP room facility. Osmanabad airport terminal building 

is under construction. Re-carpeting and widening of the runway at Yavatmal airport has been completed and 

operations by non- scheduled aircraft have commenced. 

Exhibit 19: Airport portfolio 

Airports Runway length Land area Opportunities on anvil 

(mtrs) 

(hectare) 

Nanded 2,300 105 

Latur 2,420 145 

Yavatmal 2,100 113 

Baramati 2,350 182 

Osmanabad 1,200 55 

Total 600 


Cement projects 

Cargo and logistics hub 

Air connectivity – Pune, Hyderabad, Amritsar and 

Tirupati. Pilgrims visiting ‘Sachkhand Gurudwara’ 

Warehousing and food storage hub 

Air logistics hub 

Aviation Engg. Institute and aviation theme film studio 

Air connectivity - Mumbai, Nagpur and Delhi 

Emerging power and cement manufacturing hub 

Aircraft recycling zone 

Aircraft parking plaza 

MRO hub 

Textile , leather SEZs of Italian government 

Aviation and aeronautical engineering institute 

Reliance Cementation, a wholly-owned subsidiary of Reliance Infrastructure, has achieved certain milestones 

in setting up two cement plants of 5mt capacity each at Maihar, Madhya Pradesh and at Mukutban, 

Maharashtra, with a project cost of Rs47bn. 

Exhibit 20: Milestones at Madhya Pradesh, Maharashtra cement project sites 

Madhya Pradesh project 

Land acquisition completed 

Environment clearance received 

Mining lease secured for limestone resource 

Orders placed for major plant and machinery 


Maharashtra project 

Land acquisition completed 

Environment clearance received 

Limestone resources at advanced stage of approval 

Orders placed for major plant and machinery 

48 Reliance Infra


Exhibit 21: Corporate structure 

Company background 

Reliance Infrastructure is involved in the complete chain of power generation, transmission and distribution 

business. In the infrastructure space, it is developing 11 road projects, 3 metro rail projects and 5 transmission 

lines on BOT basis. The EPC division has an order book of over Rs 280bn, primarily in-house projects in the 

power and infrastructure space. The company generates 940MW of electricity through its power stations 

located in Maharashtra, Andhra Pradesh, Kerala, Karnataka and Goa. The company holds a 38% stake in 

Reliance Power, which plans to have a portfolio of 32GW of generating assets. 

Source: Company 

49 Reliance Infra



Rise in the execution rate in construction segment and write-back of depreciation helped the company to 

register earnings growth in the standalone business. 

EPC income surged by 295% YoY and margin stood at 14.6%, up 220bps. 

Revenue from infrastructure projects jumped 121% sequentially on commencement of tolling by Hosur- 

Krishnagiri road project and full quarter contribution from Delhi metro rail project. 

Interest costs jumped on commissioning of Delhi metro rail project. 

Exhibit 22: 1QFY12 performance 

Y/E March (Rsmn) Q1FY11 Q4FY11 Q1FY12 YoY (%) QoQ (%) 

Net sales 38,256 37,980 51,910 35.7 36.7 

Total expenditure 34,157 34,646 44,022 28.9 27.1 

EBITDA 4,080 3,334 7,890 93.4 136.7 

EBITDAM (%) 10.7 8.8 15.2 - - 

Depreciation 1,196 1,115 1,024 (14.4) (8.2) 

EBIT 2,884 2,219 6,866 138.1 209.4 

Interest cost 1,372 1,893 2,168 58.0 14.5 

Other income 2,020 2,530 1,283 (36.5) (49.3) 

PBT 3,531 2,856 5,981 69.4 109.4 

Tax expense 664 (578) 2,713 308.6 - 

Net profit 2,867 3,434 3,268 14.0 (4.8) 

Net Profit (Post MI & Associates) 3,753 4,114 4,057 8.1 (1.4) 


50 Reliance Infra


Financial performance 

Revenue to show a CAGR of 21% 

During FY11, net sales increased by only 3.4% to Rs151bn on lower energy sales because of migration of high-end 

customers to Tata Power Company. We expect the migration to reduce in the coming quarters due to levy of subsidy and 

the company’s medium-term power procurement plan to reduce power costs. The EPC segment is expected to show a 

CAGR of 50% over FY12-13. Based on this, net sales would show a CAGR of 21% in FY12 and FY13 to Rs186bn and 

Rs221.8bn, respectively. 

Exhibit 23: Revenue trend 

(Rsbn) (%) 

250 

200 

150 

100 

50 

126 

146 151 

186 

222 

60 

50 

40 

30 

20 

10 

- 


Net sales (Rsbn) 

% YoY 

- 


EBITDA to show CAGR of 64% 

During FY11, EBITDA rose 22% to Rs14.9bn and EBITDA margin improved 150bps to 9.9%. We expect 

EBITDA to show a CAGR of 64% to Rs30.7bn and Rs40bn for FY12 and FY13, respectively, driven by robust 

growth in EPC segment, rising contribution of high margin infrastructure projects and revision in power tariff. 

However, net profit is expected to be subdued and show a CAGR of 12% over FY12/13 due to increase in 

interest costs and lower other income. 

Exhibit 24: EBITDA, EBITDA margin trends 

(Rsbn) (%) 

45 

40 

35 

30 

25 

20 

15 

10 

5 

0 

6.3 

12.3 

15.0 

30.7 

40.1 


EBIDTA (Rsbn) 

EBIDTAM% 


20 

18 

16 

14 

12 

10 

8 

6 

4 

2 

0 

Exhibit 25: Net profit trend 

(Rsbn) (%) 

25 

25 

20 

19.5 

20 

15.2 15.5 16.2 

15 13.5 

15 

10 

10 

5 

5 

0 

- 


RPAT (Rsbn) % YoY 


51 Reliance Infra


Core earning changing the return ratio trend 

The company’s earnings scene is now shifting from the stress on other income to core earnings over the 

period. This is reflected in the return ratios, where RoCE is showing an improving trend as cash is getting 

deployed in infrastructure projects which are driving up operating income and reducing other income, thereby 

suppressing the RoE. We expect the RoCE to improve by 120bps to 5.8% and the RoE by 80bps to 7.3% in 

FY13. 

Exhibit 26: Return ratios trend 

(%) 

12 

10 

8 

6 

4 

2 

0 



ROE (%) ROCE (%) 

The company had announced buy-back of shares worth Rs10bn at a maximum price of Rs 725/share. It 

has already bought around 3mn shares at an average price of Rs575/share. 

52 Reliance Infra


Financials 



Net sales 125,781 146,286 151,278 186,080 221,879 

Growth (%) 50.7 16.3 3.4 23.0 19.2 


EBITDA 6,299 12,264 14,981 30,729 40,056 

Growth (%) 18.4 94.7 22.2 105.1 30.4 

EBITDA margin (%) 5.0 8.4 9.9 16.5 18.1 

Depreciation 3,304 4,724 4,825 7,961 9,152 

Interest costs 4,394 5,251 6,350 11,378 13,314 

Other income 14,774 11,188 9,752 5,687 3,450 

Profit before Tax 13,375 13,476 13,558 17,077 21,041 

PBTM (%) 10.6 9.2 9.0 9.2 9.5 

Tax 783 1,498 1,268 4,106 5,161 

Reported PAT 12,591 11,978 12,290 12,971 15,879 

Growth (%) 10.4 (4.9) 2.6 5.5 22.4 

RPAT (post minority share) 13,532 15,194 15,516 16,201 19,432 




Equity capital 2260.7 2449.2 2674.7 2674.7 2674.7 

Share warrants 7834.9 5410.8 - - - 

Reserves & surplus 158,880 199,181 233,401 247,357 264,544 

Net worth 168,976 207,041 236,076 250,032 267,219 

Minority interest 1116 1146.8 1876.4 1876.4 1876.4 

Long -term loans 46,215 57,490 94,695 98,116 101,132 

Short-term loans 54838.5 28349 28356.7 28356.7 28356.7 

Total loans 101,054 85,839 123,052 126,473 129,489 

Deferred tax (liability) /assets 2113.4 1569.4 987.9 987.9 987.9 


Gross block 101,074 117,482 143,967 211,770 242,681 

Less: Depreciation 46,380 51,683 56,508 64,469 73,621 

Net block 54,694 65,799 87,459 147,301 169,060 

Capital WIP 35,582 46,387 100,301 77,498 85,248 

Investments 159364.1 136591.4 137939 124145.1 111730.59 

Current assets 95,695 132,399 182,150 197,132 225,686 

Inventories 5,606 3,898 4,255 5,098 6,079 

Sundry debtors 19,278 22,496 73,000 63,726 75,986 

Cash and bank balances 4,583 4,494 6,357 13,475 14,671 

Other current assets 10,775 15,605 18,653 20,518 22,570 

Loans and advances 55,453 85,906 79,885 94,315 106,380 

Current liabilities and provisions 72,077 85,580 145,857 166,707 192,153 

Current liabilities 59,129 70,421 132,381 152,943 176,287 

Provisions 12,949 15,159 13,476 13,765 15,866 


Total assets 273,259 295,596 361,992 379,369 399,572 




EBIT 2,995 7,539 10,156 22,768 30,904 

Inc./(dec.) in working capital (2,530) (13,265) (13,401) 12,985 (1,912) 

Cash flow from operations 464 (5,726) (3,245) 35,753 28,992 

Other income 11,877 8,341 10,895 17,065 16,764 

Depreciation 3,304 4,724 4,825 7,961 9,152 

Interest paid (-) (4,394) (5,251) (6,350) (11,378) (13,314) 

Tax paid (-) (2,072) (404) 326 (4,106) (5,161) 

Dividends paid (-) (1,701) (2,005) (1,849) (2,245) (2,245) 

Net cash from operations 7,478 (321) 4,602 43,051 34,188 



Inc./(dec.) in borrowing 16,459 12,918 55,025 3,422 3,016 

(Inc./(dec. in investments 3,837 9,329 20,272 5,645 2,653 

Equity issue/(buyback) 603 33 665 - - 


Change in cash 3,429 (88) 1,863 7,117 1,196 

Opening cash 1,154 4,583 4,494 6,357 13,475 

Closing cash 4,583 4,494 6,357 13,475 14,671 


Exhibit 30:Key ratios 


EPS 51 57 58 61 73 

Cash EPS 63 74 76 90 107 

Valuations 

PE ratio (x) 8.5 7.5 7.4 7.1 5.9 

Price/sales (x) 0.8 0.7 0.8 0.6 0.5 

Price /CEPS (x) 6.8 5.7 5.6 4.7 4.0 

Price /BV (x) 0.7 0.6 0.5 0.5 0.4 

EV/sales (x) 0.3 0.8 1.0 0.9 0.8 

EV/EBITDA (x) 5.4 9.3 10.5 5.5 4.5 

EV/EBIT (x) 11.3 15.2 15.5 7.4 5.9 

Margins (%) 

EBITDA margin 5.0 8.4 9.9 16.5 18.1 

EBIT margin 2.4 5.2 6.7 12.2 13.9 

PBT margin 10.6 9.2 9.0 9.2 9.5 

Net margin 10.8 10.4 10.3 8.7 8.8 

Returns (%) 

RoCE 1.0 2.3 2.5 4.6 5.8 

RoNW 8.0 7.3 6.6 6.5 7.3 

Efficiency ratios 

Asset T/O 0.5 0.5 0.4 0.5 0.6 

Fixed asset T/O 1.2 1.2 1.1 0.9 0.9 

Dupont 

NPM (PAT/sales) 0.11 0.10 0.10 0.09 0.09 

Total asset T/O 0.46 0.49 0.42 0.49 0.56 


Gearing ratios 

Net debt/equity (x) (0.4) 0.05 0.2 0.2 0.3 


Debt / EBITDA (x) 16.0 7.0 8.2 4.1 3.2 


53 Reliance Infra



54 Reliance Infra




Reuters: GMRI.BO; Bloomberg: GMRI IN 

On Recovery Path 

GMR Infrastructure, a leading infrastructure company, has underperformed the 

Nifty in the past three years by 55% because of multiple issues like Balance 

Sheet concerns post leveraged buyout of Intergen, funding constraints for mega 

expansion plan, overhang of regulatory issues and pressure on profitability. 

