Sanasecurities

Home IRB Infra – Stock of the Month August 2017

IRB Infra – Stock of the Month August 2017

Date – 7 August 2017

Price – Rs. 220.05

The IRB Infrastructure Developers Ltd (IRB Infra) was incorporated as a private limited company on July 27, 1998. It was incorporated to fund the capital requirements of the IRB Group initiatives in the infrastructure sector.

For FY 2017 Toll revenues, the mainstay for the company were flat YoY as few projects faced specific problems. As per management, demonetization impact is largely behind and the management expects overall toll revenue in high single digits in FY18E. IRB Infra has won three BOT projects in FY 2017 namely Gulabpura – Chittoregarh and Udaipur–Gujarat Border and Kishangarh-Gulabpura worth Rs. 5700 crore boosting its order book to Rs. 12011.3 crore. IRB expects to commence execution of all three projects in H2 2017. The management expects completion of Solapur-Yedeshi & Goa-Kundapur by H1FY18 & Kaithal-Rajasthan & Yedeshi-Aurangabad by H2FY18.

IRBs core strength lies in its ability to execute Build-Operate- Transfer (BOT) road and highway projects including sections of the Golden Quadrilateral and the National Highways projects. IRB  developed India’s first ever BOT project (Thane Bhiwandi Bypass) and hasone of the largest BOT portfolios (operational projects and projects under construction) in the country with a total length of around 9,846 lane km. IRB  intends to contribute to the development of nation’s highway infrastructure and is increasingly looking to take up larger-size highway projects in different geographies.

Government’s Capex Cycle Expected to Revive

The total number of individual income tax returns filed for FY 2017 rose by over 25% from 22.7 million to 28.3 million. Further, going by advance tax collection numbers which grew by 42% and additional collection on account of implementation of GST which is likely to bring more entrepreneurs and businesses in the tax net, it is certain that the government will have headroom to revive its capex cycle. This will benefit not just IRB but the whole infrastructure sector.

Government projects are the main stay for infrastructure companies like IRB. IRB in particular will benefit the most from any new projects awarded by the government on account of its track record of successfully executing large scale projects and given its relatively better debt position. (Note: Read below – Debt Level as  a concern).

Strong Order Pipeline

IRB Infra has a strong bidding pipeline of orders worth Rs. 34800 crore and is looking to win ~300-400 km of orders in FY18E. It has an order book of Rs. 8901.7 crore, 1.4x TTM construction revenues. Management expects completion of Solapur-Yedeshi & Goa-Kundapur by FY18 end (three to four months behind schedule). Kaithal-Rajasthan is expected to be complete by Q2FY18 (ahead of schedule). Furthermore, with execution of new projects to begin in FY18E.

Improving Performance in Tough Times

Gross toll collections for IRB grew 21.9% YoY to | 398.8 crore on a like-tolike basis. The company received toll hike of 4-4.5% in Amritsar-Pathankot & Ahmedabad-Vadodara project while Mumbai-Pune project reported 17.5% toll rate hike and 4.5% traffic growth. The company has witnessed 3-4% average traffic growth during the quarter. Recently, IRB achieved financial closure of its Udaipur-Gujarat project. The total project cost is | 2088 crore of which equity contribution in | 627 crore while the company has tied up for project finance of | 1461 crore with average cost of 10.65%. Further, IRB bagged this project by offering NHAI a premium of | 163.8 crore. The management expects to complete financial closure of the two remaining KUA projects by August, 2017.

Key Financial Performance (in Rs. Crore)

Particular

FY’14

FY’15

FY’16

FY’17

FY’18 (E)

  Net Sales

3731.89

3847.5

5130.2

5787.6

6869.0

EBITDA

1753.67

2211.7

2660.6

3039.2

3654.9

Net Profit

459.63

542.9

635.8

707.1

694.1

EPS

13.81

16.3

18.09

21.3

20.9

Long Term DEBT

9,397

10,804

12,651

12,089

Expect to Reduce by ~ 5-10 % to ~11,000

Key Concern Areas

Levels of Debt

High levels of debt is always a threat in capital intensive industries. IRBs current debt to equity ratio is ~ 2.3 and the interest costs are at 22% of the total revenue. Economic downturns hurt most to companies with high levels of debt on their books as project execution and revenues slow down and at the same time, interest costs keep piling up. While IRB has reduced its debt at a consolidated level (from Rs. 12650 Crore to Rs. 12089 Crore), we will be constantly monitoring their debt position going forward.

Note on InVIT of India: In May, 2017 wherein it transferred its six BOT projects to InVIT. In return, it received Rs. 1681 crore of cash & 15% units in IRB InVIT worth Rs. 889 crore. Furthermore, bank debt on those six SPVs worth Rs. 3424 crore has been transferred to InVIT. IRB would use the cash receipt to partly retire standalone debt & partly fund upcoming projects.

Alternative Highways

Alternative routes being built along IRBs BOT projects is always a threat for the company. Currently, IRB is facing competition from a competing stretch being built by the Gujarat state which has had a major impact on reduction traffic across the Ahemdabad BOT which brings in 7% gross level revenue for IRB.

Here’s Project wise distribution of current BOT Projects:

IRB Infra