Buy IRB Infrastructure; target of Rs 235: ICICI Direct

ICICI Direct's research report on IRB Infrastructure

Due to heavy monsoon in Q2FY17, execution was hit resulting in moderate growth of 7.5% to Rs 729.2 crore in construction division revenues (average growth of 60.6% in last four quarters). IRB has also received LoI (letter of intent) for 2 six laning BOT projects viz. Gulabpura - Chittorgarh (NH-79) and Udaipur–Gujarat Border (NH-8) worth Rs 3988 crore boosting IRB’s order book (OB) to Rs 11394 crore, 3.3x TTM construction revenues. It has guided for construction revenue growth of Rs 10-12% in next 2-3 years based on current OB. The management has maintained its order inflow guidance of Rs 300 km projects in FY17E (already won 239 km projects). Hence, we expect construction division revenues to post 12.3% CAGR to Rs 3826.2 crore in FY16-18E.

IRB has seen robust toll collection in the past few quarters aided by strong traffic growth across its project portfolio. On the construction side, with current robust order book of Rs 11394 crore, a strong growth is expected over the next couple of years. Further, we believe that InvIT listing could also act as a near term trigger for the stock. With the competitive intensity reducing in bidding of BOT projects, IRB would be a strong beneficiary of upcoming BOT projects of NHAI. With the stock having corrected by 26.8% last month, at these levels, we see a significant upside in the stock. Hence, we have upgraded our recommendation to BUY with a SOTP based target price of Rs 235/share.