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Published on 22/10/2020 2:45:52 PM | Source: Motilal Oswal Financial Services Ltd

Neutral IRB Infrastructure Ltd For Target Rs.120 - Motilal Oswal

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Weak order book increases dependency on new order wins

* IRB’s consolidated financials are not comparable YoY owing to monetization of nine assets through the InvIT route and consolidation of the MumbaiPune Phase-II project. Its Construction business witnessed revenue/EBITDA/adj. PAT decline of 35%/27%/28% YoY. Consolidated loss came in at INR301m (v/s est. loss of INR57m).

* Cash flow visibility for the company has improved meaningfully due to the Mumbai-Pune Phase-II project. However, the construction order book (OB) remains weak at EPC OB/Rev of 1.2x (or 0.9x excl. the newly won HAM project where construction may commence only by 4QFY21), thereby increasing dependency on new order wins.

* The Mumbai-Pune Phase-II wins have been incorporated into our estimates, leading to FY21/FY22E consol. earnings upgrade of 29%/26%. However, weak order inflows may pose a downside risk to our earnings estimates. We maintain Neutral with SOTP-based TP of INR120. Any favorable resolution of the Ahmedabad-Vadodara project may pose an upside risk to our TP.

 

EPC OB depleting fast; Toll revenue at ~80% of last year

* On reported basis, consol. revenue declined 42% YoY to INR10b. EBITDA declined 44% YoY to INR4.8b. Adj. PAT loss came in at INR301m (v/s profit of INR2.1b in 1QFY20).

* Construction revenue declined 35% to INR7.6b while EBITDA margin stood at 32.5%. BOT revenues were down 56% to INR2.6b, though not comparable YoY, owing to divestment of nine assets by means of InvIT.

* Order Book poses some challenges: IRB has been ramping up its execution over the past few years with EPC revenue CAGR of 21% over FY15-20. However, the new order wins have not matched pace, leading to fast depletion of the OB. EPC OB stands at ~INR57.6b with OB/rev ratio of 1.2x (or 0.9x excl. the newly won HAM project). Thus, dependency on new order wins is quite high.

 

Key takeaways from management commentary

* Management expects order book to grow to ~INR70-INR100b by FY21 end and is looking to bid for HAM projects.

* Excluding the new HAM project won, the OB is expected to be executed over the next 5-6 quarters. The company expects to commence construction work on the HAM project by end-3QFY21.

* Activity levels have reached ~80% of pre-COVID levels at the company level.

* The company has availed moratorium during this period, for principle and interest payments.

 

Valuation and view

* We have incorporated the Mumbai-Pune Phase-II wins in our estimates, leading to FY21/FY22E consol. earnings upgrade of 29%/26%. However, weak order inflows may pose downside risk to our earnings estimates. We maintain Neutral with SOTP-based TP of INR120 on the stock.

* Any favorable outcome on the Ahmedabad-Vadodara project could pose significant upside to our TP as we currently attribute negative valuation (- INR56/share) to the project.

 

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