Stock Market Result Update on IRB Infrastructure for 2QFY2012

Stock Market Result Update on IRB Infrastructure for 2QFY2012 with an Accumulate recommendation and a Target Price of `182 (12 months).

For 2QFY2012, on a consolidated basis, IRB Infrastructure (IRB) reported a healthy set of numbers on all fronts, in-line with our estimates. We have marginally tweaked our estimates for FY2013 and SOTP target price to factor the removal of Goa Karnataka project (EPC `698cr) from the order book and high interest cost due to increased rates. We recommend Accumulate on the stock.

Robust performance: IRB reported strong top-line growth of 50.1% yoy to `735.9cr (`490.3cr), marginally ahead of our estimate of `686.9cr. IRB’s EBITDAM for the quarter came in at 43.7% (48.2%), lower than our estimate of 45.2%, due to higher than expected contribution from the relatively low-margin C&EPC segment. Interest cost come in at `141.1cr (`69.3cr), up 103.7%/20.2% yoy/qoq because of elevated debt levels (increase of `1,455cr since FY2011) and MTM loss of ~`14cr. IRB reported decent growth of 22.1%/11.1% to `147.6cr (`120.9cr) and `110.1cr (`99.1cr) on a yoy basis at the PBT/PAT levels, respectively, in line with our estimate of `147.1cr/`107.3cr, respectively.

Outlook and valuation: NHAI has awarded ~3,300km of projects so far in FY2012 in the road segment; and as per IRB’s management, NHAI would finish the year by awarding more than 6,000km of projects. Further, management believes that aggressive bidding has started to come down, as witnessed in some recent projects. Against this backdrop we believe IRB being one of the leaders in the road segment is going to benefit in the medium to long term. Moreover, IRB has a robust order book (excluding O&M orders and Goa Karnataka project) of `7,568cr (4.5x FY2011 C&EPC revenue), which lends high revenue visibility for the next two–three years and, hence, management has indicated that internal benchmark to bid is equity IRRs of ~18%. We have arrived at an SOTP-based target price of `182/share, which implies an upside of 11.2%. Hence, we recommend an Accumulate rating on the stock.