Re: {LONGTERMINVESTORS} IRB INFRA....Thread
RAJESH DESAI
---------- Forwarded message ----------
From: RAJESH DESAI <stock...@gmail.com>
Date: Mon, Jun 27, 2011 at 4:09 PM
Subject: {LONGTERMINVESTORS} IRB INFRA....Thread
To: LONGTERMINVESTORS <longterminve...@googlegroups.com>,
DAILY REPORTS <daily-r...@googlegroups.com>
9.IRB INFRA.
I am starting a new thread for each company I am tracking and shall
post all updates in the respective threads. All members are requested
to also post reports, views and updates in these threads.
Safe Harbor Statement:
Some forward looking statements on projections, estimates,
expectations & outlook are included to enable a better comprehension
of the Company prospects. Actual results may, however, differ
materially from those stated on account of factors such as changes in
government regulations, tax regimes, economic developments within
India and the countries within which the Company conducts its
business, exchange rate and interest rate movements, impact of
competing products, acts of God and their pricing, product demand and
supply constraints.
Nothing in this article/report is, or should be construed as an
investment advice.
In an interview with CNBC-TV18, VD Mhaiskar, chairman and managing
director of IRB Infra, spoke about the latest happenings in his
company and the road ahead.
Below is a verbatim transcript of the interview. Also watch the video.
Q: Let us begin with how situation is right now. Last year was all
about aggressive bidding; even your stock was down about 15% or so
compared to Sensex post that big project that you won —
Ahmadabad-Vadodara project. Would you say that some of that is now
getting out and some sanity is returning in terms of bidding?
A: Yes, we had bid for Ahmadabad-Vadodara project at a little lower
internal rate of return (IRRs) of over 16%, but one has to understand
that BOT concept is no longer a new concept in the country and the
market is maturing. There are more number of players participating in
these bids. As a mature market, the IRR expectations will have to be
drawn downwards to remain active in the play.
I don't think that the competition is going to dry down sooner, but at
the same time, on a 16-18% equity IRR bidding, I think there are fair
chances that each one of us can have good number of bids coming to
their share.
Q: Wouldn't that take away a bit from your margins, compared to last
year, should FY12 or at least FY13 margins begin to look may be a
couple of percentage points knocked off?
A: No, I don’t think so because what we have done is, on a portfolio
basis, we would still be able to deliver a 20% plus return. When we
say that we are bidding on a 16-17% equity IRR on the project, we are
not taking into consideration the EPC margins that the projects would
also be bringing in. So, keeping intact the EPC margins of around
18-20% EBITDA, we are in a position to deliver 16-18% IRR.
Q: We have several more questions for you on your order wins and your
execution pace but there is another niggling point which is worrying
the market. You remember last week several shares got knocked because
of the fears that promoter shares had been pledged. Can you give us an
idea of how much of promoter shares are pledged in your case and as
well whom are they pledged to because that would make perhaps a big
difference?
A: This is a very important question for all the stakeholders to
understand. If we look at the break up of the shareholding in IRB
Infra, I as a promoter, hold around 58% stake, of which, around 4% is
pledged. That is pledged with one of the NBFCs with a very fair amount
of cover.
The other 17% odd of the stock, which is owned by the promoters group,
which is owned by family members who are into a different business,
altogether, have pledged their entire holding. It has been pledged and
I do not have any control over that activity. I would not be in a
position to give any colour to that as to with whom it has been
pledged and what are the cover like. However, their entire 17% has
been pledged — that is the fact.
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EQUITY BULL
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EQUITY BULL
RAJESH DESAI
Expect closure on 1,800 km of projects by Oct-end: NHAI
About 7,300 km of road projects are up for grabs in the current fiscal, says The National Highway Authority of India’s (NHAI) chairman AK Upadhyay. As of August end, NHAI has bid out 4,500 km. “This includes the projects awarded, bids under process and bids to be opened in a few days time.”
Upadhyay confirms that 1,400 km of projects have already been awarded. “By October end, we expect closure on the 1,800 km which have been bid for.”
He also says there are chances of NHAI exceeding the 7,300 km of awarding projects this year.
Below is a verbatim transcript of his interview. Watch the accompanying videos for more.
Q: What has the recent progress been with awarding of projects? What have you achieved in the last few weeks with specific projects? Do you remain on target to achieve 7,300 km?
