IRB Infrastructure Developers' Q2FY20 results (Outperformer) - Beat estimates on strong EPC revenue
Q2FY20 result highlights
- IRB Q2FY20 consolidated revenues came in at Rs17.5bn, growth of 22% yoy. Note that the growth has come despite end of concession agreement of Mumbai Pune Expressway Project. EPC revenues increased by 42% yoy to Rs13.3bn (vs est of Rs10bn) while BOT revenues declined by 15% to Rs4.2bn (along expected lines).
- As a result, EBITDA for Q2FY20 came in at Rs7.5bn (est of 6.5bn) led by 60% yoy growth in EPC EBITDA aided by 836bps margin expansion. Overall EBITDA margin was 43% for Q2FY20, decline of 413bps yoy due to decline in BOT revenues (which has higher margins)
- Note that IRB has guided for 30% yoy growth in revenues and 20% in EBITDA for FY20. Further, EPC revenues are expected to grow at 30-35%yoy and 20-25% yoy growth in toll revenues aided by new BOT projects.
- During August 2019, 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 units. The total length of the portfolio is 5900 lane kms at an EV of Rs225bn. The deal is likely to finalise by end of FY20.
- New projects will be pursued by the INVIT. Note that IRB-GIC is already participating in Mumbai Pune Expressway and TOT projects.
Key positives: Deal with GIC for INVIT platform
Key negatives: Delay in appointed date for two HAM projects
Impact on financials: Increase our FY20E earnings by 34% on account of beat in Q2FY20
Valuations & view
We believe the GIC 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 Rs119bn, 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 Rs45bn and revised our SOTP based price target for IRB is Rs186 (revised our EPC multiple to 6 due to lower order visibility). We maintain Outperformer rating on 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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