>IRB INFRASTRCTURES DEVELOPERS LTD. (HDFC SECURITIES)

Company Background & its Business Structure
Incorporated in 1998, IRB Infrastructure Developers Ltd. (IRBD) is an infrastructure development & construction company in India with significant experience in the roads & highways sector. Its infrastructure development business involves the construction, development and operation of infrastructure projects. IRBD currently has 10 operational BOT (Build, Operate & Transfer) projects in its portfolio, while 2 BOT projects are in the construction phase. Its construction business complements the infrastructure development business & involves engineering, procurement & construction work (EPC) for construction projects and operations and maintenance on a contractual basis. IRBD has moved up the value chain & recently ventured into the field of real estate development.

IRBD came out with an IPO of Rs. 9.44 bn in February 2008 with an objective to invest in its subsidiaries & for pre-payment & repayment of its existing loans. Most of the work in both in the infrastructure development business and construction business is won on a competitive bidding basis. IRBD’s clients are usually Government entities (National Highways Authority of India,
Maharashtra State Road Development Corporation, etc.) that award project specific contracts to bidders based on certain eligibility requirements. These eligibility requirements generally include project experience, engineering capabilities & financial strength. IRBD may enter into project-specific joint ventures with other companies to meet these requirements or to further
enhance its credentials. In the Surat-Dahisar project (awarded to IRB in April 2008), IRB has entered into an agreement with Deutsche Bank as a financial partner, which has a 10% equity stake in the project.

Economically beneficial arrangements with respect to certain BOT projects
Under the concession agreements relating to the Pune - Solapur road BOT project and the Pune - Nashik road BOT project, the Ministry of Shipping, Road Transport & Highways (MoSRTH) has undertaken that the Government of India will not construct & operate either on a BOT basis or otherwise a competing project facility, either toll free or otherwise, during the
concession period; except where the fee charged for vehicles using such facility is in excess of 133% of the fee being charged for the vehicles using the roads under IRBD’s concession agreements with the MoSRTH.

Moving up the value chain – Real Estate Developer
IRBD has ventured in the real estate business through its 66% subsidiary Aryan Infrastructure Investments Pvt Ltd (AIIPL). IRBD plans to setup an integrated township alongside the Mumbai-Pune expressway. The proposed township would be spread over 1,400-1,450 acres. Of this, around 60% would be residential and the rest will be developed for commercial activities. The company has a land bank of 1,250 acres and has proposed to acquire the balance 150-200 acres in the next 6- 8 months for its proposed township. The total cost of 1,250 acres acquired amounts to Rs. 1.9 bn. This has been funded through internal accruals. With influx of major IT companies in and around the main city of Pune, we believe that the Real Estate venture could be a major growth driver for the company going forward. However, the entire development is expected to complete over the next 8 to 10 years. This would be in partnership with a developer. No revenue is expected to flow for the next 2 to 3 years. With the current downturn in the real estate cycle, the company has decided to go slow on this project. Also, the company decides to sell the land bank acquired, it could still be profitable as it could fetch Rs. 40-45 lacs per acre almost three times the cost of acquisition, which was Rs. 15 lacs per acre).

Healthy Order Backlog involving large projects like Surat-Dahisar, Surat-Bharuch & Kolhapur
IRB group’s current order book stands at Rs. 59 bn, which has increased from Rs. 23.25 bn as on December 31, 2007. This is mainly on account of two projects awarded in FY09 viz; Surat-Dahisar (awarded in April 2008) & Kolhapur project (Awarded in March 2008).

To see full report: IRB INFRASTRUCTURE