A: Our annual target for this year is awarding 7,300 km. As of August end, we had bid out over 4,500 km that includes the projects awarded, bids under process and bids to be opened in a few days time. Also, 1,800 km worth of roads are already under process so that would make it to 6,300 and that leaves only 1,000 km. We are very hopeful that by year end we should be able to achieve the award of 7,300 km.
Coming to recent projects which we have awarded, starting from April 1, out of 17 projects which we have bid, 13 have gone on huge premium. We were estimating that on 12 projects we will have to pay grants which was not so. The total NPV of each project is Rs 16,000 crore. So it’s a very positive sign and we do believe that this would continue.
Q: Out of the 4,500 km, how much is awarded already and how much is in the bid stage importantly because the awards will then follow in the next few weeks?
A: We have already awarded over 1,400 km and another 1,800 km is in process and remaining about 1,400 km is to be open yet. That is a total of 4,500 km.
Q: For this 1,800 km which have been bid for, by when do you expect closer and by what timeline?
A: The awards should take place in about a month or two months time.
Q: Probably by the end of October?
A: Yes, that’s right.
Q: Can you just detail the key projects in this 1,800 km which have been bid for?
A: The biggest project which has got good premium is the Kishangarh-Udaipur-Ahmedabad on which the premium is Rs 636 crore which is about over 500 km. That is the showcase project for us. Other projects are over 100 km on the average size.
Q: By when will bids be submitted on the 1,800 km? When will it open for bidding?
A: We have already awarded 1,400 km and the remaining about 1,800 km is under process and will take some time.
Q: What are the key projects there for the 1,400 km? Are there one or two big ones that you can highlight for us?
A: I cannot tell you offhand but they are all important connectivity projects.
Q: The market has become competitive and while it’s good for you, do you have any concerns about the kind of costs or rates at which the bids are coming in? Do you have any problems or issues about whether these operators will be able to execute profitably which might impact the long-term sustainability of such kind of bids?
A: My view is that they are taking a long-term view and our estimates are on the modest side because we estimate the traffic growth on the basis of 5% per annum. But in real terms, the traffic growth is of the order of 9-10% per annum. Then, they are also looking at the long-term economic prospects. Therefore, I believe they have due diligence and what they are bidding is after careful exercise.
Q: Does the new proposed Land Acquisition Bill interfere with any of your plans or targets that you are talking about because it might come in the way of some of the plans like the widening of the Delhi-Agra highway etc?
A: We do not yet know what final shape the Act will take. As far as I understand, the bill gives some exemptions for highway projects. I do hope there will be some special dispensation for roadway projects because my understanding is that in the draft bill there is some kind of exemption for the highways.
Q: If you do achieve closer of a fairly significant amount of your target by the end of October and you open up 1,400 km more for bids by the end of this month, is it a possibility that you could actually exceed that 7,300 km target for the year?
A: We might because we are working on the basis of close to 8,000 km. So 7,300 is our minimum target and we hope we are able to cross that target.
EQUITY BULL
RAJESH DESAI
IRB Infra's chairman and managing director, VD Mhaiskar has bought 2% in his company, upping his stake to 60%. This is in contrast to the promoter group selling nearly 10% of stock in a block deal recently.
CNBC-TV18 catches up with him for the rationale behind the move and the way forward for IRB Infra. He says that he expects good bids to open up in the next two-three months.
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: Can you just clarify which of the promoters sold and why and is there still pending stock to sell or one should conclude that the supply hangover is gone now?
A: The promoter group entities consisting of my father and my brother’s company have sold out close to 10% of the stock. They held around 17% earlier, and now, they have sold around 9.5% of the stock. Whatever they wanted to exit they have already exited, so I don’t see anymore overhang on the stock now.
Q: Who were the key buyers and why did they choose to pare this takedown?
A: For their own business needs they wanted to deleverage, and for that purpose, they have sold out. The key investors, I would not be able to give you any specific names, but it has all been financial institutions and foreign institutional investors. Even I have bought some quantity and upped my stake to 60% now.
Q: You bought how much from that total 10% on the block?
A: I bought close to 2% and 55 lakh shares was what I have bought.
Q: After selling nearly 10% stake, the promoter entities still retain 7%. Is that 7% up for sale as well in the future?
