Thursday, August 9, 2012

>IRB INFRASTRUCTURE DEVELOPERS: Strong execution drives growth

Earnings above estimates, margins expand: For Q1FY2013 IRB’s consolidated revenues grew by 22% YoY and 15.5% QoQ led by a strong execution in the EPC segment and consistent toll collection across projects. The OPM improved sharply on account of margin expansion in the EPC segment to 43.4% vs 41.1% in Q1FY2012. However, the PAT growth was restricted to only 5.7% YoY to Rs142 crore due to an 80% surge in the depreciation and a 31% increase in the interest charge.

Strong performance by EPC segment; BOT continues to be stable: The EPC vertical posted a strong growth of 27% YoY led by robust execution across projects. The margins expanded to 27.9% against 22.8% in Q1FY2012 due to range-bound raw material prices. The PAT was up 37% YoY. The BOT division continued to be stable with revenues up 10.4% YoY largely led by (i) 6% toll revision at the Tumkur- Chitradurg project; and (ii) a strong traffic growth across a few projects YoY. The OPM improved by 110 basis points YoY to 88.2%. Due to a sharp jump in the depreciation the PAT fell by 35% YoY but rose by 13% QoQ.  Thus earnings estimates revised upwards: We have revised our earnings estimates upwards by 15% and 7% for FY2013 and FY2014 respectively to factor in the expansion in the EPC margin in Q1FY2013.

Maintain Buy with price target of Rs175: With a mature portfolio now, the management plans to reward the shareholders with a dividend of up to 20% of the PAT. Further, it is also looking at growing inorganically by acquiring operational projects. Notwithstanding the legal tangle of its promoter and the recent Maharashtra Navnirman Sena attack on its Mumbai-Pune Expressway, we believe the sharp correction offers a compelling buying opportunity. At the current price the stock is trading at 7.6x and 8.4x its FY2013E and FY2014E earnings respectively.