IRB Infra: comfort in strong order book

IRB Infrastructure Developers Ltd’s net profit for the quarter ending March 2013 beat Street estimates by a good margin. The company’s consolidated net profit increased by one-fourth over the same period last year to ₹ 151 crore, the best growth rate among all the four quarters last fiscal year. Bloomberg average estimates were of a net profit of ₹ 137 crore. Not surprisingly, the IRB stock increased by 6% reacting to the numbers on Wednesday. The company’s profitability was better on account of decline in tax outgo and slower pace of increase in interest and depreciation costs.

add_main_imageHowever, operating profit growth was 9%, lower than the growth in revenue, which went up 11.5% to ₹ 948 crore. The increase in revenue was mainly on account of strong contribution from its construction segment, which accounted for 70% of the total revenue. In fact, for the year as a whole too, the construction segment played a similar role. According to the company, “in FY13, IRB completed substantial work on Talegaon Amravati Project, Jaipur Deoli Project, Tumkur Chitradurga Project and the Pathankot Amritsar project.” Moreover, construction work on the Ahmedabad Vadodara Project also started in the March quarter. On a combined basis, all this resulted in a 21% year-on-year increase in construction revenue for the last fiscal year.

For the March quarter, the construction business performed well on account of good execution. IRB derived the remaining share of revenue from its BOT (build operate transfer) business, which has delivered strong performance.NextMAds

What is the outlook? The company’s order book at ₹ 8,400 crore at the end of last fiscal year is heartening. According to the company, ₹ 6,400 crore out of that order book is to be executed in the next three years, which is good revenue visibility. Sure, the company’s net debt to equity ratio has risen to 2.2 times from 1.8 times in FY12. But the analyst community doesn’t seem worried about it and maintains that it’s better than many other companies in the space.

The stock trades at about 8 times its estimated earnings for the current fiscal year. But investor confidence seems to be a bit shaky and since the beginning of this calendar year the IRB stock has underperformed the BSE 200 index of the Bombay Stock Exchange. While valuations appear attractive, negative news flow relating to the management could cloud sentiment for the stock.