All operational projects and those under development are prominent, connecting highways and roads with a high-density traffic.
IRB Infrastructure Developers Ltd (IRB) is into the development of infrastructure projects in the roads sector — construction of roads, bridges, tunnels, highways and operations and maintenance.
It has been involved in the construction of over 1,200 km of roads and over Rs 3,300 crore worth of projects have either been completed or are underway. Its strong portfolio of 650 km operational toll road includes Mumbai-Pune Expressway (MPEW) and Surat-Dahisar section of Bharuch-Surat-Dahisar project.
Business: IRB has done many projects including Thane Ghodbunder, Pune-Nashik and Pune-Solapur BOT projects. The newer MPEW and Bharuch-Surat and Surat-Dahisar projects are its prestigious projects. IRB has some exposure to realty with 1,400 acre in Pune district planned for residential and commercial developments.
Investment rationale: IRB has the largest number of toll roads operational among peers. With 235 km of Surat-Dahisar toll road becoming operational on February 20, it now has 650 km of operational toll road. Another 65 km of Surat-Bharuch is nearing completion.
All operational projects and those under development are prominent, connecting highways and roads with a high-density traffic. With the increase in traffic and transition in type of vehicles, revenues have been increasing — transition from single axle to multiple axle trucks results in increment of toll revenues.
The company enjoys margins of 85-90% in toll roads compared with 10-15% in construction. On MPEW, traffic has seen phenomenal growth from the time of takeover till date and it has now been handling more than 50,000 PCUs.
The Surat-Dahisar project, the 239 km stretch on NH-8, involves extending 4 lane sections to 6 lanes. While the project is to be in construction phase till FY12E, tolling has already started after achieving financial closures in December 2008. A 38% revenue share will go to NHAI with 1% increment every year and incremental toll revenues in excess of 1,08,000 PCUs will also go to NHAI. Bharuch-Surat, a 65 km stretch on NH-8, is expected to be complete by June and become operational by July. There are more toll road projects underway.
These include the Rs 400-crore Kohlapur Urban Road Project, which is yet to receive financial closure. The construction of this project started in January and is expected to take two years.
All operational toll road projects are generating steady revenues with no associated debts.
IRB’s order book stands at Rs 6,100 crore, say sources. This includes about Rs 3,300 crore orders from construction segment and Rs 2,800 crore from operations and maintenance. IRB has bid for Panaji-Goa 70 km stretch and is the single bidder for the same. The order is awaiting clearances.
Sources said IRB has bid for 4-5 new projects involving 100 km of road infrastructure development each. Strengthening of roads is a major objective of the government. Freight traffic has increased 13% per annum and overall traffic 10% per annum in last 10 years. The Eleventh Plan is expected to see investments of Rs 3,14,200 crore into the roads sector. The opportunities for players like IRB are enormous.
Concerns: The economic slowdown can have an adverse impact on traffic growth in the country, which has otherwise been robust in the last five years. Interest rates continue to impact funding requirements. However, with inflation figures easing and government measures, interest rates should ease substantially in 6 months.
Valuations: IRB clocked a topline of Rs 239.11 crore in the December quarter. Year-on-year comparison is not possible as Q3FY08 figures are not available because IRB listed in February 2008. However, on a sequential basis, topline grew a handsome 18.6% over Rs 201.61 crore in the September quarter.
EBIDTA also surged 3%. But margins were dented by increase in contract expenses. Interest costs also surged 20%, pulling down profits as well as profit margins. Net profits at Rs 38.23 crore compressed 7.8% from Rs 41.21 crore and profit margin reduced 445 bps.
Interest costs are likely to fall as there is a 50 bps reduction in PLR and the next 6 months are expected to see reduction of 100-150 bps. Margins will see expansion and will be further boosted by increasing toll business.
With more projects becoming operational, increasing toll revenues and maintenance revenues, healthy order book position and available opportunities, IRB offers a good opportunity for investors with medium- to long-term prospects.
Disclosure: The author does not hold any shares in the company
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