Looking at the recent developments like adequate raising of capital for near-term 

expansion, sale of Intergen stake and expected other positive developments like 

improvement in profitability and clarity on regulatory issues, we believe the 

concerns have been largely priced in the CMP of GMR Infrastructure and 

provides a good investment opportunity for long-term investors. We assign a 

Buy rating and a target price of Rs39 to the stock based on SOTP valuation. 

Blend of improvement in profitability and growth: Post commercial operations of 

projects like Delhi airport, Turkey airport and shifting of Barge mount power plant, the 

company has started incurring losses due to higher capacity charges. We believe 

robust growth in traffic coupled with cost-cutting measures will improve profitability and 

loss-making projects will turn FCF positive in FY12, staging a turnaround in the next 

two years (favourable tariff outcome at Delhi airport to expedite the process). Three 

thermal power projects of 2.7GW are in advanced stage of construction and slated for 

commercial operations in FY12-13, which will drive growth. 

Projects under construction well funded: The company has divested stake and 

booked all losses pertaining to Intergen in 4QFY11, which has released equity capital 

of Rs 9.58bn and eased rising leverage concerns. Apart from this, the company has 

raised around $950mn (for power and airport subsidiary), which is sufficient to meet 

the near-term funding requirements of the project pipeline. 

Clarity expected on regulatory issues: The company continues to face a lot of 

regulatory issues like enhanced project costs, renewal of suspended ADF and 

incremental ADF of Rs17bn, rate of return on regulated base and gas/coal availability 

for power projects under construction. We believe the current market price seems to 

be factoring in most of these uncertainties and our earnings model is based on a worst 

case scenario. Hence, clarity on these issues, which is expected in the next two-three 

months, will be positive for the stock. 

Valuation: We assign a Buy rating and a SOTP-based target price of Rs39 to GMR 

Infrastructure. In our target price, 75% is contributed by operational projects and the 

remaining 25% from projects at various stages of development. Key contributors to our 

TP of Rs39 comprise Rs20 from airports business (including real estate), Rs14 from 

power generation and coal mining, and Rs3 from the road segment. 


Net Sales 40,192 45,665 57,738 71,096 105,284 

YoY (%) 75.1 13.6 26.4 23.1 48.1 

EBIDTA 10,668 13,643 15,553 21,644 38,014 

EBIDTAM (%) 26.5 29.9 26.9 30.4 36.1 

Adj. Net Profit 2,794 1,581 (1,313) 811 4,777 

EPS Growth (%) 33.0 (43.4) (183.0) 161.8 489.2 

Adj. EPS 0.7 0.4 (0.3) 0.2 1.2 

P/BV (x) 0.8 1.7 1.2 1.2 1.2 

PER (X) 41.8 73.9 NA 144.0 24.4 

EV/EBIDTA 18.7 19.2 19.0 15.6 9.5 

ROE (%) 4.3 2.4 NA 1.0 5.8 

ROCE (%) 5.2 4.6 4.3 5.7 9.4 



BUY 


CMP: Rs28 


Upside: 39% 



+91-22-3926 8116 

Nitin Arora 


+91-22-3926 8169 

Key Data 

Current Shares O/S (mn) 3,892.4 


52 Wk H / L (Rs) 61/26 




Promoter 70.7 71.2 71.4 

FII 13.2 12.8 12.6 

DII 8.3 8.2 8.1 





1 M 6 M 1 Yr 

GMR Infra 0.5 (24.1) (51.7) 

Nifty Index (1.6) (11.2) 18.3 

Source: Bloomberg



SOTP -based target price of Rs39 

We assign a Buy rating and a target price of Rs39 to GMR Infrastructure. We have valued the stock via the SOTP route 

using DCF methodology, as most projects are long term in nature and have a fixed concession period with a strong and 

predictable cash flow. 

We have used varied cost of equity across projects to factor in the different businesses and execution risks. For instance, 

the cost of equity has been assumed at 14-15% for airport projects (a mix of assured and market-driven returns) and 17% 

for realty projects. For power projects, the cost of equity has been considered in the range of 14-16%, depending on 

factors such as proportion of merchant power, fuel supply arrangement and the stage of development. For road projects, 

the cost of equity has been assumed at 14% for annuity-based projects and 16% for toll-based projects. 

Accordingly, we have arrived at a valuation of Rs39 comprising Rs20 (54% of SOTP) for airport projects (including real 

estate), Rs14 (35% of SOTP) for power and coal mining projects, Rs3 (8% of SOTP) for road projects and the balance 

represents cash. In our SOTP valuation, we have not factored in projects which are still at the planning stage. In our TP, 

75% is contributed by operational projects and the remaining 25% by projects that are at various stages of development. 

Airports Asset value GMR stake Value of stake Project cost Value/share 

DIALcore 30,032 54% 16,218 12,760 4.2 

DIAL real estate - - 38,155 - 10 

HIALcore 34,998 63% 22,049 29,200 5.7 

HIAL real estate - - 9,900 - - 

SGHIA 8,320 40% 3,328 29,315 0.9 

Total 73,351 89,649 - 20 

Power MW Equity value GMR stake Value of stake Rs/share 

GMR Energy 220 5,739 100% 5,739 1.47 

GMR Power Corporation 200 6,781 51% 3,458 1.74 

Vemagiri Power Generation 389 6,677 100% 6,677 1.72 

GMR Kamalanga Energy 1,400 22,588 80% 18,070 4.64 

Rajahmundry 768 7,306 100% 7,306 1.88 

Emco Energy 600 5,818 100% 5,818 1.49 

Total 5,417 54,910 - 47,070 12 

Valuation- mining assets Mining reserves(mt) Equity value (Rsmn) Stake (%) Value of stake Equity value/ share (Rs) 

PT Barasentosa Lestari, Indonesia 110 5,875 100% 5,875 1.5 

Homeland Energy Group 270 3,620 56% 2,027 0.6 

Mining assets value/share (Rs ) 2.1 

Project name Route length (km) Value (Rsmn) Stake (%) Value of GMR stake Rs/share 

Tambaram-Tindivanam 93 2,041 61% 1,245 0.3 

Tuni - Anakapalli 59 2,711 61% 1,694 0.4 

Adloor-Gunla-Pochanpalli 103 2,543 100% 2,543 0.7 

Ambala-Chandigarh 35 (175) 100% (174) (0.0) 

Faruknagar-Thondapalli-Jadcherla 58 4,206 100% 4,206 1.1 

Tindivanam-Ulundurpet 73 1,324 100% 1,324 0.3 

Total 421 - - 10,838 2.8 

Net cash - - - - 2.0 

Price target - - - - 39 


Exhibit 2: GMR Infrastructure –Valuation trend 

(x) 

60 

50 

40 

30 

20 

10 

0 


EV /EBITDA 

5 year avg 


(x) 

5.0 

4.5 

4.0 

3.5 

3.0 

2.5 

2.0 

1.5 

1.0 

0.5 

0.0 


P/B 

5 year avg 


56 GMR Infrastructure



Airport portfolio - Focus on profitability (54% of SOTP value) 

GMR Infrastructure currently has a portfolio of four airport assets, two of which are domestic (New Delhi and 

Hyderabad) and two international projects which include Sabiha Gokcen International Airport (SGIA), Istanbul, 

and Male International Airport, Maldives. The Hyderabad airport is a greenfield project while Delhi, Sabiha 

Gokcen and Male airports are brownfield projects. 

We have valued the airports' core business at Rs41bn based on FCFE valuation method, given the steady 

and recurring cash flow during the concession period. Airports' core assets contribute 22.5% to our SOTP 

valuation. If we include the value of real estate development, the airport assets account for 54% of our SOTP. 

Exhibit 3: Airport portfolio 

Stake Capex (Rsbn) Project status Passenger traffic (mn) Development rights 

Delhi airport 54% 12.7 Operational 30.0 250-acre land 

H’bad airport 63% 29.2 Operational 7.59 1,500-acre land 

Sabiha 40% 29.3 Operational 12.20 N/A 

Male airport 77% 13.9 Brownfield-U/I 2.50 N/A 


Exhibit 4: Airport valuation 

Airports (Rsmn) Asset value GMR stake Value of stake Project cost Value/share CoE 

DIALCore 30,032 54% 16,218 12,760 4.2 15% 

DIAL Real estate - - 38,155 - 10 - 

HIALCore 34,998 63% 22,049 29,200 5.7 16% 

HIAL Real estate - - 9,900 - - - 

SGHIA 8,320 40% 3,328 29,315 0.9 15% 

Total 73,351 - 89,649 - 20 - 


Airport assets: Focus on profitability 

Airport assets, which are capital intensive in nature, have higher capacity charges and are loss-making in the 

initial two-three years. The company has completed two brownfield expansions (DIAL and SGIA) and one 

greenfield expansion (GHIAL) in the past three years. The company has recently bagged the brownfield 

expansion project at Male airport, which is profitable and has operating cash flow, and it would be funded 

through internal accruals. Hyderabad airport has turned profit-making in 4QFY11 and started having operating 

cash flow. 

Delhi airport and Sabiha Gokcen airport projects were completed in the past one year and due to higher 

capacity charges have reported losses, which led consolidated financials to show losses. SGIA is witnessing 

robust traffic growth and is expected to turn around in the next three quarters. Profitability of Delhi airport will 

be based on clarity by the Airports Economic Regulatory Authority (AERA) on tariff determination for airports 

and the rate of return on regulated asset base as well as renewal of suspended ADF and incremental ADF of 

Rs17bn. Based on the current tariff, with a hybrid model; we expect the Delhi airport to turn around in FY14, 

registering cash profit and turning FCF positive in FY12. 

Exhibit 5: Passenger traffic trend (Delhi airport) (Hyderabad airport) 

(mn Pax) (%) 

8 

80 

7 

60 

6 

40 

5 

20 

4 

0 

3 

2 

(20) 

1 

(40) 

0 

(60) 

Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 

Domestic (Pax Traffic) International (Pax Traffic) % Growth % Growth 


(mn Pax) (%) 

1.8 

30 

1.6 

20 

1.4 

10 

1.2 

0 

1 

(10) 

0.8 

(20) 

0.6 

(30) 

0.4 

(40) 

0.2 

(50) 

0 

(60) 

Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 

Domestic (Pax Traffic) International (Pax Traffic) % Growth % Growth 




Exhibit 6: Road project portfolio 

Road portfolio scaling high 

GMR Infrastructure has a operational road portfolio of six operational BOT projects, three based on toll 

collection and three on annuity, aggregating Rs22.7bn. During FY11, the company achieved financial closure 

for three more road projects which are under construction, namely the Hyderabad- Vijayawada toll highway, 

the Chennai Outer Ring annuity road project and the Hungund-Hospet toll highway which are expected to 

achieve CoD (commercial date ) during FY13. This translates into a road length of nearly 421km operational 

and 310km under construction. The company has now shifted its focus from normal road projects to 

expressways, highways of longer stretch, mega projects, etc to leverage on its financial qualification and 

project execution capability. The company has already been short-listed for one mega expressway project 

worth Rs 60bn ($1.3bn). 

Road Projects GTAEPL GTTEPL GPEPL GACEPL GJEPL GUEPL 

Location Tuni-Anakapalli Tambaram-Tindivanam GMR Pochanpalli GMR Ambala-Chandigarh Faruknagar-jadcherla Tindivanam-Ulundurpet 

Stake (%) 61 61 100 100 100 100 

Length km 59 93 103 35 58 73 

Project cost (Rsmn) 2,950 3,620 7,043 4,993 5,155 8,817 

Scope of work 2 to 4 lanes 2 to 4 lanes 2 to 4 lanes 2 to 4 lanes 2 to 4 lanes 2 to 4 lanes 

CoD Dec-2004 Oct-2004 Mar-2009 Nov-2008 Feb-2009 Jul-2009 

Concession period 17.5 years from Jun-2002 17.5 years from Jun-2002 20 years from Sep-2006 20 years from May-2006 20 years from Aug-2006 20 years from Oct -2006 

Concession type Annuity Annuity Annuity Toll Toll Toll 

Under construction 

GHVEPL GCORRPL GHHEPL 

Location Hyderabad-Vijayawada Chennai outer ring road Hungund-Hospet 

Stake (%) 74 90 51 

Length (km) 181 29 99 

Project cost (Rsmn) 21,934 11,668 16509 

Scope of work 2 to 4/6 6 lanes& 2 service lanes 2 to 4 lanes 

CoD Jul-2012 Jul-2012 Dec-2012 

Concession period 25 years from Apr-2010 20 years from Jun-2010 19 years from Sep-2010 

Concession Type Toll Annuity Toll 


We have considered a combined value of Rs11.7bn for six road projects in our SOTP valuation using the 

FCFE methodology. Three annuity road projects contribute Rs6bn and three toll road projects constitute 

Rs5.7bn, resulting in a valuation of Rs2.90 per share. We have not included the valuation of the projects that 

are under construction. 

