Event update: IRB Infrastructure Developers (Outperformer) - Key InvIT assets impacted by temporary diversions; in-line distribution

Event

IRB InvIT Fund (InvIT), in which IRB is a sponsor with 16% holding, has declared Q1FY19 results and distribution.

Details

• Gross toll collection on a like-to-like basis grew 5.5% yoy to Rs3.8bn (we have grossed up 53 days of toll collection post-InvIT to 91 days in Q1FY18). Four of the assets witnessed toll hikes wef April 1 2018 with the average hike being 4.4%. Traffic growth remained impacted due to early onset of monsoon and due to temporary diversions on Surat-Dahisar and Bharuch-Surat projects and mining ban on Jaipur-Deoli and Amritsar-Pathankot projects.
• Traffic growth (yoy): Surat-Dahisar +4.2%, Bharuch-Surat +5.5%, Tumkur-Chitradurga +8.4%, MVR +10.2%, Talegaon-Amravati +5.5%, Jaipur-Deoli (-) 31.3% and Amritsar Pathankot (-) 6.6%.
• Surat-Dahisar and Bharuch-Surat stretches saw significant diversion in heavy traffic since May 2018, due to closure of Mumbra bypass, which acts as the last mile connectivity between NH4, NH3 and NH8. Toll collections remained impacted at Jaipur-Deoli (due to sand mining ban as per Supreme Court orders) and at Amritsar-Pathankot (due to ban on mining of aggregates as per state government orders).
• For Q1FY19, IRB InvIT reported consolidated net revenue of Rs3bn, EBITDA of Rs2.4bn and PAT of Rs532m with cash profit of Rs2.1bn and EBITDA margin of 81.5% (81.2% in Q4FY18).
• IRB InvIT declared distribution of Rs3.05/unit for Q1FY19, comprising of interest payment of Rs2.25/unit and capital reduction of Rs0.8/unit.

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The traffic diversion on key assets of Bharuch-Surat and Surat-Dahisar is temporary and will recoup soon. Most other assets (except for Jaipur Deoli and Amritsar Pathankot), meanwhile, continue to post strong traffic growth. We expect the growth momentum in traffic to sustain, led by improving economic growth and a low base (impacted by GST implementation). IRB InvIT has guided for distribution of Rs12.3/unit for FY19, which implies interest yield of 11.5% for FY19E, at the current market price of Rs79.3 (likely interest payment of Rs9.1/unit). IRB InvIT offers a unique combination of operating assets and strong growth potential along with attractive IRR potential of 14%. The fund also offers scalability potential, given the addition of new assets from IRB’s asset portfolio by utilising its leveraging capacity. Maintain Outperformer on IRB Infrastructure with SoTP-based target price of Rs332.