IRB Infrastructure Developers' Q3FY18 results (Outperformer) - Strong growth in traffic

Q3FY18 result highlights

• IRB Infrastructure Developers’ (IRB) Q3FY18 earnings were ahead of estimate led by higher than expected EPC and BOT revenues. PAT grew 12.5%yoy to Rs2.1bn which was ahead of estimate of Rs1.9bn.
• Revenue declined 8.1%yoy to Rs13bn but was above estimate of Rs12.2bn. EPC revenue grew 3.1%yoy to Rs8.4bn (est: Rs7.8bn) and BOT revenue declined 23.3%yoy to Rs4.6bn (est: Rs4.5bn). BOT revenue is not comparable yoy due to transfer of 7 assets to InvIT.
• EBITDA declined 15.2%yoy to Rs6.3bn (est: Rs6.1bn) and EBITDA margin declined 410bp yoy to 48.6% (est: 50%) due to increase in share of EPC in the revenue mix and higher employee cost.
• Order backlog as on Dec 2017 stood at Rs74bn (1.9x TTM revenues). IRB has started bidding for HAM projects and has submitted bids for 3 HAM projects. Currently, the management expects to make EPC PAT margin of 10-11% from HAM projects.
• Gross toll collection on a like-to-like basis grew 20.2%yoy to Rs3.9bn. This growth was largely led by 18% toll rate increase in the Mumbai-Pune project wef April-17. Traffic growth in key assets (yoy): Mumbai-Pune at 10.2% and Ahmedabad-Vadodara at 5.4%. As per the management the traffic continues to remain strong in Jan-18.
• In Q3FY18, Gulabpura-Chittorgarh project started toll collection (@75% of normal rate) and average daily toll collection stood at Rs6.1m/day. The company expects to soon achieve financial closure for Kishangarh-Gulabpura project and start toll collection.
• FY18 guidance: EPC revenue of ~Rs38bn.

Key positives: Strong traffic growth in key assets.

Key negatives: Lower toll revenue from Kaithal-Rajasthan project.

Impact on financials: Upgrade in FY18E/FY19E earnings by 1.3%/10.1% due to better than expected traffic growth. Introduced FY20E earnings.

Valuations & view

IRB has successfully monetized seven of its assets through transfer to IRB InvIT, resulting in de-leveraging and availability of surplus cash for development of new assets. The company in order to ensure sustainability of its EPC business has started bidding for HAM projects and we expect order inflow of Rs60bn over FY18-19. While we expect a sharp decline in earnings in FY20 due to end of concession of the Mumbai-Pune project, this decline can get mitigated if IRB is able to bag new BOT/TOT projects. Stock trades at 9.3x FY19E earnings and 1.2x P/B. Maintain Outperformer with a SoTP based price target of Rs275.