Exhibit 7: Road project valuation 

Project name Route length (km) Value (Rsmn) Stake Value of GMR stake Rs/share 

Tambaram-Tindivanam 93 2,041 61% 1,245.1 0.3 

Tuni - Anakapalli 59 2,711 61% 1,694.2 0.4 

Adloor-Gunla-Pochanpalli 103 2,543 100% 2,543.1 0.7 

Ambala-Chandigarh 35 (175) 100% (174.9) (0.0) 

Faruknagar-Thondapalli-Jadcherla 58 4,206 100% 4,206.5 1.1 

Tindivanam-Ulundurpet 73 1,324 100% 1,324.1 0.3 

Total 421 - - 10,838.2 2.8 




Exhibit 8: Upcoming Power Projects 

Commissioning of power projects (4x of existing) to drive next leg of growth 

GMR Infrastructure has three operational power generation plants in India having a total capacity of 839MW, 

which are expected to increase by 2,768MW over FY12-13. This is due to (a) Brownfield expansion at 

Rajmundry to 768MW during 1QFY13E; (b) Commissioning of first coal-fired plant at Kamalanga of 1,400MW 

during 2HFY13 (c) Commissioning of 600MW Emco plant in Maharashtra during 2HFY13E. All the above 

mentioned projects are in advanced stage of construction. Hence, we believe the projects would be completed 

on time. Apart from this, around 5.7GW of installed capacity, which we have not considered in our valuation, is 

at different stages of planning and development and would be commissioned over FY14-17. We believe the 

gradual completion of the projects would keep the growth momentum intact, with the contribution of power 

segment increasing from 35% in FY11 to 52% of revenue by FY14. 

Project Capacity (MW) Total Project Cost Remarks 

Rajamundry 768MW Rs32.5bn Incurred project cost of Rs24.5bn till June 2011 

85% of the project completed, expected COD in 1QFY13 

Kamalanga 1,050MW Rs64bn Incurred project cost of Rs25.2bn till June 2011 

56% of the project completed, ,expected COD in 2HFY13 

EPC contract awarded to SEPCO, China 

Emco Energy 600 MW Rs34.8bn Incurred project cost of Rs11.2bn till June 2011 

67% of the project completed, expected COD in 2HFY13 

Chhattisgarh 1,320 MW Rs82.9bn Incurred project cost of Rs13bn till June 2011 

94.8% of engineering activity, order placement of BOP package completed 

Construction work started, may be operational in 4QFY14 

GMR Energy Singapore 800 MW SG$1.12bn Financial closure achieved 

Expected COD in 3QFY14 


Exhibit 9: Power project portfolio 

Projects under development Fuel Capacity (MW) COD 

Kamalanga,Orissa Coal 1,400 Mar-12 

Emco,Warora, Maharashtra Coal 600 Jun-12 

Raikhera,Chhattisgarh Coal 1,370 Feb-14 

SJK Power, Shahdol, Madhya Pradesh Coal 1,370 Dec-14 

Total Coal 4,740 

Rajamundry Energy, Andhra Pradesh Gas 768 Mar-12 

Island Power, Singapore Gas 800 Nov-13 

Total Gas 1,568 

Alaknanda ,Uttarakhand Hydro-power 300 Mar-15 

Upper Karnali Hydro-power 900 Dec-15 

Talong, Arunachal Pradesh Hydro-power 160 Jun-16 

Bajoli Holi, Himacahal Pradesh Hydro-power 180 Jul-16 

Upper Marsyangdi, Nepal Hydro-power 600 Oct-16 

Total - 2,140 - 


Exhibit 10: Planned power generation capacity addition 

Planned power generation capacity addition (MW) 

Year FY10 FY11 FY12E FY13E FY14E 

Gradual capacity addition 

expected from FY12-13 

16 

16 

Total 823 839 839 3,607 7,147 


- 

2,768 

3,540 



Exhibit 11: Concerns related to projects 

Verticals 

Delhi airport 

Hyderabad airport 

Power sector 

Coal mines in Indonesia and South Africa are natural hedge 

GMR Infrastructure has bought 100% stake in PT Barasentoso Lestari, Indonesia, an undeveloped mine in 

Indonesia for a consideration of $100mn and recently increased the stake in HEG to 55%, a step to mitigate 

coal-availability issues and fluctuating coal-price risks. We believe owning mining assets abroad is a big 

positive for the company, considering the visible shortage of coal in India. The company is estimated to have 3 

power plants of 3.37GW by FY14 based on coal. 

The total extractable coal reserve of the mine is 110mt. At full production capacity, it will have an output of 

5mtpa.The valuation on the basis of US$1.5/tn translates into a mine value of $160mn and equity value of 

Rs1.5/share. 

Homeland Energy has a 74% stake in two mine assets which has reserves of around 270mt. The 

company expects initial production of 5.5mtpa, which would be ramped up to 16mtpa. The valuation on 

the basis of US$1/tn translates into a mine value of US$85m, resulting in a contribution of Rs0.6/share. 

Regulatory issues overdone and clarity expected 

During the past three years, GMR Infrastructure has underperformed by around 55% versus Nifty due to 

multiple issues related to airport and power sectors like 1) Regulatory uncertainty on tariff determination for 

airports, 2) Treatment for real estate and monetisation in Delhi airport by AERA, 3) Gas allocation and coal 

availability for upcoming and existing power projects, 4) Single-till approach for Hyderabad airport, 5) Renewal 

of ADF (temporarily suspended by Supreme Court until further clarity from the regulatory authority), and 6) 

Enhanced capex and incremental ADF. We believe the current market price seems to be factoring in most of 

these uncertainties and our earnings model is based on the worst case scenario in respect of these issues. 

Hence, clarity on some of the issues, which is expected in the next two-three months would be positive for the 

stock. 

Concerns 

No clarity on time frame for land monetisation of 205 acre in near future. 

Regulatory uncertainty on tariff determination for airports 

Renewal of ADF (temporarily suspended by Supreme Court until further clarity from the regulatory authority), 

Enhanced capex, incremental ADF 

AERA in favour of reduction in the value of real estate from regulated asset base (that is used for determining airport changed) 

AERA in favour of a single till model for tariff setting. 

Project execution delay 

Pressure on merchant tariff 

Lower PLF for projects 

Issue regarding coal availability 

Issue regarding gas availability 

No PPAs for under-construction projects 




Favorable outcome expected for ADF (Airport Development Fee) 

Based on our interaction with the company’s management on this issue, we believe the regulator has 

recognised the ADF requirement for project viability and may allow continuation of ADF for remaining amount 

out of Rs18.3bn. Apart from that, the enhanced capital cost Rs127.6bn (as against Rs128.6bn spent) has 

been approved for Delhi International Airport (DIAL) and we expect ADF approval for an incremental Rs17bn 

to bridge the funding gap in coming months. The tenure of the ADF levy has been worked out as 51 and 62 

months, respectively, as against earlier approved of 36 months from March 2009. 

Exhibit 12: Funding plan for DIAL 

Source 

Value (Rsbn) 

Equity 25.0 

Rupee term loan 36.5 

External commercial borrowing 16.2 

Interest-free lease/trade deposits 14.7 

ADF -Approved earlier by MOCA 18.3 Collected Rs11bn until March 2011 (i.e. In 25 months).Temporarily suspended 

ADF-Additional 17.0 

Project cost approved 127.6 

Cost disallowed 1 

Total project cost 128.6 

Source: AERA, Company, Nirmal Bang Institutional Equities Research 

Adequately funds for projects under construction 

The company has raised Rs 13.6bn through preference shares in power subsidiary and Rs 14.7bn 

compulsorily convertible preference shares (CCPS) in the airports vertical which would be used for general 

corporate purpose. Apart from that the company has got the released equity capital of Rs 9.58bn by 

divestment of equity stake in Intergen. We believe this is sufficient for near-term equity commitments of around 

Rs25bn for the project pipeline over FY12-13. The investments in the energy vertical would be used to fund 

the expansion plans of projects like: (a) Brownfield expansion at Vemagiri to 768MW, (b) 1,400MW power 

plant at Kamalanga in Orissa, (c) 600MW Emco plant in Maharashtra, and (d) 1,370MW power plant in 

Chhattisgarh. In the airports vertical, the company already has three operating airports and only one is under 

construction (Male airport), which will be funded through internal accruals. 

Exhibit 13: Fund raising through convertible instruments 

GMR Energy -Holding company 

Date Security issued Amount (Rsmn) 

9 April 2010 Compulsorily convertible into equity shares 9,000 Tamesak holdings, 

3 June 2010 Convertible instrument 4,650 IDFC, Argonaut Ventures and Ascent 

GMR Airport holdings(Holding company of airport assets) 

31 March 2011 Compulsorily convertible preference shares 8,932 

Macquarie SBI Infrastructure investments Standard Chartered private equity, 

JM financial-old lane india corporate 

6 July 2011 Compulsorily convertible preference shares 5,846 - 




Exhibit 14: Company structure 

Sustainable and growing asset portfolio 

GMR Infrastructure is India's leading infrastructure asset owner managing four airports (two operating airports 

in India at New Delhi and Hyderabad and the airports at Istanbul, Turkey, and Male, Maldives. It also has three 

operational power plants totaling 839MW and an under-construction portfolio of 8.4GW. In the road segment, 

the company has six operational projects totaling 421km and three under-construction projects totaling 310km 

with a project cost of Rs 30bn. 

GMR Holdings 


GMR Energy GMR Highways holding GMR Airports holding 

Others 

Operating Companies: 

GMR Energy (100%) 

GMR Power Corporation (51%) 

Vemagiri Power Generation (100%) 

Assets under development: 

Rajahmundry (100%) 

GMR Kamalanga Energy (80%) 

Operating companies: 

GMR Tambaram Tindivanam (61%) 

GMR Tuni Anakapalli (61%) 

GMR Pochanpalli (100%) 

GMR Ambala Chandigarh (100%) 

GMR Jadcherla (100%) 

GMR Ulundurpet (100%) 

Operating companies: 

GMR Hyderabad Int’l. Airport (63%) 

Delhi International Airport (54%) 

Sabiha Gokcen Int’l Airport (40%) 

GMR Male Int’l Airport (77%) 

GMR Krishnagari SEZ (100%) 

GMR Aviation (GAPL) (100%) 

GMR Chhattisgarh Energy (100%) 

Emco Energy (100%) 

Talong Hydro Power (100%) 

Holi Bajoli Hydro Power (100%) 

Himtal Hydro power Co. (80%) 

Assets under development: 

GMR Hyderabad Vijayawada (74%) 

Chennai Outer Ring Road (90%) 

Hungund-Hospeth (51%) 

GMR Upper Karnali (73%) 

GMR Badrinath Hydro Power(100%) 

GMR Coastal Energy (100%) 

Island Power Singapore (100%) 

Coal assets: 

Indonesia (100%) 

HEG, South Africa (56%) 


Exhibit 15: Growth path 





Revenue grew by 51% due to consolidation of Male airport, improvement in gas availability and also 

project execution improved in the EPC segment. Traffic at Delhi and Hyderabad airports increased by 

22% and 15% YoY, respectively, driving strong operating performance of these airports 

Reported a loss of Rs667mn, mainly due to higher interest costs and depreciation charges due to 

commissioning of T3 terminal at Delhi airport. 

Interest expenses climbed higher by 56%YoY due to short-term loans taken for DIAL. 

Management expects tariff charges to be fixed by the airport regulator by the end of CY11.Also expects 

SGIA airport to turn around in the next 3-4 quarters. 

Losses in road projects contracted, and the management expect a turnaround by the year-end. 


