MOSL: IRB INFRASTRUCTURE (Neutral)-Weak BoT revenue drags overall performance

IRB Infrastructure: Weak BoT revenue drags overall performance

(irb IN, Mkt Cap USD1.3b, CMP INR262, TP INR290, 11% Upside, Neutral)

• Operating performance below expectations: IRB’s revenue declined 15% YoY to INR13.8b, below our estimate of INR16.4b, due to weaker-than-estimated BoT revenue. Operating profit stood at INR6.6b (-19.0% YoY), below our estimate of INR8.3b. Operating margin shrunk 280bp YoY to 47.7% due to negative operating leverage and weak margins in the EPC segment (-180bp YoY to 26.8%). Adj. profit of INR2.4b came in below our estimate of INR2.7b, led by the revenue miss.
• Strong growth in toll revenue from continuing projects: Toll revenue from continuing projects grew 17% YoY to INR5.1b, supported by strong traffic growth across projects. Toll revenue grew by 24% YoY for the Mumbai-Pune project and by 11% YoY for the Ahmedabad-Vadodara project. Solapur-Yedseshi and Kishangarh-Gulabpura also started contributing to revenue from this quarter.
• EPC revenue to pick up strongly over FY18-20: EPC revenue declined 15% YoY and EBIDTA fell 17% YoY. However, EPC performance is expected to improve substantially over FY18-20, given robust order inflow of INR81.6b in FY18. Order book stands robust at INR151b, which is expected to be executed over the next two years, ensuring revenue CAGR (FY18-20) of 37% and earnings CAGR of 23%. Management guided for EPC revenue of INR75-76b in FY20, with operating margin at 17-18% and PAT margin at 10-11%.