IRB Infrastructure Developers' Q3FY19 results (Outperformer) - Strong execution but delays impact FY20 growth outlook
Q3FY19 result highlights
- IRB Infrastructure Developers’ (IRB) Q3FY19 earnings were above our estimates led by strong EPC revenues. PAT grew 5.3%yoy to Rs2.2bn (our estimate: Rs2bn).
- Revenue grew 38%yoy to Rs17.9bn and was above our estimate of Rs16.2bn due to higher than expected EPC revenue. EPC revenue grew 49.8%yoy to Rs12.5bn (our estimate: Rs10.9bn) led by strong execution. BOT revenue grew 17.3%yoy to Rs5.4bn, largely in-line with our estimate of Rs5.3bn. However, gross toll collection on a like-to-like basis remained subdued & grew 2.9%yoy to Rs4.5bn.
- Traffic growth performance for portfolio assets was mixed with strong growth in Kaithal-Rajasthan (toll collection grew 30% yoy to Rs217m aided partly by revision in toll rate from 87% to 96%) & for Ahmedabad-Vadodara it grew ~8% yoy. Traffic growth was weak in Mumbai-Pune and Agra-Etawah road projects.
- EBITDA grew 21%yoy to Rs7.6bn and was above our estimate of Rs7.1bn led by strong revenue growth. However, EBITDA margin contracted sharply by 610bp yoy to 42.5% (est: 44.0%) due to increase in share of EPC revenue as well as decline in EPC margins. EPC margins declined 720bp yoy to 23.4% (vs. est of 26%) due to higher raw material prices and utility shifting revenue of Rs1bn, which earns very low margins.
- Order backlog as on Dec-18 stood at Rs122bn (3x TTM EPC revenues).
- IRB received AD for Vadodara-Mumbai e’way and has commenced the work. While for two TN HAM projects, AD is yet to be received due to delays in land acquisition.
Key positives: Improved traffic growth on Ahmd-Vadodara project.
Key negatives: Delay in receipt of ADs for TN HAM projects.
Impact on financials: Downgrade of 23% in FY20E earnings due to lower EPC revenue and lower margins.
Valuations & view
Notwithstanding the delay in land acquisition, IRB’s foray into HAM segment and its robust order wins enhance visibility and sustainability of its EPC business. With increasing contribution from HAM projects (at 15-17% EBITDA margin), IRB’s EPC margins should converge with its peers in 3-4 years. We value its EPC business at Rs56bn and our overall revised SOTP based price target for IRB is Rs267. Maintain Outperformer. ​
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.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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