Y/E March (Rsmn) 1QFY11 4QFY11 1QFY12 YoY (%) QoQ (%) 

Net sales 12,313 19,620 18,635 51.3 (5.0) 

Total Expenses 8,539 15,214 13,656 59.9 (10.2) 

EBITDA 3,775 4,405 4,980 31.9 13.1 

EBITDA margin (%) 30.7 22.5 26.7 - - 

Other income 673 611 812 20.7 32.9 

Depreciation 1,648 2,612 2,758 67.4 (6.3) 

Interest 2,383 2,945 3,724 56.3 (137.8) 

Exceptional item - (9,839) - - - 

PBT 416 (9,930) (691) - - 

Tax 98 764 655 568.4 (106.1) 

Reported PAT 318 (10,693) (1,346) - - 

Minority interest 34 624 679 - - 

Adj PAT 284 (10,069) (667) - - 




Financial analysis 

Near-term revenue growth to be led by airports 

Net sales are likely to show a CAGR of 35% to Rs71bn and Rs105bn in FY12E and FY13E, respectively. The 

airports segment has started contributing significantly to the revenue from 3QFY11, considering robust growth 

in passenger traffic and completion of the DIAL phase-I. The contribution from power projects is likely to start 

rising from FY13 onwards, as a major portion of the expanded capacity would start contributing to revenue. 

Exhibit 17: Net sales 

Exhibit 18: Segment-wise revenue break-up 

(Rsbn) 

105 

(%) 

Revenue break up (% of total) 

60 

17 

23 

40 

46 

58 

71 

50 

40 

30 

20 

10 

48 

15 

37 

47 47 

40 40 

34 

32 

20 19 

21 

44 

17 

39 

FY07 FY08 FY09 FY10 FY11 FY12E FY13E 

CAGR 34.4% 

- 


Power Projects Road and other Projects Airports 



Turnaround in profitability 

We expect GMR Infrastructure’s EBITDA margin to expand from 24.2% in FY11 to 36% in FY13 on the back 

of improving margins from DIAL and HIAL airports. We expect profitability to be under pressure during FY12 

due to higher depreciation and interest costs post-commercialization of DIAL. Thereafter, in our view, the 

reported profit is likely to show a CAGR of 312% over FY11-13, largely driven by operating leverage of 

high-margin assets such as HIAL and DIAL and negative base in FY11. 

Exhibit 19: EBIDTA margin trend 

Exhibit 20: Net profit growth trend 

(%) 

40 

36 

(Rsbn) 

21 

35 

30 

26 27 

30 

27 

30 

12 

25 

7 

8 7 

20 

15 

10 



CAGR 33% 


Source: Bloomberg, Nirmal Bang Institutional % Equities Research 



Financials 



Total revenue 44,762 51,234 64,250 82,766 118,681 

Growth (%) 65.9 14.5 25.4 28.8 43.4 

Less: Annual fee to AAI 4,570 5,569 6,513 11,670 13,397 

Net revenue 40,192 45,665 57,738 71,096 105,284 

% YoY 75.1 13.6 26.4 23.1 48.1 


EBITDA 10,668 13,643 15,553 21,644 38,014 

EBITDA margin (%) 26.5 29.9 26.9 30.4 36.1 

Depreciation 3,898 6,122 8,609 10,787 15,905 

EBIT 6,770 7,521 6,944 10,857 22,110 

EBIT (%) 15.1 14.7 10.8 13.1 18.6 

Interest and finance charges 3,682 8,503 12,301 12,613 17,640 

Other income 214 - 1,573 650 646 

Profit before tax 3,301 1,932 (2,244) (1,106) 5,116 

Taxes 530 (322) 239 343 367 

Adj PAT before minority interest 2,771 2,254 (2,483) (1,449) 4,749 

MinorityiInterest 23 (673) 1,170 2,260 29 

Reported PAT after minority interest 2,794 1,581 (1,313) 811 4,777 

Growth (%) 33.0 (43.4) (183.0) (161.8) 489.2 

Reported PAT 2,794 1,581 (9,298) 811 4,777 

% YoY 33.0 (43.4) (688.3) 108.7 489.2 




Equity share capital 3,641 3,667 3,892 3,892 3,892 

Reserves and surplus 61,070 63,003 73,442 74,253 79,030 

Net worth 64,711 66,670 77,334 78,145 82,922 

Long term loans 106,602 162,294 189,107 226,078 244,000 

Short term loans 13,636 46,080 53,189 36,803 39,721 

Total debt 120,238 208,374 242,296 262,881 283,721 

Minority Interest 18,061 17,902 19,981 17,721 17,692 

Deferred tax liabilities 192 2,535 764 100 100 

Foreign currency monetised item 69 - (74) - - 


Gross block 114,326 148,896 243,702 271,779 308,651 


Capital work in progress 54,639 103,830 94,898 104,388 114,827 

Expen. during construction period 13,271 - - - - 

Net block 164,426 229,310 307,098 333,877 365,283 

Investments 13,109 46,411 29,741 30,336 30,943 

Inventories 1,319 1,159 1,846 2,225 3,026 

Sundry debtors 6,609 8,649 13,199 13,972 20,036 

Cash and bank balances 24,665 16,827 33,730 12,314 9,161 

Loans and advances 12,612 13,156 18,516 20,408 29,264 




Total assets 203,271 297,480 358,450 376,996 402,585 




EBIT 6,770 7,521 (10,230) 10,857 22,110 

Inc./(dec) in working capital (5,474) 187 31,004 (13,178) 3,270 

Cash flow from operations 1,295 7,708 20,774 (2,321) 25,380 

Other income (450) (916) 16,711 650 646 

Depreciation 3,898 6,122 8,609 10,787 15,905 

Interest paid (-) (3,417) (7,620) (14,485) (12,613) (17,640) 

Tax paid (-) (998) (511) (2,434) (343) (367) 

Dividends paid (-) - - (87) - - 

Net cash from operations 328 4,784 29,088 (3,840) 23,924 



Inc./(dec.) in borrowings 38,663 85,582 26,243 20,585 20,841 

Inc./(dec.) in investments 139 (1,860) 13,530 (595) (607) 

Issue of common stock in 

consolidated entities 

6,981 839 22,745 - - 

Equity issue/(buyback) - - 14,000 - - 


Change in cash 15,724 (9,387) 27,686 (21,416) (3,153) 

Opening cash 8,942 24,665 16,827 33,730 12,314 

Closing cash 24,665 16,827 33,730 12,314 9,161 


Exhibit 24 :Key Ratios 


Adj. EPS (Rs/share) 0.7 0.4 (0.3) 0.2 1.2 

Cash EPS (Rs/share) 1.7 2.0 (0.2) 3.0 5.3 

Valuation ratios 

PE ratio (x) 41.8 73.9 (89.0) 144.0 24.4 

Price/sales (x) 2.6 2.3 1.8 1.4 1.0 

Price /BV (x) 0.8 1.7 1.2 1.2 1.2 

EV /sales (x) 4.5 5.1 4.6 4.1 3.0 

EV /EBITDA (x) 18.7 19.2 19.0 15.6 9.5 

Margins (%) 

EBITDA margin 26.5 29.9 26.9 30.4 36.1 

EBIT margin 15.1 14.7 10.8 13.1 18.6 

Returns (%) 

RoCE 6.0 5.4 4.7 5.9 9.7 

RoNW 4.4 2.4 N/A 1.0 5.9 


Net debt/ equity (x) 1.5 2.9 2.7 3.2 3.3 


Turnover days 

Inventory turnover 21.1 16.4 16.4 16.4 16.4 

Debtors turnover 53.9 61.6 61.6 61.6 61.6 

CA turnover 104.3 105.2 40.0 90.0 90.0 

Creditors turnover 160.2 140.0 193.0 193.0 193.0 

Asset turnover 2.6 2.9 3.8 3.3 2.6 








HCC 

Reuters: HCNS.BO Bloomberg: HCC IN 

Downside Risk Limited 

We assign a Hold rating and a target price of Rs33 to HCC as we believe the 

company’s sales would grow moderately due to higher working capital 

requirement and greater leverage. Lavasa, a marquee project, is in trouble due 

to dispute with the environment ministry, which has given a big jolt to its 

valuation. We believe the downside risk is limited (as the recent transaction 

relating to divestment of stake in HCC Concessions is valued equal to the 

market capitalisation of the parent company), but lack of triggers and the 

company’s focus on consolidating its business due to higher leverage would 

cap any upside. 

Despite order inflow slowdown, order book-to-bill ratio at comfortable level: In 

FY11, HCC’s order backlog declined 4% YoY to Rs170bn. However, its current order 

book-to-bill ratio stands at 4.1x FY11 revenue (excluding the slow moving Sawalkot 

hydro-power project of Rs17bn), which is in line with the five-year average. Hence, we 

believe the order book is at a comfortable level and augurs well for revenue visibility. 

Higher working capital to restrain project execution: Despite the order backlog 

persisting at 4.1x, we expect project execution to improve moderately due to a sharp 

rise in working capital requirement. The company may consider increasing subcontracting 

to expedite project execution, but it would impact the margins. 

BOT asset portfolio valued at Rs16.5bn: HCC Concessions (a 100% subsidiary of 

HCC) has a portfolio of six BOT assets at a total project cost of Rs55bn, five based on 

toll collection and one based on annuity. Recently the company diluted its 14.5% stake 

in HCC Concessions to the Xander Group, for Rs2.4bn which has valued HCC 

Concessions at Rs16.5bn (equivalent to market capitalisation of the parent company). 

Key value driver Lavasa under dispute: A dispute between the environment ministry 

and Lavasa on project clearance has delayed the development process and fund 

raising plans through an initial public offer (IPO). We believe the company will get the 

clearance in coming months (with some pre-conditions) considering the developments 

that are skewed towards Lavasa. However, losses due to stoppage of construction, 

cost over-run and pre-conditions that will be attached to the project will hurt the 

valuation and delay the IPO process. 

Valuation: We assign a Hold rating and a TP of Rs33 to HCC based on SOTP 

valuation (core construction PE ratio of 8x, real estate business is valued at 1x P/BV 

and BOT assets at a 40% discount to the recent deal). We are conservative on the 

valuation front. Yet, we believe the downside risk is limited, but lack of positive 

triggers and the focus on business consolidation will cap any upside. 


Net Sales 33,137 36,442 40,932 47,414 55,267 

YoY (%) 7.5 10.0 12.3 15.8 16.6 

EBITDA 4,314 4,429 5,398 5,903 6,936 

EBITDA Margin (%) 17.6 2.7 21.9 9.4 17.5 

Adj. net profit 1,254 815 710 514 907 

YoY (%) 15.2 (35.0) (12.9) (27.6) 76.5 

Adj. EPS 2.1 1.3 1.2 0.8 1.5 

PER (X) 14.0 33.9 24.8 34.2 19.4 

P/BV (x) 1.8 1.2 1.2 1.1 1.1 

ROCE (%) 13.5 11.6 11.6 10.8 11.3 

ROE (%) 12.5 4.1 4.7 3.3 5.7 

Source: Company, Nirmal Bang Institutional Equities Reearch 


HOLD 


CMP: Rs29 


Upside: 14% 



+91-22-3926 8116 

Nitin Arora 


+91-22-3926 8169 

Key Data 



52 Wk H / L (Rs) 68/25 




Promoter 39.9 39.9 39.9 

FII 24.6 24.9 23.8 

DII 10.7 5.0 4.8 





1 M 6 M 1 Yr 

HCC 2.9 (20.6) (51.9) 

Nifty Index (1.6) (11.2) (18.3) 

Source: Bloomberg


Initiate coverage with a Hold rating 

We initiate coverage on HCC with a Hold rating and a target price of Rs33 based on SOTP valuation. The 

core construction business, valued at a PE ratio of 8x (lower end of historical range of PE ratio of 8x-18x for 

pure EPC players), contributes 32% (Rs11/share) to our target price. Real estate business is valued on the 

basis of 1x P/BV due to uncertainty and regulatory issues related to development of Lavasa, a marquee 

project of the company. BOT assets are valued at a 40% discount to a recent deal, which implies a P/BV of 

1.3x. We have not included any contribution from real estate projects that are in early stage of development. 

