Buy IRB Infrastructure; target Rs 171: KRChoksey

KRChoksey is bullish on IRB Infrastructure Developers and has recommended buy rating on the stock with a target price of Rs 171 in its October 31, 2012 research report.

"IRB Infrastructure Developers reported Q2FY13 consolidated revenues of Rs 845 crore (up 14.9%, YoY) that is in line to expectation, primarily driven by increase in construction income at BOT projects under implementation. EBIDTA grew to Rs 381 crore (up 18.4%, YoY) and EBIDTA Margins improved by 135 bps YoY basis, primarily improved due to stable raw material prices. PAT has increased to Rs 121 crore (up 9.9%, YoY), primarily impacted by effective tax rate of 23.5% (-133 bps, YoY) and lower interest cost (-4%, QoQ), as MTM exchange gain/loss in interest cost is capitalized in assets during the construction period according to the new circular by MCA.

Toll revenue Rs 2.48 bn, Traffic growth (avg +4.5%, YoY)
Toll is hiked in Surat-Dahisar (+8.9%) and Bahruch-Surat (+7.57%) that is effective from September 2012. Excluding the toll hike, the traffic growth is lower for Mumbai-Pune (+4.2%) & Surat-Dahisar (-0.8%) on YoY basis. However, Management guided ~23.5% toll revenue growth for FY13E based on recent toll hike in Surat-Dahisar and Bahruch-Surat. We expect toll revenue of Rs 1,206 crore (+22.3%, YoY) for FY13E.

Stronger execution by EPC division, orderbacklog of Rs 95 bn
EPC revenue grew to 598 crore (+18.4%, YoY) and margins improved by 432 bps (YoY) on account of strong execution in the ongoing projects. Major revenue contributed by TA (Rs 80 cr), JT (Rs 165 crore), AP (Rs 205 crore) and Tumkur (Rs 125 crore). We expect EPC revenue of Rs 2,480 crore for FY13E as work on sites-Tumkur & Amritsar will be completed and EPC revenue from Ahmedabad-Vadodara will start in Q4FY13E. The orderbacklog of Rs 95 bn has to be executed over 2-3 years.

Valuation & outlook: We maintain our BUY rating on IRB with a target price of Rs 171, however we expect the recent concerns related to management will stay in short terms. We recommend "BUY" on IRB with TP of Rs 171 based on 1.) having best operating cashflow of Rs 15 bn in the construction industry, 2.) strong balance sheet to grab upcoming opportunities in the road sector 3.) NHAI has plan to award 9300 km of road projects in current financial year," says KRChoksey research report.

FIIs holding more than 30% in Indian cos

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