Buy IRB Infrastructure Developers; target of Rs 729.2: Ventura Securities

Ventura Securities report on IRB Infrastructure Developers

IRB Infrastructure Developers Ltd (IRB) has historically underperformed broader market as investors feared that the management strategy to mostly undertake BOT projects can lead to stress on the balance sheet. However, the management has strategically deleveraged its balance sheet through InvITs, private InvIT in partnership with marque investor GIC (IRB stake at 51%), capital raise of INR 5,347 cr through preferential allotment to Cintra for 24.9% stake (subsidiary of Ferrovial) and GIC for 16.9% stake and a public InvIT (16% stake with IRB). This coupled with the fact that NHAI has upped its ante in terms of ordering contracts should now lead to removal of any fear from investor’s minds and hence, should lead to re-rating of the stock, given the current lucrative valuation. It is to be noted that IRB is net debt zero at the holding company level. Its EBITDA margins in the construction business are >20% whereasthe equity requirement is only 16% pursuant (the 70:30 debt equity) for BOT projects(IRB’s share is 51% in equity while 49% is held by GIC, which is also a recurring partner). IRB now has the financial firepower with GIC and access to global best practices in Road BOT business with Cintra and is thus uniquely positioned to capitalize on the government’s NIP, NMP, Gati Shakti initiatives.

Outlook

We initiate coverage on IRB with a BUY for a PT of INR 729.2 (SOTP methodology) representing an upside of 239.2% over the next 30 months. Low traffic growth due to a fall in economic activity remains the key risk which is inherent to the road business .