MOSL: IRB INFRASTRUCTURE (Neutral)-Results impacted by weak BoT performance

​IRB Infrastructure: Results impacted by weak BoT performance

(IRB IN, Mkt Cap USD1.7b, CMP INR237, TP INR240, 1% Upside, Neutral)

• Operating performance below expectations: IRB's revenue declined 13% YoY to INR11.2b, below our estimate of INR13.2b, due to weaker-than-estimated BoT revenue (led by subdued traffic growth on account of GST implementation). Operating profit stood at INR5.7b (-19.5% YoY), below our estimate of INR6.8b. Operating margin shrunk 390bp YoY to 51% due to an adverse revenue mix (higher contribution from the low-margin construction business). Adj. profit of INR1.5b missed our estimate of INR1.9b.
• BoT revenue impacted by GST: Toll revenue from continuing projects grew 22% YoY to INR3.9b, supported by a toll hike of 18.5% at the Mumbai-Pune Express Highway (INR2.1b, +23%). Excluding this, other projects reported muted revenue growth. Traffic growth was impacted by GST rollout, but has started picking up since September. Amritsar-Pathankot has been transferred to IRB InvIT, and IRB booked a profit of INR1.0b on sale of that asset.
• Muted EPC revenue growth: Due to seasonal weakness, EPC revenue grew at a muted 3% YoY to INR7.5b. EPC EBIT margin improved 310bp YoY to 31.5% on account of lower contribution from the utility shifting segment, where margins are weak. IRB has six projects under construction, of which Solapur-Yedeshi has been almost completed and should commence commercial operation from 3QFY18. Order book stands robust at INR81.9b; the company incrementally expects order inflow from the upcoming finalization of the HAM and ToT projects.