>IRB INFRASTRUCTURE DEVELOPERS LIMITED (DOLAT CAPITAL)

IRB’s FY09 results were in line with our estimates. The consolidated net revenue has grown by 35% YoY on the back of ~23% YoY increase in toll revenue and ~56% YoY increase in construction revenue. However, margins have shown a dip due to rise in construction cost on account of higher raw material prices. The construction cost saving upto 20% is estimated on Surat Dahisar BOT which will have a positive impact on the project and aggregate NPV. However, it would be too early to factor in this development as the project has just begun and will be completed in the next 28 months. We believe, in the current scenario, change in our assumptions (traffic growth rate, cost of equity and debt, toll escalation rate) are not warranted. Our calculation suggests the NPV of BOT projects will have the highest sensitivity to the traffic growth rate amongst other factors. We have valued the stock on SOTP (BOT – NPV and EPC – PER) method and believe that the stock remains overvalued at these levels. We maintain a SELL on the stock with target price of Rs 67(BOT - Rs.56 and EPC - Rs.11).

Order book details
The Company has an order book of Rs.58.9 bn as on 31st March 2009 (of which O&M work accounts for 43.7%, EPC in ongoing BOT projects accounts for 51.6% and rest 4.6% is attributed to funded projects). Further, the EPC order book of Rs.30.46 bn is confined to construction work of ~300 kms, out of which Surat Dahisar accounts for 239 kms and KIRDP (Kolhapur Road Integrated Development Programme) for 50 kms. The company expects to execute the order book in next two and half years.

Project update

Surat Dahisar BOT
The EPC cost of the project (~Rs.25 bn) is expected to be reduced by ~20% on account of reduction in raw material prices and cost of funding. This is expected to result in a saving of around Rs.5 bn. However, it would be too early to predict the extent of cost saving as only 2 months of construction period has gone by out of a total period of 30 months. Hence, any upward movement in RM cost in the balance period of construction might not reduce the construction cost to the extent of 20% as anticipated by the company.

IRB has started collecting toll from 20th Feb 2009 on this stretch and has so far collected Rs.335.9 mn on gross level (around 7.3% contribution to total toll revenue) but this is lower than earlier expectation by around ~26%. The current run rate is ~Rs.8.5 mn/day on the gross basis as against the expected ~Rs.11.5 mn/day. The lower toll collection is on account of lesser port traffic on the stretch due to slow down in exports and economic activities.

Sensitivity of NPV to change in construction cost (EPC) at constant 6% traffic growth
The NPV of Surat Dahisar BOT will range between - Rs.4.82 per share to Rs 3.71 per share for 0% to 20% cost saving in construction expense.

Our aggregate NPV is estimated to improve between 3.8% to 15.3% for reduction in construction cost between 5% to 20%. (NPV range – Rs 55.90 per share to Rs 64.43 per share).

To see full report: IRB INFRASTRUCTURE