A: No, I don’t think that 7% is for sale. The immediate capital requirements that they had has been met out of the sell that they have already done. So I don’t see a possibility of them selling the balance 7.5% as per the discussions I have had with them. Therefore, I don’t see that possibility.
Q: Which are the top bids or projects which are coming up from the NHAI in the next few weeks and the ones that you are targeting?
A: We have quite a good number of bids coming up for bidding in next two-three months and we stand qualified for hell lot number of projects in that. We won’t be able to give you any specific name of the project, but certainly there would be many projects which are up for grab. Today, NHAI has awarded almost around 3,500 kilometers worth of projects, and before the end of this fiscal, I think they would be doing around 6,000 in total.
Q: Even though there is a steady flow of projects from NHAI it has increasingly got more difficult in terms of the bid, since we last spoke, people were concerned that you over bid and apparently the situations gotten only worse. Is it getting too tough to fight there?
A: I think over a period of time, the peak on the aggression is behind us. Going forward, given the limited capital availability within the sector to fund the equity, we should see some aberration in the aggressiveness.
Q: On the existing toll roads that we have what kind of traffic growth are you seeing now?
A: Over the past one-two quarters, we have seen 6-8% growth across the portfolio which is a very healthy growth. We haven’t seen any much signs of slowdown. That is also to do with the states in which we operate, which actually contribute much higher to the overall GDP growth and that has also helped because there is a definitive correlation between the GDP growth and traffic growth which is around 0.8% of the GDP. That has helped achieve robust growth on the portfolio.
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CA. Rajesh Desai
RAJESH DESAI
IRB Infra denies over bidding in Ahmedabad project
VD Mhaiskar, chairman and managing director, IRB Infra denies reports of over bidding on the two corridors and they have won the bid on the numbers that have been shared with the analysts and news channels.
They expect 16.5 - 17 % IRR on this project because of constant heavy traffic. They also intend to increase the toll rates on Tumkur-Chitradurga road project by 6 to 8 %.
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: IRB Infra has been in news that they have apparently tied up funding for a very large project for themselves. Before we discuss the modalities of how you have tied up this debt let me just read out one criticism. Apparently it has increased your equity component much more and this particular brokerage sees much lower than expected leverage. You have over bid basically and you may be in a tighter spot with regards to equity. How would you respond to that criticism?
A: I am not aware of which brokerage you are referring to but since we have won the bid, we have stuck to whatever numbers we have been sharing with all the analysts and with the channels. The closure has been achieved on the same numbers.
The total debt component that has been tied up is around Rs 3300 crore of which almost 1/3rd is going to be SEBI. So I am not really aware of how the change has come. We expect 16.5-17% IRR to come up on this project because of the traffic movement that we have been experiencing over last one year on that road. We are quite bullish on the project now.
Q: The concern was that you have bid quite aggressively to get this project and therefore there are concerns that it might not be viable. You think at the cost of financing that you have done on the debt will be viable and profitable?
A: The model that we had bid on, we have been able to achieve the closure on the same model. The kind of structuring that we have done where we are capitalizing the premium for first 3 years partially because one of the two corridors that is the old national highway 8 would be sold only 3 years later. Hence I don't see any problem in terms of funding or in terms of losing money on the project at all.
Q: You also seem to have hiked the toll rates on the Tumkur-Chitradurga road project. Can you take us through how much it might add to your toll collections?
A: We would be revising the toll rates on Tumkur-Chitradurga from April which is the annual reset that we have. We expect to raise it by 6-8% depending on the final inflation numbers.
Q: For the Ahmadabad project has it increased your project guidance in terms of execution and also in terms of toll collection? Would that change for the next 2 years in terms of what you have been factoring in?
A: We would be starting the tolling on the existing express way as soon as we get the appointed date which we expect to come in around 1-2 month. Then the tolling on one of the corridors of the two would start. The execution will also naturally start simultaneously and we see good growth coming from this project in the next 2 years.
Q: Would you require or choose to do any kind of equity infusion?
A: I think there won't be any need to raise capital or any kind of funding for funding the equity of this project. The internal accruals would be sufficient to meet up this equity requirement and the fund tie up also has been done on a similar basis.
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CA. Rajesh Desai
RAJESH DESAI
RAJESH DESAI
Current EPC order book at Rs 7000cr: IRB Infra
VD Mhaiskar, chairman and managing director, IRB Infra in an interview to CNBC-TV18 spoke about the latest happenings in the company and the way ahead.
