MOSL: IRB INFRASTRUCTURE (Neutral)-In-line quarter-execution pick-up at new HAM project is key

IRB Infrastructure: In-line quarter; execution pick-up at new HAM project is key 

(IRB IN, Mkt Cap USD0.6b, CMP INR126, TP INR145, 14% Upside, Neutral)

• Operating performance in line with expectations: IRB’s revenue increased by a healthy 28% YoY to INR14.3b (in-line), supported by strong growth in BoT assets (+38% YoY to INR5.1b) and an increase in Construction revenue (+15% YoY to INR8.6b). Operating profit grew 17% YoY to INR6.7b (our estimate of INR6.6b), with the margin shrinking 420bp YoY to 46.8% due to a contraction in Construction margins (27.4% v/s 31.5% in 2QFY18). Adjusted profit was in line with estimate at INR1.7b.
• Toll revenue from continuing projects muted; key Mumbai-Pune project impacted by traffic diversion: Toll revenue from continuing projects was at INR3.6b v/s INR3.4b in 2QFY18 (+6.5% YoY). New projects contributed another INR1.6b, taking total toll revenue for the quarter to INR5.1b. There was some impact from diversion of traffic at the key Mumbai-Pune project (closure of Mumbra bypass for repair works impacted daily traffic by 1.2m-1.4m). However, the repair work is now over and traffic should pick up from 3Q. Traffic at Agra-Etawah project also declined by 16% YoY due to diversion of traffic to Agra-Lucknow Highway (has started tolling at a concessionary rate of 75%). IRB expects toll collection to improve in the coming quarters.
• EPC revenue in line: EPC revenue grew 15% YoY to INR8.6b, with EBIDTA flat YoY at INR2.4b. EPC performance is likely to improve substantially over FY18-20, given the robust order backlog of INR81.6b in HAM/BoT category, which should start contributing to revenue from 2HFY19. Order book is robust at INR132b – it is expected to be executed over next two years, ensuring revenue CAGR (FY18-20) of 30% and earnings CAGR of 13%.