IRB Infrastructure Developers' Q1FY20 results (Outperformer) - GIC Deal addresses equity funding concerns
Q1FY20 result highlights
- IRB Infrastructure Developer (IRB) has entered into an agreement with GIC to transfer its nine operating and under construction projects into a private INVIT where IRB will hold 51% of the stake and GIC will hold the remaining. The total length of the portfolio is 1200kms (5900 lane kms).
- The total cost of all the 9 operational and under construction projects is Rs225bn – similar as Enterprise Value of the portfolio.
- The trust will be funded by equity of Rs90bn and debt of Rs135bn (debt: equity of 1.5:1 and 60% of the total value of the asset). Note that private INVITs are free to decide on their leverage.
- Out of Rs90bn, Rs46bn of equity will be funded by IRB and Rs44bn will be funded by GIC (debt: equity of 51:49).
- IRB has already invested Rs32bn of equity in the projects. As a result, it will infuse Rs14bn of equity in under construction projects.
- GIC will invest Rs30bn upfront which will be used to retire the debt. Balance Rs14bn will be infused later to meet the equity of under construction projects.
- After completion of under construction projects, Trust will be funded by equity (or units) of Rs90bn and debt of Rs135bn.
- IRB reported revenue, EBITDA and profit of Rs18bn (+15% yoy), Rs8.6bn (+14% yoy) led by 15% increase in EPC and BOT revenues each and profit of Rs2.1bn, decline of 13% yoy in Q1FY20 (estimate of Rs2.4bn).
Key positives: Deal to meet 50% of equity requirements
Key negatives: Delay in appointed date for two HAM projects
Impact on financials: Minor changes in FY20E/FY21E estimates
Valuations & view
We believe the deal is hugely positive with the cash inflow from GIC to meet 50% of equity commitment in under construction projects. . Given the order book of Rs126bn, IRB should easily meet the balance equity requirement of Rs14bn. As a result, it addresses the investor concerns about funding equity requirement for under construction projects. Besides, it reduces the leverage of consolidated entity from 2 to 1.5. Moreover, it creates a platform for the future INVIT and TOT requirements. We value its EPC business at Rs53bn and our revised SOTP based price target for IRB is Rs211. We maintain Outperformer rating on the stock
IRB Infrastructure Developers is a infrastructure projects development group based in India. Co. undertakes development of various infrastructure projects in the road sector through several Special Purpose Vehicles. Co. executes projects under the Public Private Partnership (PPP) mode. Co.'s focus is developing highway infrastructure involving construction, operation and maintenance of highways, under Build-Operate- Transfer (BOT) mode. Co. places bids for BOT contracts for national and state highways development projects. Along with its subsidiaries, Co. has constructed, operates and maintains approximately 9,295 lane kms of road length in India.
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