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: Apparently the NHAI opened up Rs 10,000 crore worth of orders for bidding at the end of March. Can you take us through what the procedure and the timeline are for awarding of these contracts? What to the best of your knowledge is the kind of competition this time around?
A: The competitive intensity in bidding for these projects has yet not come down. You are right that NHAI did award almost 1,000 plus kilometers of projects in the last week of March and we are yet to see the aggression level going down.
We have observed that the number of bidders participating in these bids has gone down and that gives us hope that going forward the aggression level should come down. For this present FY13 they have already announced bids of more than 8,000 kilometers coming up and we would be looking at wining atleast 400-500 kilometers of projects within that.
Q: What we picked up actually was that competitive intensity had come down pretty sharply and that three out of seven of those projects actually had less than five bidders. Are you saying that it is just the number of bidders that has gone down not really the pricing intensity?
A: The projects which were the much sought after projects did see aggressive bidding and the projects which were not much sought after probably had lower number of participants. So it matters in what geography the project is and the number of bidders has come down but the aggression level I don't think has come down to that extent.
But we have to keep in mind that NHAI does have a clause that if you have more than three projects open where the financial closure is not yet achieved then we are not eligible to go out and win the fourth project. So with so many projects coming up for bidding in this calendar year there is a good hope that each one of us would be able to see good projects coming in.
Q: Given the kind of intensity that you were talking about, have you had to lower your expectations or profitability from these projects or margin profiles expected from these projects?
A: I think that is the key. What we intend to go do going forward is that we had sensed this aggression coming in and had lowered our IRR expectations last year while wining the Ahemdabad- Baroda bid wherein we had bid at an equity IRR of around 16-17% but considering the fact that the interest rates are yet to come off, it won't be prudent to further trim those margins and try to win a contract.
At this point in time for IRB, we have a good EPC order book visibility for next 2-3 years of around Rs 7000 crore and we are not in a hurry to go out and win a project by compromising on the IRRs. We in fact want to go and bid at equity IRR of at least 18% going forward and in that context if the new bids do not offer that opportunity there are plenty of inorganic opportunities which are also floating around. Our view would be to pick up projects without affecting the IRRs.
Q: How much have you bid for from the Rs 8000 crore that has been opened up already and how many of these projects are toll based projects?
A: All of them are toll based projects. Out of the Rs 8,000 crore of bids around 3-4 of them have got re-tendered because of seeing very less response. Out of the bids which have been awarded, we did participate in around 1,000 kilometers worth of projects.
Q: You spoke about the inorganic piece; apparently one of your peers IVRCL is in play with Aircel group interested and the promoter trying to defend its position in the company. Would something like that have been of interest to you?
A: No we would be looking at pure toll projects. Not any companies as such but we would also have to evaluate what are the kind of returns that those projects may generate because if they are not going to generate anywhere around 20% IRR then there is no point putting in money in these projects and pick them up. But our sense is that there are good opportunities floating around and we would be studying them in more detail now.
Q: When is the next round expected from NHAI or is it for calendar year in terms of awarding projects?
A: No. If we see the NHAI calendar almost anywhere between 800-1000 kilometers worth of projects getting awarded almost every month. So for the next two months we see clarity of around 2,000 kilometers getting tendered out again. We will remain focused on bidding for these projects in a sensible manner and try to pick up 400-500 kilometers over the next full fiscal.
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CA. Rajesh Desai
RAJESH DESAI
IRB Infrastructure Developers by Sharekhan
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs200
Current market price: Rs150Polygraph test to affect adversely
Event update
IRB Infra's MD to take polygraph test in Shetty murder case: The court of Additional Sessions Judge SM Shinde on Wednesday (May 2, 2012) granted permission to the Central Bureau of Investigation (CBI) to conduct polygraph tests on ten new suspects, including the managing director (MD) of IRB Infrastructure Developers (IRB), Virendra Mhaiskar, this week in the case of the murder of RTI activist Satish Shetty in January 2010. Shetty had exposed several land scams in the Talegaon-Dabhade district in Pune using the Right To Information (RTI) Act and filed complaints at the Lonavala police station against two private companies.
