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Nov 10, 2017 07:46 AM IST | Source: Moneycontrol.com

IRB Infrastructure bets on government initiatives to take the gloom off a poor Q2 show

The company has started tolling two more projects and feels that there will be a positive impact of the interest cost and debt will be pared as a result of transfer of BOT assets to IRB InvIT.

Jitendra Kumar Gupta @jitendra1929
 
 
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IRB Infrastructure's Q2 FY18 financial performance was impacted because of GST, muted growth in construction revenues, and monsoons. But, the company could be staring at exciting times with growth bouncing back in the second half of the current fiscal.

The company has started tolling two more projects and feels there will be a positive impact of interest cost, and debt will be pared as a result of transfer of build-operate-transfer (BOT) assets to IRB InvIT. “We successfully transferred Pathankot Amritsar project to IRB InvIT and got two notches rating upgrade to A+ which is likely to reduce finance costs,” said Virendra Mhaiskar, CMD, IRB Infrastructure Developers.

The Amritsar project has reduced debt of close to Rs 900 crore and provided cash of about Rs 500 crore. This is in addition to the cash of about Rs 1,700 crore it received last time when it transferred 6 BOT assets to InvIT.

The move will not only improve the debt-to-equity but also unlock large amount of equity, which is critical for bidding for bigger projects that are lined up under the Bharatmala initiatives.

“We are out of GST-led slowdown in traffic and since September have been witnessing promising growth across projects. We have entered the second half with a lot more gusto and look forward to large opportunities unfolding with latest government initiatives,” added Virendra Mhaiskar, CMD of the company.

Q2FY18 results: GST and monsoon impacts performance  

The company’s BOT segment, which accounts for 31 percent of the revenues, reported 22 percent growth from continued projects. Growth was largely driven by 18.5 percent toll rate hike for the Mumbai-Pune Highway. Adjusting for the same, toll collection grew by 5 percent on a year-on-year basis.

Management has indicated that post-September traffic growth has again resumed across projects, and this should reflect in growth in the coming months. That apart, it intends to commission one BOT project in Q3FY18 and three other projects by the end of FY18, which will help in further improving the visibility of the segment.

IRBQ2FY18-1

Investors should watch out for action in the construction division, which accounts for 70 percent of its revenues and witnessed muted 3 percent year-on-year revenue growth in Q2FY18 as a result of monsoon. The company which is sitting on an order book of close to Rs 8200 crore or 2.4 times its construction revenues in FY17, could see better execution and improvement in visibility.

By the end of FY18, the company is looking to win about 400-500 km of projects particularly from the Bharatmala initiative. The government had earlier indicated spending about Rs 7 lakh crore over the next five years to develop close to 83677 km of roads. Of this, about Rs 5.4 lakh crore will be spent on Bharatmala Pariyojana, which will include development of about 34800 km of roads.

 

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Valuation

Considering the growth and opportunities in the sector, IRB Infrastructure, at current market prices of Rs 232 is trading at a reasonable valuation of about 9 times its FY19 estimated earnings.

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