Hold IRB Infrastructure, target of Rs 260: ICICI Direct

ICICI Direct's report on IRB Infrastructure• IRB Infrastructure (IRB) reported robust growth of 30.1% YoY to Rs 1149.2 crore ahead of our estimate of Rs 1051.6 crore. Construction revenues showed strong growth of 49.6% YoY to Rs 677 crore ahead of our estimate of Rs 554 crore whereas toll revenues grew 9.5% YoYto Rs 472.2 crore• The EBITDA margin contracted significantly by 658 bps YoY to 52.6% below our estimate of 57.4% due to a change in its revenue mix with higher proportion of revenues flowing in from the comparatively low margin construction division• Net profit grew 22.4% YoY to Rs 149.0 crore in line with our estimate of Rs 147.7 crore• Net debt increased to Rs 12,223.7 crore (net debt to equity: 2.66x) in H1FY16 vs. Rs 10,969.5 crore (net debt to equity: 2.52x) in FY15Outlook and valuationAt the CMP, the stock is trading at attractive valuations of 15.2x FY17E EPS and 1.6x FY17E P/BV. IRB is in the process of transferring operational assets towards a trust for listing investment REITs by the end of FY16E.This is likely to free up equity capital of ~Rs 5200-6000 crore for IRB and would act as a key catalyst for the stock in the near term. However, we believe most positives have already been priced in the CMP. Hence, we maintain HOLD recommendation. We value the stock at Rs 262/share (BOT valuation - Rs 231.2/share and construction- Rs 89.3/share). We value the construction business at 8x FY17E PE given high visibility on the order book, says ICICI Direct research report.For all recommendations, click hereDisclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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