Event update: IRB Infrastructure Developers (Outperformer) - Strong growth recovery in InvIT assets; announces third distribution of Rs3/unit

Event

IRB InvIT Fund (InvIT), wherein IRB is the sponsor with a 15.5% holding, has declared its third quarterly results and distribution since listing.

Details

• Gross toll collections (without the impact of Amritsar-Pathankot acquisition) grew ~12%yoy to Rs3.5bn over proforma Q3FY17 revenue (toll collection was suspended for 23 days during Q3FY17 post demonetization). Average toll rate hike for these assets was ~5%yoy, implying an average traffic growth of ~7% for these assets.
• After being impacted by slowdown post GST implementation in Q2FY18, traffic growth improved materially for key assets: Surat-Dahisar;+9.8%yoy, Bharuch-Surat;+8.6%yoy, Tumkur-Chitradurga; 6.7%,  Talegaon- Amravati (+14% yoy). Traffic was weak in Jaipur-Deoli (down 8.8%) due to impact of sand mining ban and in Amritsar-Pathankot it declined 7%yoy.       
• Consolidated net revenue for Q3FY18 was Rs3bn, EBITDA was Rs2.4bn and PAT was Rs641m. Cash profit was Rs2.1bn. EBITDA margin was 80.2% in Q3FY18 (82.2% in Q2FY18).
• The InvIT declared its third distribution of Rs3/unit comprising of interest of Rs2.2/unit and capital reduction of Rs0.8/unit. The total distribution of Rs1.7bn is ~98% of the net distributable cashflow (NDCF) of Rs1.8bn for Q3FY18. For 9mFY18 (228 days) the InvIT has declared total distribution of Rs7.55/unit comprising of interest of Rs5.45/unit and capital reduction of Rs2.1/unit, which is in line with the guidance of Rs12/unit. The record date for the third distribution is 2 February 2018. 
• The management has guided for continued traffic growth momentum in key assets in Q4FY18 leading to improved cash flows. Q3FY18 cash flows include impact of a scheduled premium payment of Rs540m in the MVR project. Going forward, no such premium payment is scheduled for this asset, implying improved cashflows for the InvIT.
• IRB acquired an additional ~0.45% stake in IRB InvIT from the open market during Q3FY18, thereby increasing its stake to 15.5%. 

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Improving traffic growth in key assets like Bharuch-Surat and Surat-Dahisar in Q3FY18 is a key positive as these are large and mature assets. Most other assets meanwhile also continue to post buoyant traffic growth. We expect this traffic growth momentum to sustain going forward led by improving economic growth momentum and a low base (impacted by de-monetization/traffic diversions/GST implementation). Based on our cash flow estimate, IRB InvIT appears well on track to distribute Rs12/unit on annualized basis in FY18 and FY19. IRB InvIT offers a unique combination of operating assets with strong growth potential with an attractive IRR potential of 12-13%. It also offers scalability potential through addition of new assets using its leveraging capacity. Maintain Outperformer with SOTP-based target price of Rs265.