IRB Infrastructure Developers Ltd, one of the largest toll road developers and operators in the country, reported better-than-expected results for the June quarter (Q1).
Consolidated revenue for the quarter increased sharply by 55% over the same period last year, chiefly because the road construction business delivered a strong performance. Construction revenue increased by 81% and accounted for 72% of the total revenue.
IRB derived the remaining revenue from its build, operate and transfer (BOT) business, which captures the toll revenue. This segment grew by 14%, in line with analysts’ expectations.
While revenue grew strongly, margins declined by about 7.6 percentage points to 41.1% due to a steep rise in input costs. According to an analyst, operating margin was affected on account of changing revenue mix—margins of the construction business are lower compared with the BOT business. Accordingly, operating profit increased by 32%, but growth in net profit was even lower at 14% due to higher interest expenses.
Despite the fact that the total revenue grew by 55% in Q1, IRB has maintained revenue and net profit growth guidance at 15-20% for the current fiscal.
In an interview to CNBC-TV18 news channel, chairman and managing director V.D. Mhaiskar said the company would like to revisit its forecast in the December quarter only after it sees the impact of the monsoon.
While some analysts say the company would be able to surpass its guidance comfortably, others are cautious given the challenging operating environment. Higher interest rates and stiff competition are some of the key concerns for IRB.
At the same time, an order book of Rs11,171 crore, which is around four times the annual revenue, provides good visibility.
In the last one year, the stock has underperformed the BSE-200 Index and so have shares of other firms in the space. In the recent past though, the IRB scrip has done well and risen 18% since 22 June.
In the near term, higher interest rates are expected to be the main worry for the sector and that should limit the upsides for the scrip.
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