Please refer to important disclosures at the end of this report 1 Y/E March ( ` cr) 3QFY12 3QFY11 2QFY12 % chg (yoy) % chg (qoq) Net sales 745.5 668.8 735.9 11.5 1.3 Op. profit 341.7 293.6 321.5 16.4 6.3 Net profit 132.0 133.0 110.1 (0.7) 20.0 Source: Company, Angel Research For 3QFY2012, IRB reported a decent set of numbers, which were above our and street estimates, led by better execution of under-construction projects and high E&C margins.IRB has a robust order book of `7,070cr (4.2x FY2011 E&C revenue, excluding O&M orders), which lends revenue visibility. We have revised our estimates upwards for FY2012 to factor in pickup in execution before our expectations. We retain our estimates for FY2013 as we were already expecting pickup in execution from 4QFY2012. Due to the recent run up in the stock price, we recommend Accumulate on the stock. Better-than-expected performance: IRB’s top line witnessed modest growth of 11.5% to `745.5cr, ahead of our estimate of `639.5cr, owing to higher-tha n- expected E&C income from under-construction projects (Jaipur Deoli - ~ `180cr, Talegaon Amravati - ~`180cr and Amritsar Pathankot - ~`100cr). IRB’s EBITDAM came at 45.8%, in-line with our estimate of 45.9%. Interest cost stood at `142.0cr, registering a jump of 73.2% yoy/0.6% qoq basis, in-line with our estimates.IRB reported PAT of `132.0cr, higher than our estimate of `81.5cr on account of better show on the revenue front and lower tax provisioning (18.0% vs. our estimate of 23.2%). Outlook and valuation: NHAI has awarded ~4,500km of projects so far in FY2012 in the road segment; and it is expected to finish the year by awarding more than ~5,400km of projects. We believeIRB with its robust order book in hand would be concentrating more on execution in FY2013 and would be selective in bidding for projects. IRB’s stock has outperformed its peers over the past few months, vindicating our top pick in the space. However, we believe IRB offers limited upside from current levels and, hence, we downgrade the stock to Accumulate from Buy with an SOTP target price of ` 182. Key financials (Consolidated) Y/E March ( ` cr) FY2010 FY2011 FY2012E FY2013E Net sales 1,705 2,438 3,176 3,781 % chg 71.9 43.0 30.3 19.1 Adj. net profit 385.4 452.4 470.5 434.0 % chg 119.2 17.4 4.0 (7.7) EBITDA (%) 46.9 44.9 43.3 40.4 FDEPS ( ` ) 11.6 13.6 14.2 13.1 P/E (x) 14.2 12.1 11.6 12.6 P/BV (x) 2.7 2.2 1.9 1.7 RoE (%) 20.4 20.2 17.8 14.3 RoCE (%) 13.2 14.2 12.6 10.3 EV/Sales (x) 4.6 3.6 3.3 3.1 EV/EBITDA (x) 9.9 8.1 7.7 7.7 Sour ce : Com an An el Res earc h ACCUMULATE CMP `165 Target Price `182 Investment Period 12 Months Stock Info Sector Bloomberg Code Shareholding Pattern (%) Promoters 67. 6 MF / Banks / Indian Fls 10. 0 FII / NRIs / OCBs 17. 6 Indian Public / Others 4. 8 Abs. ( %) 3m 1yr 3yr Sensex ( 5.3) (8.3) 78.9 IRB ( 2.7) ( 18.5) 46.4 10 16,863 5,087 IRBI.BO IRB@IN 5,778 1.2 230/121 361,819 Infrastructure Avg. Daily Volume Market Cap ( `cr) Beta 52 Week High / Low Face Value ( `) BSE Sensex NiftyReuter s Cod e Shailesh Kanani 022-39357800 Ext: 6829 [email protected]Nitin Arora 022-39357800 Ext: 6842 [email protected]IRB Infrastructure Performance Highlights 3QFY2012 Result Update | Infrastructur e January 30, 2012
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For 3QFY2012, IRB reported a decent set of numbers, which were above our and
street estimates, led by better execution of under-construction projects and high
E&C margins. IRB has a robust order book of ` 7,070cr (4.2x FY2011 E&C
revenue, excluding O&M orders), which lends revenue visibility. We have revisedour estimates upwards for FY2012 to factor in pickup in execution before our
expectations. We retain our estimates for FY2013 as we were already expecting
pickup in execution from 4QFY2012. Due to the recent run up in the stock price,
we recommend Accumulate on the stock.
Better-than-expected performance: IRB’s top line witnessed modest growth of
11.5% to ` 745.5cr, ahead of our estimate of ` 639.5cr, owing to higher-than-
expected E&C income from under-construction projects (Jaipur Deoli -
FY2013E 13.1 15.8 (17.6) Source: Company, Angel Research
Investment arguments
Integrated business model: IRB’s integrated business model ensures the timely
completion of projects, reduces its reliance on subcontractors and controls costs.
Further, it allows capturing the entire value in the BOT development business,
including EPC margins, developer returns and operation and maintenance (O&M)
margins.
OB/Sales provide good revenue visibility: IRB achieved its yearly order inflow
guidance by winning the Ahmedabad Vadodara project and is staying away from
current competition. The order book of ` 7,070cr, excluding O&M orders (4.2x
FY2011 E&C revenue), lends good revenue visibility for the next few years.
Negligible dependence on capital markets: As per our analysis, IRB has an
equity requirement of ~ ` 2,148cr (FY2012-14E), and its internal accruals/support
(cash flows from the E&C and BOT segments) would substantially fund this
requirement. Further, the company would be able to keep its debt equity position
within reasonable limits.
Concerns
Delay in order awarding: IRB being a road-focused player is dependent on NHAI
for road awarding activity. Thus, any slowdown from NHAI’s end would affect IRB’s
order inflow. However, given the huge bidding pipeline of NHAI, IRB should
perform well, as it is one of the market leaders.
Interest rate: BOT projects are inherently high-leverage projects. Hence, IRB’s
business model is vulnerable to interest rate fluctuations, and any hike in interest
rates could increase the company’s interest costs.
Commodity risks: Road players are facing pressures from the recent price inflationin commodities such as cement and steel, which directly affect margins.
Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
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Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)