For two quarters in a row, the construction business has boosted the revenue growth of IRB Infrastructure Developers Ltd, one of the largest toll road developers and operators in the country.
In the September quarter, revenue from the construction business increased by as much as 79% compared with the same period last year and accounted for 69% of the total revenue. The remaining revenue came from the company’s build, operate and transfer (BOT) business (including toll revenue), which increased at a slower pace of 17%. Combined, IRB’s revenue increased by 50% to Rs 735.88 crore.
Even as the proportion of construction revenue is higher in the revenue mix and boosted growth, the same has affected operating performance. That’s because margins of the construction business are far lower compared with the margins of the BOT business.
Operating profit margins, thus, fell by 450 basis points year-on-year to 43.7%. One basis point is one-hundredth of a percentage point. As a result, operating profit increased at a relatively slower pace of 36% than the revenue growth. Having said that, the September quarter operating margins are higher than the preceding quarter, when the metric stood at 41%.
However, more than doubling of interest expenses and higher tax outgo put pressure on net profitability. IRB’s net profit increased by a relatively tepid 11% to Rs 110 crore despite strong other income growth. Still, these numbers are better than estimates, point out analysts.
Ahmed Raza Khan/Mint
On the whole, despite strong revenue performance, the company has maintained its revenue and net profit growth guidance for the current fiscal year at 15-20%. IRB intends to consider any revisions in the guidance after the current quarter is over. The company’s order book is strong at Rs 9,635 crore and offers good revenue visibility.
Even as the results may be encouraging, total borrowings increased to around Rs 6,000 crore as on 30 September from about Rs 4,600 crore as on 31 March. Investors are likely to keep a tab on the movement in interest expenses in the days to come.
The IRB stock has underperformed the BSE-200 index since the beginning of this fiscal. Analysts do not expect the trend to change materially in the next couple of quarters, mainly because higher interest burden is expected to put pressure on net profitability.