At the current market price of Rs29, the stock is trading at a PE multiple of 18.7x and EV/EBITDA multiple of 

8.8x based on FY13E earnings. If we adjust the value of other businesses (BOT projects and Lavasa project) 

in the current market price, the stock is trading at a PE ratio of 4x FY13E diluted earnings. Hence, we believe 

the downside is limited, but lack of positive triggers and the focus on consolidating its businesses 

(higher leverage) will cap any upside. 


SOTP valuation Basis Multiple (x) Value per share (Rs) 

Construction business FY13E, PE (x) 8.0 11 

BOT projects 40% disc. to recent deal 1.3 14 

Lavasa projects P/BV 1 8 

Total fair value - - 33 


BOT assets valued at 40% discount to recent deal and implied P/BV of 1.3x 

HCC Concessions, a wholly-owned subsidiary of HCC, divested 14.5% stake to Xander group at Rs2.4bn for 

BOT assets portfolio. This transaction has valued the BOT assets portfolio at Rs16.5bn (Rs 28/share) and the 

remaining stake (85.5%) at Rs14.1bn (Rs 23/share). We have valued the BOT assets portfolio at a 40% 

discount to the recent deal, which implies a P/BV (based on equity invested till date) of 1.3x. 

Exhibit 2: Valuation of HCC Concessions 

Stake 

Rsbn 

HCC Concessions (Recent deal) 15% 2,400 

BOT asset valuation 100% 16,552 

HCC's stake valuation 86% 14,152 

Discount 40% 8,491 

Rs/share - 14 

Equity investment (till date) - 6,530 

Implied P/BV (of invested equity) - 1.3 

Total equity investment - 10,440 

Implied P/BV (total equity investment) - 0.8 


Lavasa valued at P/BV of 1x on regulatory concerns 

Based on NPV method for Lavasa Phase I, the remaining land bank at realisable value contributes 

Rs17/share. However, looking at the uncertainty on regulatory issues related to environmental clearance, preconditions 

and delay in IPO of Lavasa and de-rating of the project; we have valued the project based on P/BV 

of 1x, which contributes Rs 8/share to our target price. Financial institutions have invested around Rs10.5bn 

through DDCD and CCPS with a valuation of around Rs100bn to Rs 200bn for the project. Our valuation 

stands at just 5% of the lower end of valuation done by financial institutions. We have not assigned any 

valuation for other real estate projects due to lack of development in these projects. 

Exhibit 3: Lavasa project details 

Lavasa details Phase I NAV 12,159 

HCC's stake 65% Area (acre) 1,739 Less: Net debt 7,000 

Total area of the hill station (acre) 25,000 FSI 0.3 NAV 5,159 

Lavasa master plan (acres) 12,500 Developable area 22.7 NRV for other land bank 15,522 

FSI 0.3 Realisation 2,800 Total value 20,681 

Total saleable area (mn sq ft) 150 Development cost 1,400 Discount rate 25% 

Initial infrastructure cost 7,000 Discount 5,170 

Tax rate 33% NAV (post discount) 15,511 

Discount rate 18% Company's stake 10,082 

Value/share 17 


68 HCC


Exhibit 4: PE ratio 

Core business valued at implied PE ratio of 4x (adjusted for other business) 

HCC's core construction net profit growth would be under stress during FY12 due to higher leverage 

and increased working capital. However we expect net profit to grow 76.5% in FY13 on low base. 

Hence, we believe it is fair to value the core business of the company at 8x PE (lower end of 

historical range of PE ratio of 8x-18x for pure EPC players). Historically the stock has traded in a 

wide range of 11x-75x of one-year forward earnings. It is currently trading at PE ratio of 18.7x, which 

is 60% lower than five year average PE ratio of 44x. If we adjust the value of other businesses 

(BOT projects and Lavasa project) in the current market price, the stock is trading at PE ratio of 

4x FY13E diluted earnings. 


(x) 

100 

90 

80 

70 

60 

50 

40 

30 

20 

10 

- 


P/E 

5 year avg 


(x) 

4.0 

3.5 

3.0 

2.5 

2.0 

1.5 

1.0 

0.5 

0.0 


P/B 

5 year avg 


69 HCC



Despite order inflow slowdown, order book-to-bill ratio at comfortable level 

During FY05-11, the order book witnessed a CAGR of 39%, the order book-to-bill ratio was in the range of 

3.6x-5.2x and the average was at 4.2x. During 1QFY12, the order backlog declined 4% YoY to Rs170bn. 

However, the company’s current order book-to-bill ratio stands at 4.1x FY11revenue (excluding the slow 

moving Sawalkot hydro-power project worth Rs17bn). Hence, we believe the order book is at a comfortable 

level and augurs well for revenue visibility. Based on the pre-qualification of Rs190bn worth of projects and 

visibility on some key projects, we believe the company would maintain the order book-to-bill ratio in the same 

range during FY12-13. 

Exhibit 6: Order book trend 

(Rsbn) 

250 

200 

150 

97 93 

102 

100 

63 

54 

50 

40 

39 

20 

29 

20 

- 

188 

194 

181 185 

164 

96 

61 

64 

51 

34 

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E 

Closing order Order intake 


Exhibit 7: Order book-to-bill ratio 

(%) 

6.0 

5.2 

5.0 

4.9 

4.9 

4.4 

3.8 

3.9 

3.9 

4.0 

3.0 

3.6 

3.3 

3.5 

2.0 

1.0 

- 



Order backlog highlights: 

The company has some slow-moving projects in its order kitty, which includes 1,200MW Sawalkote 

hydro-power project (Rs19bn), 300MW Alaknanda hydro-power project (Rs3.3bn) and Pranahita Lift 

Irrigation project (Rs12.50bn) due to delay in getting environmental clearance and also delayed payment 

by the asset owner. 

Some key projects where the probability of securing them is higher for the company include Hyderabad 

metro rail project from L&T, Worli-Haji Ali sea link project, port projects and also orders from Nuclear 

Power Corporation of India. 

Exhibit 8: Segment-wise order book 


70 HCC



(Rsbn) (%) 

250 

200 

200 

150 

100 

50 

0 

(50) 

(100) 

117 

143 

150 

100 

97 

42 

50 

0 

FY05 FY06 FY07 

(68) 

FY08 FY09 

(37) 

FY10 FY11 FY12E FY13E 

(50) 

(44) 

(100) 

Closing order (LHS) Order intake (LHS) % growth (RHS) 


Higher working capital requirement to restrain project execution 

During FY08-11, there was a significant jump in working capital requirement, at 0.5x FY11 sales (adjusted for 

loans and advances given to subsidiaries) and working capital days increased to 300 days in 1QFY12. We 

believe the working capital requirement has reached an alarming level which cannot support the robust growth 

in project execution. Hence, we believe that despite order-backlog/bill ratio persisting at 4.1x; the company’s 

revenue would show a CAGR of 16% over FY11-13E. The company may consider increasing sub-contracting 

to expedite project execution, but it would impact the margins. 


(Rsbn) (%) 

60 

50 

40 

30 

20 

10 

- 

14.9 

19.9 

23.6 

30.8 

33.1 

36.4 

40.9 

47.4 

55.3 

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E 

Revenue (Rsbn) 


Growth (%) (RHS) 

BOT asset portfolio valued at Rs16.5bn (equivalent to market cap of parent company) 

HCC Concessions (a 100% subsidiary of HCC) has a portfolio of six BOT assets having total project cost of 

Rs55bn, five based on toll collection and one based on annuity. Two road projects are operational, one project 

is in advanced stage of construction and three projects are expected to be completed by 3QFY13. Total equity 

requirement for the six projects would be Rs12bn, in which the company has already invested Rs6.53bn. 

Looking at the recent momentum in NHAI orders, we believe the company would achieve the target of asset 

ownership of Rs150bn by FY15. Recently, the company diluted its 14.5% stake in HCC Concessions to the 

Xander Group for Rs2.4bn, which has valued HCC Concessions at Rs16.5bn (equivalent to market cap of the 

parent company). 

45 

40 

35 

30 

25 

20 

15 

10 

5 

71 HCC


Exhibit 11: HCC Concessions structure 


Key highlights of projects 

Exhibit 12: HCC Infrastructure portfolio 

Nirmal annuity project: The project is for four-laning of 33km road on the Hyderabad-Nagpur route at a cost 

of Rs3.15bn. The project got operational 100 days prior to schedule in July 2009. The project is based on 

annuity of Rs238mn (semi- annual) with a concession period of 20 years and the debt is financed at fixed rate 

of 9.38% for 17 years. 

Badarpur-Faridabad elevated expressway: The project is to develop 4.4 km elevated highway connecting 

Delhi and Haryana at a cost of Rs5.72bn and equity investment of Rs1.72bn.The project, completed in 

November 2010, reduced travel time by over 45 minutes. 

Dhule-Palesner highway: The company got this project worth Rs14.2bn in a consortium with Sadbhav 

Engineering. The project involves four-laning of the road from the Maharashtra-Madhya Pradesh border to 

Dhule, connecting Mumbai and Agra, which will largely cater to industrial traffic. The project, which is around 

75% complete, is expected to be completed by 3QFY12 (six months ahead of schedule). 

West-Bengal project: The project scope involves four-laning of 256km road from Baharampore to Dalkhola 

at a cost of Rs32.3bn in three concessions. The project is on track and is expected to be completed by 

3QFY13. 

HCC's Infrastructure 

Equity 

Debt 

Concession 

Place 

Grant 

COD 

Status 

Portfolio 

Km 

(Rsmn) 

(Rsmn) 

period 

Nirmal BOT(Annuity) 33 Andhra Pradesh (NH-7) 630 2,520 Jul-09 20 Operational 

Badarpur- Faridabad 4.4 Delhi 1,720 4,000 Nov-10 20 Operational 

Dhule-Palesner/MP order 89 MP border 3,550 10,650 Jun-12 18 Under construction 

Baharampore-Farakka 103 West Bengal 2,146 3,934 5,612 Sep-12 25 Under construction 

Farakka-Raiganj 103 West Bengal 2,471 4,145 7,168 Sep-12 30 Under construction 

Raiganj-Dalkhola 50 West Bengal 1,372 2,255 3,216 Sep-12 30 Under construction 

Total 382.4 - 11,889 - 33,166 - - - 


Lavasa - Key value driver 

HCC holds a 65% stake in Lavasa Corporation (a township of over 12,500 acres under development in 

Maharashtra) with an equity investment of Rs4.7bn, while the other major shareholders are Avantha group 

(15%) and Venkateshwara Hatcheries (12.5%). Lavasa Corporation has planned to develop the project in four 

stages. In the first phase, the company is developing 3,200 acres at Dasve and Mugaon. The first town under 

the project Dasve was supposed to be operational by FY11. The company had filed the DRHP (draft red 

herring prospectus) for its IPO on 14 September 2010 to raise around Rs20bn. On 25 November 2010, the 

environment ministry served a show-cause notice to Lavasa seeking clarification on whether it has violated 

environmental regulations along with directions to stop construction work. All this has delayed the 

development process and fund raising plans through the IPO. 

72 HCC


Exhibit 13: Lavasa project -series of events 

Date 

Development on Lavasa 

25.11.2010 Ministry of Environment & Forests (MoEF) issues show-cause notice with status quo ante 

28.11.2010 Lavasa replies to show-cause notice to MoEF 

30.11.2010 Lavasa files writ petition in Bombay High Court 

07.12.2010 Bombay High Court directs MoEF to give a hearing to Lavasa 

09.12.2010 MoEF gives a hearing to Lavasa 

14.12.2010 MoEF passes an order to continue status quo until final order 

22.12.2010 Bombay High Court admits writ petition and directs MoEF to visit Lavasa project 

5 -7 January 2011 Expert committee of MoEF and Maharashtra state officials visit Lavasa project 

17.01.2011 MoEF passes its final order directing Lavasa to maintain status quo 

25.01.2011 Lavasa addresses a letter to MoEF for finding an amicable solution 

28.01.2011 MoEF is prepared to consider the matter of giving clearance to Phase-I (2,000 ha) 

14.02.2011 Lavasa makes presentation before Expert Committee 

31.05.2011 EAC Committee recommended to the MoEF to grant clearance to Lavasa project with certain pre-conditions 

27.06.2011 MoEF issues a letter to Lavasa stating the five conditions recommended by EAC 

12.07.2011 Lavasa writes a letter to MoEF not accepting the pre-conditions. 


We believe the company would get the clearance in coming months (with some pre-conditions) considering 

the developments that are skewed towards Lavasa. However, losses due to stoppage of construction and the 

pre-conditions that will be attached to project would dent the valuation the company was targeting. 

