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Brokerage houses slashed the target price of IRB Infrastructure Developers after lowering traffic growth estimates due to likely slowdown in economic activity on currency demonetisation. However, they are hopeful of likely good response to Investment Trust IPO which may be launched in 2017 and revenue growth on strong orderbook.
While retaining a 'hold' rating on the stock with a reduced target price of Rs 210 (from Rs 250 earlier), Jefferies said it factored in second quarter results of this fiscal along with impact of demonetisation drive which will result in economic activity slowdown. Hence, it reduced traffic & execution growth estimates.
CLSA, which advised a buy on the stock, also cut target price to Rs 310 from Rs 330 after reducing EPS (earnings per share) growth estimates 5-10 percent in FY17-19 on cut in traffic growth estimate by 100-200 basis points for potential weak economic activity led by demonetisation.
The cut in target price was despite IRB confirming that toll road operators will be compensated by the NHAI for embargo on toll collection during the last two weeks. They will be compensated on the basis of average toll collection in October. After demonetisation, the government suspended toll collections across the country till November 24.
Jefferies does not expect any long-term impact on cash flows from suspension of toll collection, though it reduced toll collection estimates by 2/4/4 percent and revised construction growth estimates from 15/15/0 percent to 10/15/5 percent for FY17/18/19. According to its research note, downside risks will be further decline in traffic while upside risks will be pick up in economic activity.
IRB's stock has fallen 26 percent in the last one month on delay in InvIT IPO and government's toll-free national highway policy post demonetisation, which CLSA believes is transitory.
The Mumbai-based road developer missed analysts' estimates on all counts in Q2 with profit declining 5 percent due to higher depreciation and Ind AS related non-cash finance charge. Revenue growth was 12.3 percent, supported by BOT projects but impacted by lower-than-expected construction income due to extended monsoon.
Revenue from its BOT projects grew by 19 percent while construction revenue increased 7 percent but a delayed monsoon supported toll collection on Mumbai-Pune project as this route is used by tourists to Lonavala (a popular destination near Mumbai during monsoons). Blended YoY traffic growth was 6.5 percent in Q2FY17 compared to 7 percent in Q1FY17 and 8 percent in Q4FY16.
Infrastructure Investment Trust IPO is likely to be delayed as IRB is waiting for approval from SEBI but CLSA says decline in Indian government securities yield is likely to increase attractiveness of its InvIT to investors. Even robust BOT revenues and EPC orders won during Q2 increase revenue visibility for the next two years, it says.
IRB's BOT (build-operate-transfer) order pipeline remained robust at Rs 16,600 crore. It won projects worth Rs 45,000 crore in 1HFY17.
Citi, which has sell rating with a target price of Rs 214, says listing of InvIT and subsequent deleveraging are key.
At 10:32 hours IST, the stock was quoting at Rs 183.85, up 0.77 percent after hitting fresh 52-week low of Rs 177.50 in early trade.Posted by Sunil Shankar Matkar
