Analyst Corner: Maintain ‘neutral’ on IRB Infra with TP at Rs 122

IRB’s consolidated financials are not comparable Y-o-Y due to the monetisation of nine assets through the InvIT route and consolidation of the Mumbai-Pune Phase II project. The Construction business reported a revenue/Ebitda/adjusted PAT decline of 22%/22%/53% Y-o-Y. Normalcy in traffic led to strong (32% Q-o-Q) growth in collections across 13 toll assets of IRB and IRB InvIT. Though losses from the associates reduced sequentially, higher depreciation from Mumbai-Pune Phase II project led to a 29% miss on our earnings estimate in spite of a beat on our revenue estimate. For 9MFY21, adjusted PAT stood at Rs 197 million (v/s Rs 5.7 billion in 9MFY20).

Cash flow visibility has improved meaningfully due to the Mumbai-Pune Phase II project. Construction order book (OB) remains weak, with OB-to- revenue ratio of 1.1x, thereby increasing dependency on new order wins. We cut our FY21E/FY22E/FY23E EPS by 7%/5%/10% due to higher depreciation in the BOT segment. Though NHAI has ramped up ordering, with 4QFY21 expected to witness higher order wins, any weakness in order wins may pose a downside risk to our earnings estimates. We maintain ‘neutral’, with a SoTP-based TP of Rs 122 per share. Any favorable outcome from the Ahmedabad-Vadodara Expressway arbitration may pose an upside risk to our TP.

Consolidated earnings miss expectation. Consolidated revenue declined 11% Y-o-Y to Rs 15.5 billion (17% ahead of our estimate) on stronger than expected execution in the EPC segment. Ebitda was flat Y-o-Y at Rs 7.2 billion (6% ahead of our estimate). Higher revenue from lower margin construction business implies a lower beat on Ebitda. Due to higher depreciation and losses from associates, adjusted PAT declined 57% Y-o-Y to Rs 695 million and missed our expectation by 29%.

Segmental highlights – EPC business. Revenue declined 22% YoY to INR10.8b (27% ahead of our expectation). Stronger execution led to a 14% decline in the EPC order book (excluding O&M). The order book stands at INR42.8b, with OB-to-revenue ratio of just 1.1x. Net profit declined 53% YoY to INR1b. BOT business: Revenue increased 30% YoY to INR4.7b (in line with our expectation). Like-for-like toll collection grew 3.7% YoY. On account of higher depreciation and losses from associates, adjusted PAT loss stood at INR315m v/s a loss of INR546m last year. YoY headline numbers are not entirely comparable owing to transfer of assets into the second InvIT and accretion of Mumbai-Pune Phase II project.

Toll collections from Mumbai-Pune Expressway grew 42% sequentially and crossed INR36m/day in Dec’20. NHAI has lined up INR600b worth of bids until FY21-end. Of this, IRB aims to bid for INR60-80b. The management is hopeful that NHAI would bid out the entire pipeline in 4QFY21. Owing to raw material cost inflation, Construction margin is expected to remain soft. In BOT projects, cost inflation has to be borne by IRB, while the same is borne by NHAI in HAM projects. An arbitration panel on Ahmedabad-Vadodara Expressway has now been setup, and IRB expects some visibility before 4QFY21-end.

We cut our FY21E/FY22E/FY23E EPS by 7%/5%/10% due to higher depreciation in the BOT segment. Though NHAI has ramped up ordering, with 4QFY21 expected to witness higher order wins across players, weak order inflows may pose a downside risk to our earnings estimates. We maintain Neutral, with a SoTP-based TP of INR122 per share. Any favorable outcome from the Ahmedabad-Vadodara Expressway arbitration may pose an upside risk to our TP.