Impact of dispute 

Lavasa project incurred a loss of Rs580mn in 1QFY12, of which Rs380mn is interest cost. 

The company planned to raise around Rs20bn through the equity route which got delayed. We believe 

IPO of Lavasa in near future is least likely. 

Issues like pre-conditions, cost over-run and concerns related to future development of the project would 

dent the valuation of the project. 

Lavasa valued at P/BV of 1x on regulatory concerns 

Based on NPV method for Lavasa Phase I and remaining land bank at realisable value contributes Rs 

17/share. However, looking at the uncertainty on regulatory issues related to environmental clearance, preconditions 

delay in IPO of Lavasa and de-rating of valuation of the project; we have valued the project based 

on a P/BV of 1x, which is contributing Rs 9/share to our target price. Financial institutions have invested 

around Rs10.5bn through DDCD and CCPS with a valuation of around Rs100bn to Rs 200bn for the project. 

Our valuation stands at just 5% of the valuation done by financial institutions. 

73 HCC




Quarterly performance (1QFY12) 

Net sales rose 6.3% YoY to Rs10.5bn whereas profit slipped 89.7% YoY to Rs29mn due to fall in other 

income and lower revenue growth. 

EBITDA increased 9.5% to Rs1.37bn and EBITDA margin improved by 40 bps YoY. 

Order book as on 1QFY12 stands at Rs170bn, excluding orders worth Rs19.4bn which the company has 

received through its joint venture. 

During the quarter, the company diluted its 14.5% stake in HCC Concessions to the Xander Group for Rs 

2.4bn, which valued HCC Concessions at Rs16.5bn (equivalent to market capitalisation of the parent 

company). 


Y/E March (Rsmn) Q1FY11 Q4FY11 Q1FY12 YoY (%) QoQ (%) 

Net sales 9,954 12,026 10,577 6.3 (12.0) 

Total expenses 8,696 10,359 9,200 5.8 (11.0) 

EBITDA 1,258 1,667 1,377 9.5 (17.0) 

EBITDA margin (%) 12.6 13.9 13 3.0 (6.0) 

Other income 31 134 7 (76.6) (95.0) 

Interest costs 577 903 933 61.5 3.0 

Depreciation 349 440 392 12.4 (11.0) 

PBT 362 459 60 (83.6) (87.0) 

Tax 81 228 33 (59.5) (86.0) 

Adjusted PAT 281 231 27 (90.5) (88.0) 

Reported PAT 281 231 29 (89.7) (87.0) 


74 HCC


Financial snapshot 

Revenue growth CAGR at 16% 

During FY05-08, the company’s revenue showed a CAGR of 23%, driven by timely execution of projects, 

robust order inflow and easy source of finance. Despite robust order book, during FY09-11 net sales 

witnessed a CAGR of 7% due to slower execution of orders, delay in payments, higher working capital and 

regulatory issues. We believe the growth would improve from a CAGR of 7% over FY09-11 to 16% over FY11- 

13, driven by traction in two large projects - West Bengal road project and Kishanganga HEP. However, the 

growth momentum is getting restrained due to working capital requirement at an alarming level. 

Exhibit 16: Projects in active execution 

Rsmn 

Hindalco Packages 7,060 

RAPP-7&8 8,880 

Mumbai Metro - VAG Corridor 1,450 

DGNP Dry Dock 6,080 

Padur Rock Cavern 3,750 

Sainj HEP 4,310 

NH-34 Road Packages 28,600 

Kishanganga HEP 27,250 

Total 87,380 



(Rsbn) (%) 

60 

55.3 45 

50 

47.4 

40 

40.9 

35 

40 

36.4 

33.1 

30.8 

30 

30 

23.6 

25 

20 

19.9 

14.9 

20 

15 

10 

10 

- 

5 

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E 

Revenue (Rsbn) 

Growth (%) (RHS) 


Slight pressure on EBITDA margin 

During FY11, the company reported EBITDA margin of 13.2% on account of higher contribution from the 

power sector in revenue. Going ahead, we expect EBITDA margin to be marginally under pressure due to 

rising contribution of lower margin road projects in revenue and increase in sub-contracting to boost revenue 

growth. We expect the company to report EBITDA margin of 12.5% and 12.6% for FY12 and FY13, 

respectively. 


(%) 

15 

14 

13 

12 

11 

10 

9 

8 

7 

6 

5 

13.6 

13.0 

13.2 

11.9 

12.2 

12.5 12.6 

10.5 

9.2 9.1 



75 HCC


Focus on reduction of debt, working capital 

During FY08-11, there has been a significant jump in working capital requirement to 0.5x FY11sales and the 

working capital days increased to 300 days in 1QFY12. The debt-equity ratio increased from1.7x in FY10 to 

2.2x in FY11 due to investment in BOT portfolio, real estate, acquisition of KSAG overseas and is expected to 

further increase to 2.9x in FY13. Hence, the company has set up a strategic team to recover claims 

outstanding with various government agencies, which is around Rs10bn, and thereby reduce the leverage. 

The management expects to recover Rs4bn in FY12, which we have not factored in our model. 

Exhibit 19: Net debt/equity (x) 

(%) 

3.0 

2.5 

2.0 

1.5 

1.0 

0.5 

0.0 



76 HCC


Financials 



Net sales 33,137 36,442 40,932 47,414 55,267 

Growth (%) 7.5 10.0 12.3 15.8 16.6 


EBITDA 4,314 4,429 5,398 5,903 6,936 

Growth (%) 17.6 2.7 21.9 9.4 17.5 

EBITDA margin (%) 13.0 12.2 13.2 12.5 12.6 

Depreciation 1,152 1,139 1,527 1,681 1,834 


Other income 588 130 170 197 229 

Profit before tax 1,646 1,219 1,117 734 1,295 

PBTM (% ) 5.0 3.3 2.7 1.5 2.3 

Tax 392 404 407 220 389 

Adj. PAT before E/O items 1,254 815 710 514 907 

Growth (%) 15.2 (35.0) (12.9) (27.6) 76.5 




Equity capital 256 303 607 607 607 


Net worth 10,048 15,172 15,222 15,472 16,258 

Long term loan 9,041 8,880 14,603 16,969 17,267 

FCCBs 5,000 4,353 - - - 

Short-term loan 9,177 11,914 20,111 23,786 29,254 

Total loans 23,218 25,147 34,714 40,755 46,520 

Deferred tax (liability)/assets 1,132 1,426 1,665 1,665 1,665 


Gross block 16,828 18,142 19,875 21,875 23,874 


Net block 11,282 11,497 11,843 12,162 12,327 

Capital WIP 464 349 257 257 257 

Investments 3,655 4,087 5,313 7,313 8,813 

Inventories 30,731 36,548 44,991 51,961 57,689 

Debtors 47 27 27 67 79 

Cash & bank balance 1,539 1,884 1,937 3,160 2,415 

Loans & advances 8,072 11,460 13,948 16,238 18,927 

Other current assets 38 48 58 55 64 


Creditors 19,778 22,241 26,066 32,596 35,427 

Provisions 1,651 1,910 706 706 706 



Total assets 34,398 41,745 51,601 57,892 64,443 




EBIT 3,889 3,481 4,371 4,420 5,332 

(Inc.)/dec in working capital (3,071) (3,608) (3,635) (2,767) (5,606) 

Cash flow from operations 818 (128) 736 1,652 (275) 

Other income (587) (32) (441) (197) (229) 

Depreciation 1,152 1,139 1,527 1,681 1,834 

Interest paid (-) (2,084) (2,027) (2,911) (3,686) (4,036) 

Tax paid (-) (338) (411) (819) (220) (389) 

Dividends paid (-) (199) (204) (283) (243) (121) 

Net cash from operations (1,237) (1,662) (2,191) (1,013) (3,216) 




Inc./(dec.) in investments (993) (1,773) (4,989) (2,000) (1,500) 

Equity issue/(buyback) - 4,679 - - - 

Cash from financial activities (2,434) 2,643 (4,987) (1,806) (1,295) 

Others - - - - - 

Change in cash (1,105) 345 53 1,222 (744) 

Opening cash 2,644 1,539 1,884 1,937 3,160 

Closing cash 1,539 1,884 1,937 3,160 2,415 


Exhibit 23: Key Ratios 


Adj. EPS (Rs/share) 2.1 1.3 1.2 0.8 1.5 

Operating ratios (%) 

NWC / total assets 0.6 0.6 0.7 0.7 0.7 

Asset turnover 1.0 1.0 0.9 0.9 0.9 

Fixed asset turnover 2.1 2.1 2.1 2.2 2.3 

Turnover days 

Inventory turnover 338.5 366.1 401.2 400.0 381.0 

Loans advances turnover 0.5 0.3 0.2 0.5 0.5 

Creditors 88.9 114.8 124.4 125.0 125.0 

Working capital cycle 236.0 241.9 238.7 256.4 238.6 

Valuation ratios 

PE ratio (x) 14.0 33.9 24.8 34.2 19.4 

Price/sales (x) 0.2 0.2 0.4 0.4 0.3 

Price / BV (x) 1.8 1.2 1.2 1.1 1.1 

EV/sales (x) 0.8 0.8 1.2 1.2 1.1 

EV/EBITDA (x) 6.7 7.2 9.3 9.3 8.9 

Margins (%) 

EBITDA margin 13.0 12.2 13.2 12.5 12.6 

PBT margin 5.0 3.3 2.7 1.5 2.3 

Net margin 3.7 2.2 1.7 1.1 1.6 

Returns (%) 

RoCE 13.5 11.6 11.6 10.8 11.3 

RoNW 12.5 4.1 4.7 3.3 5.7 





77 HCC



78 HCC



IVRCL Infrastructure 

Reuters: IVRC.BO Bloomberg: IVRC IN 

Project Execution To Gain Momentum 

IVRCL Infrastructure, a well established construction company with an order 

backlog of Rs230bn, which is 3.8x FY11revenue, provides strong revenue 

visibility. Project execution is poised to pick up from 2HFY12, driven by 

commencement of billing in three new projects, increase in shorter execution 

cycle projects in total order book and increase in sub-contracting post stability 

in interest rates, which will drive 17% yoy revenue growth and 32% yoy earnings 

growth during FY13. The company is also in advance stage of talks for sale of 

stake in the special purpose vehicle of IVRCL Assets & Holding (IVRCLAH) and 

monetisation of real estate, which would ease funding needs. We assign a Buy 

rating and a target price of Rs59 to the stock based on SOTP valuation. 

Order backlog at 3.8x; strong revenue visibility: Despite decline in order inflow by 

45% during FY11, the company has diversified order book of Rs230bn comprising 

38% water and irrigation projects, 22% building projects, 29% road projects and 11% 

oil and power projects. This works out to 3.8x of order book-to-bill (BTB) ratio on FY11 

revenue, which provides strong revenue visibility for next three years. Based on prequalification 

and a track record in order inflow, the order backlog is estimated to show 

a CAGR of 17% in the next two years to Rs 296bn by the end of FY13. 

Execution rate poised to improve: We expect project execution to pick up from 

2HFY12, driven by commencement of billing in three new projects, increase in shorter 

execution cycle projects and the rise in sub-contracting post stability to interest rates, 

which will drive revenue up 17%yoy and earnings 32% yoy during FY13. 

Stake sale of SPV or land monetisation to ease liquidity: BOT projects under 

construction require cumulative equity contribution of around Rs10bn by IVRCLAH 

over the next two-three years. The company is in advanced stage of talks for 

monetisation of land assets and dilution of stake at the SPV level to meet the equity 

requirement. We believe this would ease the company’s liquidity situation. 

Attractive valuation: We assign a Buy rating and a target price of Rs59 to the stock 

based on SOTP valuation. During the past one year, the stock has corrected by 

around 78% and is currently trading at a one-year forward PE ratio of 6x and a P/BV of 

0.5x, near its historical low touched during the Lehman crisis, which is not justified. 

We have valued the core construction business at a PE multiple of 8x, which is on the 

lower side of historical PE multiple, contributing Rs52 to our TP. The company has two 

subsidiaries, IVRCLAH and Hindustan Dorr Oliver (HDO), which are valued at a 25% 

discount to their market price. 


