Institutional Equities - Online Share Trading
Institutional Equities - Online Share Trading
Institutional Equities - Online Share Trading
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Initiating Coverage<br />
<strong>Institutional</strong> <strong>Equities</strong><br />
IRB Infrastructure<br />
Reuters: IRBI.BO Bloomberg: IRB IN<br />
On The Road To Success<br />
IRB Infrastructure, a premier toll road developer and operator with in-house<br />
integrated execution capabilities, will be the biggest beneficiary of traction in the<br />
road segment. We believe the company is offering a good blend of growth and<br />
sustainable cash flow (EPC business to drive revenue CAGR of 37% between<br />
FY11-13 and toll revenue will provide sustainable operating cash flow of around<br />
Rs12bn to meet the equity commitment of new projects without equity dilution).<br />
We assign a Buy rating and a TP of Rs235 to its stock based on SOTP valuation.<br />
Biggest beneficiary of traction in road segment: NHAI is expected to tender road<br />
projects of around 24,000km in the next three years and has given a clear timeline<br />
(with project-wise details) to award projects worth around Rs483bn in the next six<br />
months. As India’s largest integrated player in the road space, the company is a<br />
natural beneficiary. During the past six months (April 2011 onwards), NHAI has<br />
awarded projects worth Rs 164bn (around 1,851km) in which the company has<br />
secured one mega project worth Rs49bn and is targeting incremental orders worth<br />
Rs25bn to Rs30bn in FY12 which would translate into around 13% of projects awarded<br />
by NHAI in FY12.<br />
Strong operating cash flow to drive future growth: IRB Infrastructure has a<br />
portfolio of 17 projects with a daily gross toll collection of Rs30mn, which is growing at<br />
around 14-16% per annum. The company has witnessed a significant growth in its<br />
operating cash flow, from Rs2.5bn in FY08 to Rs10bn in FY11, which is expected to<br />
be in the same range until FY13. On the other hand, for existing projects, the equity<br />
commitment could be in the range of Rs11bn over FY12-13, which could be funded<br />
through internal accruals. Thus, existing cash flows are sufficient to meet equity<br />
funding requirements of its projects without any dilution. However, on completion of<br />
existing projects, the debt/equity ratio would increase to 1.9x in FY13.<br />
EPC order book of Rs117bn to drive robust growth: The company has an order<br />
book of Rs117bn, (7x FY11 construction revenue), which is expected to be executed<br />
over the next three years. Robust order book coupled with four projects under active<br />
phase (worth Rs46.8bn and executable by FY13), would drive revenue CAGR of 37%<br />
over FY11-13. However, we expect the net profit to show a CAGR of 11% due to<br />
higher interest costs and depreciation charges on completion of BOT assets worth<br />
Rs82bn.<br />
SOTP-based target price of Rs235: We assign a Buy rating with a target price of<br />
Rs235 to IRB Infrastructure based on SOTP valuation, comprising Rs151 (64% of<br />
SOTP, based on FCFE) for BOT assets and Rs84 (36% of SOTP, PE ratio of 8x) for<br />
the EPC business. Accordingly, we have arrived at a valuation of Rs235.<br />
Y/E Mar (Rsmn) FY09 FY10 FY11 FY12E FY13E<br />
Net Sales 9,919 17,049 24,381 31,941 45,863<br />
YoY (%) 35.4 71.9 43.0 31.0 43.6<br />
EBITDA 4,374.0 7,990.2 10,939.3 13,542.7 17,247.3<br />
EBITDA margin (%) 44.1 46.9 44.9 42.4 37.6<br />
Net Profit 1,759 3,855 4,524 4,642 5,967<br />
YoY (%) 54.4 119.2 17.4 2.6 28.5<br />
EPS (Rs) 5.3 11.6 13.6 14.0 18.0<br />
PER (x) 31.0 14.1 12.0 11.7 9.1<br />
P/BV (x) 3.2 2.7 2.2 1.9 1.6<br />
ROCE (%) 6.2 11.8 9.8 8.4 8.9<br />
ROE (%) 10.2 18.9 18.6 16.0 17.1<br />
Source: Company, Nirmal Bang <strong>Institutional</strong> Reearch<br />
26 September 2011<br />
BUY<br />
Sector: Infrastructure<br />
CMP: Rs163<br />
Target Price: Rs235<br />
Upside: 44%<br />
Amit Srivastava<br />
amit.srivastava@nirmalbang.com<br />
+91-22-3926 8116<br />
Nitin Arora<br />
nitin.arora@nirmalbang.com<br />
+91-22-3926 8169<br />
Key Data<br />
Current <strong>Share</strong>s O/S (mn) 332.4<br />
Mkt Cap (Rsbn/US$bn) 54.1/1.1<br />
52 Wk H / L (Rs) 290/132<br />
Daily Vol. (3M NSE Avg.) 1,772,290<br />
<strong>Share</strong> holding (%)<br />
3QFY11 4QFY11 1QFY12<br />
Promoter 75.0 74.8 74.8<br />
FII 13.5 14.3 13.7<br />
DII 3.4 3.9 4.0<br />
Corporate 4.0 2.6 2.7<br />
General Public 4.2 4.5 4.9<br />
One Year Indexed Stock Performance<br />
Price Performance (%)<br />
1 M 6 M 1 Yr<br />
IRB Infra 3.8 (12.8) (42.7)<br />
Nifty Index (1.6) (11.2) (18.3)<br />
Source: Bloomberg