The deceased RTI activist's brother had named various persons including Mr Mhaiskar as a suspect. The police department had initially conducted a thorough inquiry in the matter and given a clean chit to Mr Mhaiskar. The deceased's brother was not happy with the investigation conducted by the police department and upon his petition the Maharashtra state government had handed over the investigation to the CBI. During the course of investigation, CBI has asked Mr Mhaiskar and two other company officials to undergo a polygraph test along with the other suspects.Mhaiskar not seeking legal opinion: IRB in its clarification to stock exchanges mentioned that Mr Mhaiskar and the company officials have readily agreed to undergo the polygraph test since they are confident of their non-involvement in the matter. The company and its management are fully co-operating with the investigating agency since they have full faith in the due process of law and the judiciary. Mr Mhaiskar is not seeking any legal opinion and will let the law take its own course.
About the involved land parcel: IRB intends to develop an integrated township alongside the Mumbai-Pune Expressway. Thus, for this purpose it had acquired about 1,200 acres of land and is in the process of acquiring more land. It had received the permission from Directorate of Industries in April 2009 to purchase up to 1,888 acres of agricultural land. Doubts have been raised about the credentials of this land. However, there is no litigation on this land parcel.
Based on the information he had obtained under the RTI Act in September 2009 about the illegal land dealings in Taje and Pimpoli villages in Maval taluka, Shetty had first filed cases with the Lonavala police station against the Lonavala Sub-Registrar of Land Registration, Ashwini Kshirsagar, and others, accusing them of allegedly preparing fake documents while registering land transactions. Following his complaint, the Land Registration Department had initiated an inquiry against Kshirsagar and found she was responsible for the loss of stamp duty revenue to the government in 911 transactions out of 3,000 land transactions carried out by her post from which she was subsequently suspended.View: Today, in reaction to the news, the stock dropped 18% to Rs138 during intra-day trades and closed 11% down in the final trade. Though the management has given clarification but we believe the pressure on the stock price would continue till the outcome of the polygraph test is known. We believe this is highly negative for the company as Mr Mhaiskar is the driving force and this event would distract him. Any negative outcome will seriously harm the growth of the company. Thus, we would continue to watch the event and its outcome. Currently we have a Buy recommendation on IRB with a price target of Rs200.
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Manmohan Tandan
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CA. Rajesh Desai
RAJESH DESAI
-Promoters (D Mhaiskar) sells 1.75 crore shares (approximately 6% equity) at Rs 123/share
-Promoter Dattatray Pandurang Mhaiskar sells 47.98 lakh shares (1.44% equity) at Rs 123.05/share
-Promoter, Ideal Toll and Infrastructure Pvt Ltd sells 81.15 lakh shares (2.44% equity) at Rs 123/share
-HSBC Global Investment Fund A/C- India Equity Fund buys 35.39 lakh shares (1.06% equity) at Rs 123/share
IRB Infrastructure Ltd: Morgan Stanley maintains a 'buy' rating on IRB Infrastructure with a price target of Rs 240. The investment bank is of the view that given its strong balance sheet and increased opportunities in the roads sub-sector, IRB remains one of the best bets to play the Indian infrastructure story.
Morgan Stanley says 'buy' on any weakness on service tax demand issue
UBS maintains 'buy' on the stock with a target price of Rs 205 and expects over 60 per cent upside from current levels.On Tue, Sep 11, 2012 at 12:49 PM, RAJESH DESAI <stock...@gmail.com> wrote:
Dear Sir/Madam,
IRB received a notice by the Commissioner of Service Tax, Mumbai, demanding Rs. 60.46 crs, penalty of same amount and interest at appropriate rate as per provisions of Service Tax Act, on account of Service tax payable on toll collected by some of its subsidiaries viz. Ideal Road Builders Pvt. Ltd (Thane Bhiwandi bypass), IDAA Infrastructure Pvt. Ltd. (Bharuch Surat) and ATR Infrastructure Pvt. Ltd. (Pune Nashik) for FY06-07 to FY10-11. The management has spelled out its take on the issue in a concall held today morning.
