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Spark Capital: IRB Infrastructure Developers - 4QFY13 Results Review




Spark Capital Advisors(India) Private Limited


16 May 2013





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Good quarter; retain ‘BUY’ based on order book visibility and toll growth from new roads IRB reported a good quarter with consolidated revenues of Rs. 9.48bn, a 12% growth yoy due to a 13% increase in toll segment revenues and a 10% increase in construction segment revenues. On a full year basis revenues increased by 17% on the back of ~9% growth in toll segment revenues and ~20% growth in construction segment revenues. The yoy growth in revenues (for 4QFY13) at the toll segment was driven by revenue growth in Surat Dahisar (~12% yoy) and in Bharuch Surat road stretches (~18% yoy, primarily due to a spurt in traffic growth to ~8% in the quarter). Project completion at Jaipur-Deoli project and Talegaon-Amaravati roads stand at >90%, completion at Pathankot-Amritsar is at 80% while it is 75% at Tumkur-Chitradurga, representing robust execution on the first three projects, as reflected in yoy growth in construction revenues, we expect the growth to continue into FY14E. Revenue growth for the tolling segment in FY14E will be driven by commencement of tolling at Jaipur - Deoli and Talegaon – Amravati stretches. Tolling at the Kolhapur project is expected to start soon (State government has lifted the ban on tolling and pending few approvals tolling will commence from May 2013). Orderbook stands at a healthy ~Rs. 84bn, flat on yoy basis. IRB is pre-qualified for submitting bids with respect to large projects (>Rs. 40bn). Given that NHAI’s project award activity is expected to revive in FY14E (currently facing issues with environmental/ forest clearances, developer unwillingness/ financial constraints) and given the significant reduction in aggression from competitors in the recent bids, we think the Company is well poised to be the frontrunner to win coveted/ large projects in FY14E (expected order awards for ~3,000kms of which IRB is likely to garner ~300kms). Company had consolidated its 74% stake in MVR Infrastructure & Tollways Pvt. Ltd in 3QFY13 (which owns and operates 68km Omallur-Salem-Namakkal road in Tamil Nadu) during the quarter. This resulted in a tax credit of ~Rs. 330mn of which ~Rs. 160mn was booked in the quarter resulting in a reduction in tax provisioning. We maintain our SoTP methodology to value the stock (using DCF for each road asset) as we roll forward to incorporate FY15E numbers, yielding a fair value of Rs. 206/ share. Favorable resolution in the ongoing investigations involving the promoter will be a key trigger for the stock price. Until such time we believe it is appropriate to apply a discount on our SoTP valuation to arrive at our price target. Accordingly, applying a 25% discount, we arrive at a target price of Rs. 157/ share (Rs. 147 earlier). Reiterate Buy with a TP of Rs. 157/ share.

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