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Smart recovery

IRB reported stellar 3QFY21 with revenue at Rs 15.5bn, beating our estimate by 15%. The outperformance was driven by 32% QoQ recovery in toll collections and improved EPC execution with 41.5% QoQ growth. There were no new order wins during the quarter. The company registered a profit of Rs 695mn, 37% beat. While toll collection in most BOT assets has surpassed pre- COVID levels, aided by unlocks, execution too ramped up with normalisation of labour and streamlining of the supply chain. Consolidated net debt is stable at Rs 125bn, with net D/E at 1.9x. We maintain BUY on IRB, given attractive valuation and comfortable liquidity position. Our SOTP-based target price of Rs 157/sh and EPS estimates for FY21/22/23E remain unchanged.

* Revenue beat on speedy recovery in toll collection: Revenue: Rs 15.5bn (- 11/+38% YoY/QoQ, 14.8% beat). EBITDA: Rs 7.2bn (+1/+30% YoY/QoQ, 14.3% beat). EBITDA margin 46.5% (+558/-287bps YoY/QoQ, in line). No exceptional item. Loss from the share of private - InVIT narrowed to Rs 192mn vs. Rs 417mn QoQ. Consequently, IRB reported profit at Rs 695mn (vs Rs +1,597/-197mn YoY/QoQ, 36.5% beat), which wiped out 1HFY21 accumulated losses. While revenue from the BOT segment increased 26.5% QoQ, recovery in the EPC segment too saw 41.5% QoQ growth.

* Toll collections near pre-COVID level: Basis management commentary, toll collections have surpassed pre-pandemic level across the majority of BOT assets and is likely to sustain with further ease of restrictions, with ~32% QoQ growth in collection across 13 toll assets housed in IRB and private- InVIT, aided by the festive season and easing of travel restrictions. Mumbai Pune Expressway saw 42% growth in collection QoQ (Rs 38mn/day surpassed). IRB has achieved financial closure for VM7 Expressway (@8.25%).

* HAM to fill order book in the absence of BOT ordering: As on Dec-20, order book (OB) of IRB stood at Rs 113bn, of which Rs 69bn (61% of OB) is in O&M, and Rs 44bn (39% of OB) is in construction of ongoing BOT/TOT/HAM projects. IRB is targeting Rs 60-90bn of orders in 4QFY21E. Although IRB continues to prefer BOT/TOT over HAM, IRB is looking to replenish order book with HAM projects, in the absence BOT ordering. NHAI bid-pipeline stands at Rs ~600bn till Mar-21.

* Debt to stabilise by FY22-end: Consolidated net debt is stable at Rs 125bn vs. Rs 127bn on Sep 20-end (net D/E at 1.9x). Net debt would increase further as remaining two tranches of payment (Rs 8.5bn each) for Mumbai- Pune TOT scheduled at Mar-21 and Mar-22. For that, IRB will utilise its Rs 23bn cash & bank balance. Hence, IRB could see some moderation in debt after FY22. For under-construction projects, IRB and GIC will together infuse incrementally Rs ~3bn each in the near term.

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