Key takeaways:
1) Management believes that the demand is erroneous fundamentally on the following two counts-
Issue: Classification- The demand is served on The SPVs terming them as agents (providing service to NHAI)
Management’s take: Since an SPV bears the risk and owns the asset, it can’t be termed as an Agent. An SPV which is collecting toll is a concessionaire and not an agent. Also, no service tax is payable on toll paid by users of roads, including those constructed by the SPVs under a BOT agreement, as clarified by Ministry of Finance vide their Circular No. 152/3 /2012-ST issued on February 22, 2012 to all Commissioners of Service Tax and other field officers. Following are the relevant extracts from this circular (link: http://www.servicetax.gov.in/circular/st-circular12/st-circ-152-2012.htm)
Issue: Calculation: The service tax is calculated on the gross revenues of the SPVs.
Management’s take: Assuming that the service tax is payable, it will be applicable only on the commission/charges for toll collection activity. Hence the amount will be much lesser.
2) Applicability to other road projects of IRB/ other road developers: IRB has clarified that if the basis for issuing a demand notice is considered, similar demands can be made from its other SPVs and also from SPVs of other road developers.
3) Similar demands from other players: IRB management is not aware of any such notices issued to any other players.
4) Tax amounts: Rs60crs on the above mentioned projects. If other projects are also included subsequently in the ambit, then there will be additional demand of Rs230crs. Hence the total potential demand could be Rs300crs without taking into account any penalty and interest. Penalty can be 100% of the basic demand.
5) Impact on the books of accounts: No impact, as the service tax if levied, will be a pass through (To be passed on to NHAI). The amount under dispute will be recorded as ‘contingent liability’. Even if it is taken to balance sheet as a liability, a matching asset as ‘receivable from NHAI’ will be created.
6) Is there any precedent: A road developer in Andhra has seen verdicts in its favor in the appellate tribunal and in the HC. The case is being heard in the SC, currently.
Our take:
Both in terms of a precedent and the inclusion of road toll collection services in the negative list for service tax collection, the road developers have a strong case. Also, the classification and calculation appears flawed.
We maintain Buy on IRB (TP Rs140) and Sadbhav (TP Rs151).
Regards,
Sujit Jain
Senior Analyst - Equity Research
Cell: +91.98204.56008
241 / 242, Nirmal, 15th Floor, Nariman Point, Mumbai - 400 021, India
Board: +91.22.4343.5000 | Direct: +91.22.4343.5285 | Fax: +91.22 4343.5043
Website: http://www.amsec.in
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CA. Rajesh Desai
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CA. Rajesh Desai
RAJESH DESAI
IRB Infrastructure Developers (IRB) has completed the process of acquisition of 74% holding of MVR Infrastructure & Tollways and thereby MVR has now become a subsidiary of IRB Infrastructure Developers with effect from October 2012.
Further, as per the definitive agreement executed between IRB and the promoters of MVR Infrastructure & Tollways, the acquisition of remaining 26% holding of MVR will be completed once NHAI approves transfer of this 26% holding to IRB.
Earlier in May 09, 2012, IRB had executed definitive agreements with the MVR Infrastructure & Tollways promoters, existing institutional shareholders and other shareholders of the company for an aggregate consideration not exceeding Rs 130 crore.
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CA. Rajesh Desai
Rajesh Desai
Its shares plunged 25% on Thursday and later recovered almost over 10% on Friday. Still its stock now trades at half its book value (equity) and less than 4 time its FY13 earnings. Even if one does not put much emphasis on the earnings based valuations, price to book value looks attractive. The company has total equity of Rs 3,255 crore as against its market capitalisation of about Rs 2,000 crore.
Importantly, most of this equity is invested in the hard assets or theBOT projects. To make point the company is currently having 18 road assets having about 7,479 lane km of length out which 4,743 lane km is operational. Also, it has large part of its revenue coming from the operational road projects most of which are at the key locations including Mumbai Pune Road, which itself makes about Rs 1.15-1.20 crore every day.
It has already invested about Rs 2,000 crore in these assets in the form of equity, which is hard to believe will become zero. At the peak, investors use to give 3.5 times its book value. On the contrary today at Rs 60 a share the company is valued about 0.5 time its book value. It should have better valuations specially in the light of average return on equity in last four years is about 18-20%.
That apart, the dividend yield itself at current price works out to be 7% which is good for a business which makes cash every year. In FY12 it made cash from operation to the tune of Rs 853 crore and in FY13 Rs 467 crore. It’s reported just Rs 8 crore debtors in its books and about Rs 1,500 crore cash in the bank, which is again 75% of its market capitalisation. This still does not include value of construction business, which has order book of Rs 8,432 crore and makes revenue of Rs 2,729 crore.