Net sales 48,819 54,929 56,515 63,748 74,998 

YoY (%) 33.4 12.5 2.9 12.8 17.6 

EBITDA 4,218 5,319 5,146 5,487 6,585 

EBITDA margin (%) 8.6 9.7 9.1 8.6 8.8 

Net profit 2,260 2,111 1,579 1,350 1,777 

YoY (%) 7.4 (6.6) (25.2) (14.5) 31.6 

EPS (Rs) 8.7 7.9 5.9 5.1 6.7 

PE ratio (x) 4.2 4.7 6.3 7.3 5.6 

P/BV (x) 0.5 0.5 0.5 0.5 0.4 

RoCE (%) 10.5 11.8 9.6 9.0 9.9 

RoE (%) 13.7 11.5 8.2 6.6 8.1 



BUY 


CMP: Rs38 


Upside: 55% 



+91-22-3926 8116 

Nitin Arora 


+91-22-3926 8169 

Key Data 


Mkt Cap (Rsbn/USbn) 10.0/0.20 

52 Wk H / L (Rs) 174/31 




Promoter 9.5 9.5 935 

FII 57.9 51.2 49.3 

DII 5.3 5.6 4.0 

Corporate 15.6 18.8 20.8 




1 M 6 M 1 Yr 

IVRCL 1.6 (49.3) (77.8) 

Nifty Index (1.6) (11.2) (18.3) 

Source: Bloomberg


Valuation at historical bottom 

We assign a Buy rating and a target price of Rs59 to the stock based on SOTP valuation. The core 

construction business is valued at a PE ratio of 8x, which is at the lower side of historical PE multiple and 

contributes Rs53 to our target price. IVRCL Infrastructure has two subsidiaries - IVRCLAH and Hindustan Dorr 

Oliver (HDO) - valued at a 25% holding discount to their market price. At the current market price of Rs.38, 

IVRCL Infrastructure is trading at a PE multiple of 6x and EV/EBITDA multiple of 5x FY13 earnings. We 

believe the stock is providing a good investment opportunity for investors. 


Segment Basis Multiple (x) Value (Rsmn) Value per share (Rs) 

Core construction FY13E, PE (x) 8.0 13,861 53 

IVR prime CMP 25% 1,321 3 

HDO CMP 25% 627 3 

Total fair value - - - 59 


Trading at near historical low P/B, PE 

Historically, IVRCL Infra has traded at a five year average PE of 22x and P/BV of 2.2x. During the past one 

year, the stock has corrected by around 78% on concerns over rising interest rates, lack of order inflow and 

decline in profitability. It is currently trading at a one-year forward PE of 6x and P/BV of 0.5x on FY13 earnings, 

near its historical low touched during the Lehman crisis, which is not justified. Hence, we have valued the core 

business at 8x, which is in the lower range of its EPC construction business. 


(x) 

5.0 

4.5 

4.0 

3.5 

3.0 

2.5 

2.0 

1.5 

1.0 

0.5 

0.0 


Exhibit 3: PE ratio trend 

(x) 

40 

35 

30 

25 

20 

15 

10 

5 

0 


P/B 

5Y average 

P/E 

5 year avg 



Exhibit 4: EV/EBITDA trend 

(x) 

25 

20 

15 

10 

5 

0 


EV/EBITDA 

5 year avg 


80 IVRCL



Order book/bill at 3.8x; strong revenue visibility 

IVRCL Infrastructure has an order book of Rs230bn (including L1 orders of Rs23bn and adjusted for 

cancellation of Rs19bn order from Saudi Arabia due to no work progress), which comprises 38% water and 

irrigation projects, 22% building projects, 29% transportation projects and 11% power and oil projects. This 

works out to 3.8x of its order book-to-bill (BTB) ratio on FY11 revenue, which provides strong revenue visibility 

for the next three years. During FY04-11, the order book showed a CAGR of 45%, but looking at macro factors 

and short-term hiccups in the award of projects; we expect the order backlog to show a CAGR of 17% in the 

next two years, to Rs296bn by FY13 (primarily focusing on EPC and BOT segments of road and water projects 

in Tamil Nadu and overseas projects). 


(Rsbn) (%) 

350 

160 

300 

250 

200 

150 

100 

50 

- 

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E 

Closing order book (Rsbn) Order inflow (Rsbn) Growth (YoY %) 


Key highlights of order book 

The company has order backlog of Rs230bn, of which around Rs45bn worth of orders are captive. This 

gives certainty to a large extent regarding project execution on time. 

The company is pre-qualified for Rs200bn of orders and is expecting pre-qualification for incremental 

around Rs100bn of orders. 

Saudi Arabia order worth Rs19bn has been deleted from the order backlog due to delay in progress of the 

project. 

Andhra Pradesh contributes around Rs28bn to the order book, where execution of the project has 

improved (execution was slow in the past due to delay in payment). 

Order book mix biased toward shorter execution cycle projects 

During FY02-09, the order-book mix was biased toward the water segment, which was in the range of 57-69%. 

At the end of FY10, around 45% of order inflow was from the road segment, which has increased the 

transportation segment’s contribution from 5% in FY09 to 31% in FY10, while the water segment’s contribution 

fell to 45% from 69%. During FY11, the contribution of water segment further declined to 38%, transportation 

segment slightly declined to 29%. Transportation segment orders are primarily captive orders where payment 

delay risk is lower and execution cycle is shorter. Historically, whenever there is a significant increase in the 

transportation segment’s order book, revenue growth follows with a lag of one year. Hence, we believe project 

execution will pick up during 2HFY12, driven by increased contribution from shorter execution cycle orders. 

140 

120 

100 

80 

60 

40 

20 

- 

(20) 

81 IVRCL


Exhibit 6: Segment-wise order book trend 

Exhibit 7: Revenue vs order book of transportation segment 

(%) 

80 

70 

60 

50 

40 

30 

20 

10 

0 

57 

30 

69 

61 

27 

70 

18 

18 

10 12 

10 

9 

3 1 2 3 

46 

15 

6 

33 

56 

22 

11 11 

60 

69 

45 

38 

31 

29 

22 22 

22 

18 

9 9 

11 

5 5 6 

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 

Water & Enviornment Buildings & Ind Structures Power Transportation 


(%) 

35 

33 

31 

30 

27 

29 

25 

22 

20 18 

15 

10 

9 

9 

5 

5 

0 

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 

Transportation (% of OB) 

Revenue (%YoY) (RHS) 


(%) 

80 

70 

60 

50 

40 

30 

20 

10 

0 

Historically, revenue growth has higher correlation with book-to-bill ratio 

During FY04, the BTB ratio fell from 3.4x in FY03 to 2.1x in FY04, which resulted in a sharp decline in revenue 

growth from 74% in FY04 to 37% in FY05. The BTB ratio was in the range of 3.5x-3.8x during FY05-08 and 

revenue growth was in a rising mode until FY08. The BTB ratio fell to 2.8x and revenue growth declined from 

59% in FY08 to 33% in FY09. Hence, we believe that historically the BTB ratio has shown a higher correlation 

with revenue growth. However, during FY10-11, the BTB ratio increased in the range of 3.8x-4.4x, but revenue 

growth did not pick up. Hence, we believe the project execution will pick up during 2HFY12-13 and revenue 

growth will also gain momentum. 

Exhibit 8: Order book to bill vs revenue growth 

(x) 

4.5 

4.0 

3.5 

3.0 

2.5 

2.0 

4.4 

4.0 4.0 

3.7 

3.8 

3.8 

3.4 

3.5 

3.6 

2.8 

2.1 

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E 

Order book to bill Revenue growth (%) 

(%) 

80 

70 

60 

50 

40 

30 

20 

10 

0 


Exhibit 9: Order book growth, revenue growth trend 

Exhibit 10: Revenue growth vs order inflow growth 

(%) 

160 

140 

120 

100 

80 

60 

40 

20 

- 

(20) FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E 

Revenue growth (%) Orderbook growth (%) 


(%) 

290 

240 

190 

140 

90 

40 

(10) 


(60) 

Revenue growth (%) Order inflow growth (%) 


82 IVRCL

1QFY10 

2QFY10 

3QFY10 

4QFY10 

1QFY11 


2QFY11 

3QFY11 

4QFY11 

1QFY12 

Higher interest rates impacting near-term project execution 

To curb rising inflation, the Reserve Bank of India raised repo rate by 350bps during January ’2010-September 

2011, which is 75bps lower than its previous peak of October 2008. This has adversely impacted the execution 

of large projects, as the small sub-contractors are not getting bank credit. This led to slippage of revenue by 

around 20%. As per consensus estimate, the interest rates would go up by another 25bps and then will 

stabilise at that level (may not correct sharply as in the previous cycle of FY09). Given the fact that interest 

rates are going to stabilise, subcontracting is likely to increase in coming quarters which will improve project 

execution. 

Exhibit 11: Sub-contracting revenue declining 

(bn) 

25 

20 

18.9 

20.5 

15 

10 

10.8 

12.5 11.8 

11.1 10.5 

14.1 

11.2 

5 

1.6 

3.1 2.6 

3.6 

1.9 1.7 1.9 

4.4 

1.8 

0 

Revenue 

Subcontracting revenue 


BOT assets 

Exhibit 12: BOT portfolio operational status 

IVRCL Infrastructure has a portfolio of 11 BOT projects, of which four are operational. Three operational road 

projects contributed toll revenue of Rs2.4mn/day, which is below the initial estimate of the management. From 

September 2011, the company will enforce the toll hike which is linked to WPI and this will spur revenue 

growth in the coming quarters. Chennai desalination project had a revenue of Rs4.4mn/day during 1QFY12. 

Overall, the three road projects and Chennai desalination project contributed Rs620mn for the quarter. Apart 

from that, the company has three projects under construction- Baramati Phalthan (30% complete), Chengaplli 

project (10% complete), and Indore-Gujarat project (50% complete). Sion-Panvel and Chandrapur projects 

have achieved financial closure and the construction will start in coming quarters. Goa-Karnataka project has 

not yet achieved financial closure and it will take another six months to start construction. 

Projects Jalandhar-Amritsar Salem-Kumarapalayam Kumarapalaym- Chenagmpalli Chennai water Baramati-Phaltan 

Stake(%) 100 100 100 75 75 

Project type Toll Toll Toll Two-part tariff Toll 

Concession 17.5 years 20 20 - 25 

Construction period 2.5 years 2 3 - - 

Grant structure Postive grant -Rs394mn - - - Positive grant of Rs1,220 mn 

Project status operational operational operational operational 35% construction completed 

Projects Chengapalli-walayar Indore-Gujarat Sion-Panvel epressway 

Maharashtra/Goa 

border 

Karanji-Wani-Ghuggus- 

Chandrapur 

Stake (%) 100 100 51 100 100 

Other partners - - Kakade infra - - 

Project type Toll Toll Toll Toll Toll 

Conession 25 27 18 years and 9 months 23 years 30 years 

Construction period - - - -3 years 2 years 

Grant structure Rs360mn revenue share Rs230 mn revenue share No grant 

Project status 

20% construction 

completed 


55% construction 

completed 

Financial closure achieved , 

initial work started 

Positive grant of 

Rs6647.2 mn 

Concession 

agreement signed, 

financial closure soon 

Rs2318.4 mn VGF 

Concession agreement to 

be signed 

83 IVRCL


Stake sale in SPV and monetisation of real estate to meet equity commitment 

We expect BOT projects under construction and at planning stage to require cumulative equity contribution of 

around Rs10bn over the next 2-3years, of which around Rs1.8bn is required in FY12. The company is looking 

to raise funds on its own via monetisation of land assets, securitisation of receivables from operating projects 

and dilution at the project SPV level to meet this equity requirement. The management has given an indication 

that it is already in advanced stage of talks with investors for the same. 

