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MOSL: IRB INFRASTRUCTURE (Neutral)-Mumbai-Pune expressway homecoming provides a lifeline

IRB INFRASTRUCTURE: Mumbai-Pune expressway homecoming provides a lifeline

(IRB IN, Mkt Cap USD0.5b, CMP INR101, TP INR92, 8% Downside, Neutral)

 

• IRB’s fortunes appeared to be going downhill, as evident from the latest results with a PAT decline of 27% and an order book decline of 44%. However, the company has emerged as a sole bidder in the Mumbai-Pune TOT contract – arguably the best road asset in the country as per the earlier IRR enjoyed by IRB. The Mumbai-Pune project can change the fortunes of the company, given the annual toll collection potential of INR10b+. While a few details of the bid and the final awarding are still awaited, we believe the project can generate IRRs of 20%+ for IRB.
• Over the past six months, IRB has surprised us on two aspects: (1) announcing the second InvIT with GIC and (2) emergence as a winner in Mumbai-Pune project award, in a timely manner and that too as a sole bidder. We await final awarding of the project (recall that the project was scrapped earlier, but management suggested that rules do allow for awarding on second attempt if there is sole bidder) before incorporating it in our earnings. However, we do incorporate the same in our DCF valuation and increase our TP to INR92 (prior: INR77). Maintain Neutral. 

Execution continues to be in top gear; toll collection growth encouraging

• Revenue declined 2.6% YoY to INR17b. EBITDA declined 6% YoY to INR7.1b and was 8% ahead of our estimate on account of higher margins. PBT was 13% ahead of our estimates. On account of no contribution toward minorities (as GIC deal is yet to be completed), adj. PAT came in at INR1.6b
  (-27% YoY) and was 12% below our estimate.