Buy IRB Infra For Target Price Of Rs. 175

The company continues to report good set of numbers which are close to our estimates. The stock is down over 35 percent in last one quarter and hence it provide good value buying opportunity at present level. We maintain buy with price target of Rs175.

Key Highlights of the Q1FY13:

·         The company during the quarter has reported 22 and 3 percent growth in net sales and profit to Rs980 and Rs140 crore respectively The EBITDA during the quarter clocked 29 percent to Rs426 crore

·         The EBITDA margin during the quarter improved 200 bps to 43 percent from 41 percent one year before. The margin improvement is mainly on account of reduction in raw material cost by 15 percent and lowers other operating expenses.

·         The net margin however remains under pressure due to higher interest expenses as interest expenses clocked 31 percent during Q1FY13.

·         Of the above revenue, construction continues to dominate with 74 percent share whereas BOT accounts for 26 percent. The share of construction segment has increase from 72 to 74 percent in last one year due speed up in completion activities of under construction projects. The management expects two projects viz Jaipur-Deoli and Kolhapur project to commence during FY13.

·         Within BOT space, Tumkur-Chitradurga has registered 262 percent growth in toll revenue due to low base followed by Bharuch-Surat and Surat-Dahisar at 13.4 and 13 percent respectively. The share of Mumbai-Pune project continues to fall from 35 percent in Q1FY12 to 31 percent in Q1FY13.

·         The company has recently acquired 100% stake MVR Infrastructure & Toll ways from its promoters, existing institutional shareholders and other shareholders for Rs128 crore. .MVR has two projects in Tamilnadu

·         The current order book as on June 2012 stands at Rs7785 crore which is2.4x of its FY12 consolidated sales and hence provide good short term revenue visibility. Of the above order book, ongoing project’s stands at 27percent followed by 47 percent where IRB has received LOA and balance from O&M space.

·         Maharashtra continues to be largest geography in terms of project location with 41 percent followed by Gujarat and Karnataka at 33 and 11 percent respectively.

Valuations:

At current price of Rs126 the stock is trading at 8.3x and 7.2x of its FY13E andFY14E earnings respectively whereas it is trading at 1.3x and 1.1x of P/BV multiple for the same period respectively. We have maintained overweight on the stock and recommend investors to buy the stock with price target of Rs175

We have used SOTP (sum of the parts) valuation method to arrive at target price of Rs175 which includes BOT segment and EPC or construction segment. The BOT segment includes both operational and under construction projects which are valued at Rs85 and Rs40 respectively using NPV methods for SPV’s whereas the construction segment is valued at Rs50 per share.  All the things put together, we have arrive at fair value of Rs175 per share.