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IRB Infrastructure Developers Ltd. (IRB) is a mid-cap company with a market capitalization of Rs. 15,091.46 Cr. It operates in the industrial sector. With a significant presence in the Build-Operate-Transfer (BOT) market, IRB Infrastructure Developers Ltd. is India's first and foremost multinational infrastructure developer in the highway industry. With a target price of 729.20 and a target period of 30 months, research analysts at the brokerage company Ventura Securities Limited (VSL) anticipate a potential gain of 191% from the stock's current market price of 250.

They have said that “IRB Infrastructure Developers Ltd (IRB) has historically underperformed broader market as investors feared that the management strategy to mostly undertake BOT projects can lead to stress on the balance sheet. However, the management has strategically deleveraged its balance sheet through InvITs, private InvIT in partnership with marque investor GIC (IRB stake at 51%), capital raise of INR 5,347 cr through preferential allotment to Cintra for 24.9% stake (subsidiary of Ferrovial) and GIC for 16.9% stake and a public InvIT (16% stake with IRB). This coupled with the fact that NHAI has upped its ante in terms of ordering contracts should now lead to removal of any fear from investor’s minds and hence, should lead to re-rating of the stock, given the current lucrative valuation. It is to be noted that IRB is net debt zero at the holding company level. Its EBITDA margins in the construction business are >20% whereasthe equity requirement is only 16% pursuant (the 70:30 debt equity) for BOT projects(IRB’s share is 51% in equity while 49% is held by GIC, which is also a recurring partner). IRB now has the financial firepower with GIC and access to global best practices in Road BOT business with Cintra and is thus uniquely positioned to capitalize on the government’s NIP, NMP, Gati Shakti initiatives."

The research analysts of the brokerage company Ventura Securities said in a note that “We believe that IRB is at the threshold of accelerated growth given its expanding footprint and improved balance sheet. We expect revenue to grow at a CAGR of 14.7% over FY22-25 to INR 9,602.1 cr in FY25. We expect overall blended margins to be tad lower than FY22 levels. Finance cost is expected to fall by 9.8% CAGR as we expect the total debt to decrease from INR 13,822.5 cr in FY22 to INR 13,232.1 cr in FY25. We expect improvement in net debt/equity & net debt/EBITDA from 0.9x & 3.5x in FY22 to 0.4x & 1.3x in FY25. Net earnings are expected to grow at 64.0% CAGR over FY22-25 from INR 361.2 cr in FY22 to INR 1,592.8 cr in FY25. Return ratios namely RoE/RoCE/RoIC are expected to improve by 697/300/680bps over FY22-25 to 9.8%/15.6%/20.5% in FY25. We initiate coverage on IRB with a BUY for a PT of INR 729.2 (SOTP methodology) representing an upside of 239.2% over the next 30 months. Low traffic growth due to a fall in economic activity remains the key risk which is inherent to the road business."

Owing to the financial analysis and projections, the analysts said that “Over FY20-22, IRB’s total revenues de-grew by 5.0% to INR 6,355.4 cr mainly due to COVID as construction & other revenues fell by 7.6% while toll collection/InvIT revenues grew by 2.0% inspite of transfer of 9 assets to the private InvIT towards end of FY20. EBITDA growth stagnated during this period (2.8% CAGR) while margins grew by 776bps to 52.7% mainly due to higher EBITDA from BOT and fall in the construction costs. The total debt increased by INR 6,218.3 cr to INR 13,822.5 cr in FY22 mainly on account of upfront payment to MSRDC for Mumbai-Pune Phase 2 which resulted in increase in interest costs from INR 1,564.4 cr in FY20 to INR 1,890.6 cr in FY22. The net earnings before minority interest of IRB declined by 7.0% CAGR between FY20-22."

They further added that “The return ratios RoE/RoCE/ROIC fell by 791/933/1,232 bps over the period FY20-22. Going forward, we expect IRB’s total revenues to grow at a CAGR of 14.7% to INR 9,602.1 cr over FY22-25E on the back of 10.7% CAGR in construction/other revenues & 23.4% CAGR in toll collection/InvIT. EBITDA is expected to increase by 11.2% CAGR while overall EBITDA margins are expected to fall by 470bps to 48.0% in FY25. Finance cost is expected to fall by 9.8% CAGR as we expect the total debt to decrease from INR 13,822.5 cr in FY22 to INR 13,232.1 cr in FY25. We expect improvement in net debt/equity & net debt/EBITDA from 0.9x & 3.5x in FY22 to 0.4x & 1.3x in FY25. Net earnings are expected to grow at 64.0% CAGR over FY22-25 from INR 361.2 cr in FY22 to INR 1,592.8 cr in FY25. Return ratios namely RoE/RoCE/RoIC are expected to improve by 697/300/680bps over FY22-25 to 9.8%/15.6%/20.5% in FY25."

The net profit for IRB Infra in Q2FY23 more than doubled from Rs. 42 Cr in Q2FY22 to Rs. 85 Cr, a growth of 102% YoY. In comparison to the 1,504 Cr reported in Q2FY22, the total revenue for Q2FY23 was 1,439 Crs, a fall of 4% YoY. In comparison to the 757 Cr reported in Q2FY22, the firm recorded an EBITDA of 761 Cr in Q2FY23. Toll revenue grew by over 53% YoY for the first half of the year across IRB and Pvt InvIT entities.

Commenting on the financial results for Q2FY23, Mr. Virendra D. Mhaiskar, Chairman & Managing Director of the Company said, “We witnessed robust growth in toll collections Y-o-Y, even as monsoons kept the construction segment soft during the quarter. Overall, a strong movement on business front included Ganga Expressway receiving appointed date to commence construction activity, GIC’s equity funding for the project, shareholder’s nod for Vadodara Kim HAM project getting transferred to the Public InvIT, compensation for revenue loss during farmers agitations, etc. have been much encouraging for us." He further added, “With construction on Ganga Expressway project getting into full execution mode, we are now confident of achieving construction turnover of approx. Rs. 4,500 Crs for FY23. Wish all our stakeholders a very safe, healthy and prosperous festival of lights."

The shares of IRB Infrastructure Developers closed on Friday at 250 apiece, up by 0.18% from the previous close of 249.55. On a YTD basis, the stock has gained 12.74% so far in 2022.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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