"Even if you remove the value of construction business and value the company only on the basis of its operational assets alone per share value should come to Rs 90 a share," said Abhinav Bhandari of Elara Capital. Though there is value at current price but analysts also warn that investors should be ready for further correction.
"There are rumors that some funds have sold or may be pledged shares are liquidated. I think at current levels if one has patience for another 4-6 quarters this share can give good returns, but in the interim you should not worry if it goes down further because in current scenario fundamentals may not work," Manish Kumar, who tracks the company at SBICAP Securities
CA. Rajesh Desai
Rajesh Desai
IRB Infra - Visit Note – NB Institution Desk: We recently paid a visit to three major projects of IRB Infrastructure Developers (Dahisar-Surat, Bharuch-Surat and Vadodara-Ahmadabad projects) and met the project managers/toll operators there to get an update on the execution of the projects, the current trend in traffic growth as well as future growth prospects. Our interaction with the project managers indicated that initial work on the ongoing Vadodara-Ahmedabad project is ahead of schedule. However, the toll managers have witnessed subdued growth in traffic at two operational road projects (Dahisar-Surat and Bharuch-Surat projects), primarily due to overall weak economic activity. The company has reported 1QFY14 result with net sales of Rs10.3bn and EBITDA of Rs4.6bn, above our/Bloomberg consensus estimates by 3%/8%, respectively, mainly driven by higher growth in EPC revenue compared to estimates. However, RPAT at Rs1.3bn was 2%/7% below our/Bloomberg consensus estimates due to higher interest costs and tax provision at a higher rate (increase in tax surcharge). We have cut our earnings estimates for FY14/FY15 by 22%/36%, respectively, to factor in moderation in traffic growth estimates, subdued EPC revenue growth and likely prolonged high interest rate regime. We have also cut our target price on the stock from Rs181 to Rs106, but retained our Buy rating on It.
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CA. Rajesh Desai
Rajesh Desai
IRB Infrastructure Developers’ Jaipur Deoli BOT Project implemented by wholly-owned SPV of the company, IRB Jaipur Deoli Tollways, has been issued a Provisional Certificate by the competent authority effective September 27, 2013. The project has been commissioned in stipulated time. Consequently, the SPV has started partial toll collection on this project effective from September 27, 2013.
The Jaipur Deoli BOT project involves four-Lanning of Jaipur Deoli Section of NH 12 from Kms 18.700 to Kms 165.000 in the state of Rajasthan on DBFOT (toll) basis. The concession period is 25 years and the estimated cost of the project is Rs 1,733 crore. The company had bagged this project on Viability Gap Funding (VGF) basis and sought VGF of Rs 306 crore from NHAI.
CA. Rajesh Desai
Rajesh Desai
Better than expected numbers for the quarter ended September made
analysts turn positive on IRB Infrastructure Developers. Higher
execution of the ongoing projects and strong growth in revenues from the
BOT segment led to this performance. Going ahead as well, the growth
momentum will remain good backed by revenues from the construction and
toll business, which is expected to do well as more projects are going
on stream in the coming months.
Along with the growth in the coming months, the analysts are also eying
the valuations as many believe at these juncture the stock is trading at
reasonable valuations and thus there is enough room for appreciation.
To put it in perspective, IRB stock at current market price of Rs 90.15
is trading at about 5 times its FY15 expected earnings, which is quite
reasonable for a business which is making a return on equity of about
18%. Importantly at current market, price the stock is offering a
dividend yield of 4.5%.
In the September quarter, the company reported 11.1% growth in revenues
to Rs 939 crore followed by similar growth in operating profit to Rs 422
crore. A large part of this growth has come from the construction
business, which accounts for 71% of the consolidated revenues, recording
a 11% year-on-year growth, helped by higher execution of the projects
in hand like Ahmedabad-Vadodara, Pathankot-Amritsar and Jaipur-Deoli.
Its BOT business too grew at 8%, however, that has largely to do with
some of the new projects going on stream and addition in the toll
collection. In case of the existing projects, there is slowdown in
traffic, reflecting the economic woes especially lower mining activity
in the country.
“Growth has certainly slowed but having the geographical advantages we
are still able to show good growth. For instance, Surat-Dahisar and
Mumbai-Pune project, which account for 70% of the toll collections, have
shown traffic growth of about 5%," said Virendra D Mhaiskar, CMD, IRB
Infrastructure.