Exhibit 13: BOT asset portfolio 

Project (Rsmn) Project cost Stake (%) Equity Equity cont CoD Concession period 

Chennai desalination 5,679 75% 1729.8 1,297 Operational 25 years 

Jalandhar-Amritsar 3,431 100% 671 671 Operational 20 yrs 

Kumarapalayam–Chengalpalli 4,215 100% 650 650 Operational 20 yrs 

Salem -Kumarapalayam 5,020 100% 800 800 Operational 20 yrs 

Baramati to Phaltan 3,820 75% 690 518 FY14 25 Years 

Indore-Gujarat border 15,237 100% 3,809 3,809 FY14 25 yrs 

Chengapalli-Wallayar 11,230 100% 3,260 3,260 FY14 27 yrs 

Goa-Karnataka 31,000 100% 7,200 7,200 FY15 23 yrs 

Sion-Panvel 14,500 51% 3,000 1,530 FY14 17.5 yrs 

IOC tank 30,000 38% 3,940 1,497 - 15 Years 

Karanji - Ghuggus -Chandrapur 7,500 100% 1,300.0 1,300 FY15 30Years 

Total 131,631 - 25,750 21,232 - - 


84 IVRCL


Hindustan Dorr Oliver: Synergy improves scope of work 

Hindustan Dorr Oliver, a subsidiary of IVRCL Infrastructure (55% stake), is engaged in the business of 

providing EPC, manufacturing and engineering services, to various industry segments like mineral processing 

and beneficiation, pulp and paper processing, fertiliser and environmental management. In order to increase its 

product portfolio and to gain international presence, HDO, in 4QFY10, acquired Davy Markham, the Sheffield, 

UK-based heavy engineering company which designs, manufactures and assembles large equipment used for 

mining, nuclear, power generation, oil and gas exploration and tunnel boring. IVRCL Infrastructure was able to 

get synergies post acquisition of HDO due to its expertise in designing and installing equipment, which helped 

the company to improve margins and to bid for higher qualification engineering work. 

HDO stock corrected by 80% on bleak order book 

The company’s order book in 1QFY12 stood at Rs16bn (1.7x FY11 revenue.), dominated by the mineral 

division (50%) followed by water and manufacturing divisions. The company witnessed a fall in revenue in 

1QFY12 by 41% and profit also took a hit, declining by 64%, due to delay in billing as it did not get the design 

and engineering clearances for projects of clients like GAIL (India) and Bharat Petroleum Corporation. During 

the quarter, a positive factor was that the company won a project worth Rs3.8bn from Konkola Copper Mines 

in Zambia and also bid for few other clients like Hutti Gold Mines and Uranium Corporation. 

Going forward, we believe the pace of order inflow and increase in execution of lumpy orders would be the 

main triggers, as in the last three-four quarters we have not seen any major pick-up in revenue and order book 

despite repeated assurances given by the management. 

Exhibit 14: Financial summary 

Y/E March (Rsmn) FY08 FY09 FY10 FY11 

Net sales 3,042 5,153 8,631 9,445 

EBITDA 331 511 1,009 904 

EBITDA margin (%) 10.9 9.9 11.7 9.6 

PAT 226 302 555 538 


Company background 

IVRCL Infrastructures & Projects is one of the leading civil construction companies in India having a strong 

presence in water, transportation and building projects business, industrial structures and also power 

transmission projects. The company has created a niche for itself in project execution skills across the 

segment and has a presence in most of the states in India. It has a well-diversified and de-risked business mix, 

with a presence across various sectors and regions. The company has shown a 39% CAGR in terms of 

revenue and 30% in terms of earnings over the past five years. 


85 IVRCL




86 IVRCL



Revenue growth was flat due to lower sub-contracting of large projects (sub-contractors are not getting 

sufficient funds from banks). Project execution rate declined by 5-10%, implying loss of revenue worth Rs 

2bn. 

EBITDA margin slipped by 170bps to 7.4% due to slower project execution, sharp increase in raw material 

costs and non-billing of some water segment projects, where billing of cost escalation is allowed only after 

24 months. 

Net profit declined by 85% to Rs42mn due to lower EBITDA margin and higher interest costs. 

Current order book at Rs230bn (includes L1 orders worth Rs23 bn and removal of Saudi Arabia project 

worth Rs19 bn), is down 9.8% YoY. Water and irrigation projects accounted for 38% of the order book, 

followed by 22% share of building projects and 29% of transportation projects. 


Y/E March (Rsmn) 1QFY11 4QFY11 1QFY12 YoY (%) QoQ (%) 

Net sales 11,061 20,516 11,219 1.4 (45.3) 

Other Income 11.4 55.4 72.31 - 30.5 

Total Income 11,072 20,571 11,291 2.0 (45.1) 

Total expenditure 10,056 18,741 10,387 3.3 (44.6) 

EBITDA 1,005 1,775 832 (17.2) (53.1) 

EBITDAM (%) 9.1 8.7 7.4 - - 

Depreciation 157 217 227 44.6 4.6 

Interest 452 656 628 38.9 (4.3) 

PBT 406 956 49 (87.9) (94.9) 

Tax 159 308 6.7 (95.8) (97.8) 

Reported PAT after tax 281 649 42 (85.1) (93.5) 


Financial analysis 

Revenue growth to pick up in FY13 

During FY11, net sales rose by just 3% to Rs56.4bn (showing a CAGR of 39% over FY04-10) due to project 

delay (land clearance and payment issues), slower execution during state assembly elections and lower subcontracting 

due to non-availability of credit from banks. We expect project execution to pick up from 2HFY12, 

driven by start of billing in three new projects, increase in shorter execution cycle projects and increase in subcontracting 

post stability to interest rates. Based on all this, net sales would show a CAGR of 15 % between 

FY12 and FY13 to Rs 63.7bn and 74.9bn, respectively. 

Exhibit 17: Segment-wise revenue 

16.0 

22.2 

FY11 (%) 

5.4 

44.5 

Water & Enviornment Buildings & Ind Structures Power Transportation 



(%) 

80 

75.0 

70 

63.7 

60 

54.9 56.5 

48.8 

50 

40 

36.6 

30 

23.1 

20 

15.0 

10.4 

7.6 

10 4.4 

0 

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 

Revenue (Rs bn) YoY (%) 


87 IVRCL


Operating margin under pressure 

The company reported EBITDA margin in the range of 9-10% and EBITDA showed a CAGR of 31% over 

FY06-11. We expect EBITDA margin to be under pressure due to rising contribution of low margin projects and 

two projects where cost escalation can’t be passed on for two years. EBITDA margin is estimated to decline 

by 50bps to 8.6% in FY12 and then improve by 20bps to 8.8% in FY13. EBITDA is expected to show a CAGR 

of 13% to Rs 5.5bn in FY12 and Rs6.6bn in FY13, respectively. Net profit is expected to decline in FY12 by 

14% due to lower operating margin and higher interest rates but grow by 32% in FY13. 


Exhibit 20: EBITDA trend 

(%) 

10.5 

10.0 

9.5 

9.0 

8.5 

8.0 

7.5 

7.0 

6.5 

6.0 

FY13E 

FY12E 

FY11 

FY10 

FY09 

FY08 

FY07 

FY06 

FY05 

FY04 

FY03 

FY02 



Improvement in return ratios 

During FY07-11, the company's return ratios were in declining mode due to equity dilution and withdrawal of 

Section 80A tax benefit. We expect the RoE to decline by 150bps to 6.7% in FY12 due to fall in operating 

margin and higher interest rates. In FY13, the RoE is likely to improve by 150bps to 8.1% based on 32% 

growth expected in PAT and assumption of no equity dilution. 

Exhibit 21: Return ratio trend 

(%) 

15 

13 

11 

9 

7 

5 


ROCE (%) ROE (%) 


88 IVRCL


Financials 



Net sales 48,819 54,929 56,515 63,748 74,998 

Growth (%) 33.4 12.5 2.9 12.8 17.6 

Consumption of materials 16,578 20,211 19,897 23,002 26,343 

Construction expenses 25,194 26,070 27,299 31,119 37,155 

Employee costs 1,953 2,026 2,623 2,546 3,040 

Other expenditure 876 1,303 1,471 1,594 1,875 


EBITDA 4,218 5,319 5,146 5,487 6,585 

Growth (%) 16.6 26.1 (3.2) 6.6 20.0 

EBITDA margin (%) 8.6 9.6 9.1 8.6 8.7 


Depreciation 473 543 758 886 1,026 

Other income 299 149 120 196 228 

Profit before tax 2,811 3,288 2,326 2,015 2,652 

PBTM (%) 5.8 6.0 4.1 3.2 3.5 

Tax 478 1,177 747 665 875 

RPAT (before E.O. item) 2,333 2,111 1,579 1,350 1,777 

E/O items (73) - - - - 

Adj. PAT 2,260 2,111 1,579 1,350 1,777 

Growth (%) 7.3 (6.6) (25.2) (14.5) 31.6 




Equity share capital 267 534 534 534 534 


Net worth 18,106 18,533 19,874 21,097 22,708 

Long-term debt 10,185 12,688 16,295 22,813 25,550 

Short- term debt 3,410 3,445 4,663 241 962 

FCCBs 385 - - - - 

Total debt 13,980 16,133 20,958 23,054 26,512 

Deferred tax (liability) / assets 117 125 87 87 87 

Sources of funds 32,203 34,791 40,918 44,237 49,306 

Gross block 6,624 7,502 9,242 11,242 13,242 


Net block 5,207 5,664 6,918 8,032 9,006 

Investments 3,892 6,138 6,347 6,982 7,680 

Inventories 8,892 2,447 2,732 10,479 11,918 

Debtors 11,430 19,464 19,298 16,769 19,556 

Cash & bank balance 1,009 1,643 1,432 1,601 3,260 

Loans & advances 16,804 23,451 31,062 21,517 21,262 

Current assets 38,135 47,005 54,523 50,367 55,994 


Provisions 440 445 403 344 384 



Application of funds 32,203 34,791 40,918 44,237 49,306 




EBIT 3,971 4,925 4,508 4,601 5,559 

Inc./(dec.) in working capital (2,878) (2,481) (1,659) (1,401) (1,739) 

Cash flow from operations 1,093 2,443 2,848 3,200 3,820 

Other income (745) (165) (97) 196 228 

Depreciation 473 543 758 886 1,026 

Interest paid (-) (1,233) (1,637) (2,182) (2,782) (3,135) 

Tax paid (-) (1,018) (1,293) (1,651) (665) (875) 

Dividends paid (-) (189) (215) (246) (126) (166) 

Net cash from operations (1,620) (323) (569) 709 898 

Capital expenditure (-) (1,306) (720) (1,571) (2,000) (2,000) 



Inc./(dec.) in investments (1,058) (522) (2,714) (635) (698) 

Equity issue/(buyback) 0 1,050 (150) - - 

Others - - - - - 


Change in cash (763) 635 (212) 170 1,658 

Opening cash 1,771 1,009 1,643 1,432 1,601 

Closing cash 1,009 1,643 1,432 1,601 3,260 


Exhibit 25:Key Ratios 


EPS (x) 8.7 7.9 5.9 5.1 6.7 

Valuation 

PE ratio (x) 4.2 4.7 6.3 7.3 5.6 

Price /CEPS (x) 1.8 3.7 4.2 4.4 3.5 

Price /BV (x) 0.5 0.5 0.5 0.5 0.4 

EV /sales (x) 0.5 0.4 0.5 0.5 0.4 

EV /EBITDA (x) 5.4 4.6 5.7 5.7 5.0 

Margins (%) 

Operating margin 8.6 9.7 9.1 8.6 8.8 

EBIT margin 8.3 9.0 8.0 7.5 7.7 

PBT margin 5.8 6.0 4.1 3.2 3.5 

Net margin 4.8 3.8 2.8 2.1 2.4 

Returns (%) 

RoCE 10.5 11.8 9.6 9.0 9.9 

RoNW 13.7 11.5 8.2 6.6 8.1 

Efficiency ratio 

Asset T/O 1.5 1.6 1.4 1.4 1.5 

Turnover ratio 

Debtors T/O 85.5 129.3 99.4 96.0 95.2 

Creditors T/O 30.3 43.6 34.0 33.0 31.0 

Inventory T/O 66.5 16.3 17.6 60.0 58.0 

DuPont 

NPM (PAT/sales) 4.78 3.84 2.79 2.12 2.37 

Total asset T/O 1.52 1.58 1.38 1.44 1.52 






89 IVRCL


Disclaimer 

Stock Ratings Absolute Returns 

BUY > 15% 

HOLD 0-15% 

SELL < 0% 

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90


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