MOSL: IRB INFRASTRUCTURE (Neutral)-Operational results below expectations led by weak EPC performance

IRB Infrastructure: Operational results below expectations led by weak EPC performance

(IRB IN, Mkt Cap USD1.3b, CMP INR220, TP INR250, 14% Upside, Neutral)

• Operating performance marginally below expectations: IRB’s revenue declined 8% YoY to INR11.2b, below our estimate of INR13.7b, due to weaker-than-estimated EPC revenue. Operating profit stood at INR6.7b (-9.0% YoY), below our estimate of INR7.1b. Operating margin shrunk 70bp YoY to 52% due to an adverse revenue mix (higher contribution from the low-margin construction business). Adj. profit of INR2.5b was meaningfully above our estimate of INR1.6b, led by lower-than-estimated interest cost and higher-than-estimated other income.
• BoT revenue registers strong growth: Toll revenue from continuing projects grew 24% QoQ to INR4.6b, supported by strong traffic growth across projects. Toll revenue for the key Mumbai-Pune project grew 9% YoY and for the Ahmedabad-Vadodara project rose 16% YoY. Chittorgarh-Gulabpura also started contributing to revenue from this quarter.
• Muted EPC revenue growth: EPC revenue grew at a muted 3% YoY to INR8.5b. EPC EBIT margin improved 160bp YoY to 29% 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 operations from 4QFY18. Order book stands robust at INR74b; IRB incrementally expects order inflow from the upcoming finalization of the HAM and ToT projects.