While that is a cause for concern and is not likely to get resolved any
time soon given the tapering industrial and economic growth, analysts
are hopeful in the long run. "Despite near-term concerns, we believe IRB
is one of the best plays on India’s infrastructure story with a stable
balance sheet, high operating cash flow and a matured road portfolio,"
said Mangesh Bhadang, who tracks the company at Quant Global Research.
Also, part of these concerns will be eased if the company keeps up the
pace of execution and adds more projects to its portfolio. It has
already started toll collections on Jaipur-Deoli, IRDP Kolhapur projects
and Amritsar-Pathankot is expected to be commissioned by December 2013.
So incrementally, these projects will add to the overall toll
collection in the coming months and that would partly take care of the
growth.
That apart, the company is sitting on order book of Rs 5,053 crore,
which is almost 1.85 time its FY13 revenues from the construction
business providing reasonable revenue visibilities for the coming
months. This could provide some relief at a time when the industry is
going through a difficult phase because of the slowdown in awarding of
new projects, upcoming elections, lower traffic growth, execution issues
and funding.
"Projects have been stuck for different reasons but now the reforms are
taking place. Things have been delayed for about 18-20 months but again
since more clarity is emerging, the process of bidding will commence
soon," said Mhaiskar.
Importantly as and when the things improve, IRB is equipped to grab the
opportunity courtesy its strong balance sheet. The company is expected
to generate Rs 1,000 crore annual operating cash (FY13 Rs 945 crore).
With that kind of amount assuming a 70-30 debt to equity the company can
fund projects of worth Rs 3,000-3,500 crore.
| In Rs cr | FY2013 | FY2014E | FY2015E |
| Net sales | 3,687 | 3,772 | 4,191 |
| % change | 17.7 | 2.3 | 11.1 |
| Adj.Net profit | 557 | 485 | 502 |
| % change | 12.2 | -12.9 | 3.5 |
| EBITDA (%) | 44.3 | 45.1 | 45.3 |
| EPS (Rs) | 16.7 | 14.6 | 15.1 |
| P/E (X) | 5.3 | 6.1 | 5.9 |
| P/BV (X) | 0.9 | 0.8 | 0.7 |
| RoE (%) | 18.2 | 14.2 | 13.4 |
| OB*/sales (x) | 2.4 | 3.1 | 3.5 |
| Order inflows | 2,595 | 3,384 | 3,574 |
| % chg | 30.4 | 5.6 | |
| Source: Angel Broking, * denotes order book | |||
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CA. Rajesh Desai
Rajesh Desai
Three of the company’s state highway projects shown 2-3% de-growth. The company’s managing director, Virendra Mhaiskar, says that there are various reasons for the same.
“There have been interior issues with smaller projects like monsoons and parallel roads. Some of the adjoining corridors have not been in shape, so that has affected,” he said.
Each corridor has its own reason for slowdown. The mining ban in Karnataka affected traffic from cargo movement in the Chitrudurgh area. The Pune-Nasik area too was impacted due to slowdown in the auto industry.
“The auto spare parts industry in the region (Pune) slowed down. Some of them are holding on to huge inventories. Those issues have impacted the localised zones,” said Mhaiskar.
In comparison, the national highways that the company operates have been performing at a much better rate.
“Our Mumbai-Pune highway grew at around 5.5 to 6%, and the traffic has been stable,” he said.
Vikash Sharda, senior manager at PriceWaterhouseCoopers said thatstate highways are the ones which get affected by slowdown first.
“National highways account to 40% of the total traffic, and are a major contributor. State highways act as feeder roads to national highways, as traffic flows from state highways to them. So, the impact of slowdown would be higher on state highways than national highways,” he explained.
The highways of the state that state governments seek to allot on a public private partnership model are the sectors which have a promised track record of traffic flow. However, if these highways are in trouble, the other roadways would have a much worse track record with traffic, industry analysts say.
The traffic has not been growing as expected on highway projects. Most of the projects which are currently under operation were bid for and won in 2007-08. In those times, it was expected that the country’s GDP would grow over 8%. However, now the projections have reduced to 5.5%. The traffic on the roads has a direct correlation to GDP.
“Everyone had expected growth to come down, but no one expected decline in traffic,” said Sharda.
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CA. Rajesh Desai