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Execution set to accelerate

* IRB Infrastructure (IRB)’s revenue grew 18% YoY to INR19.3b in 1QFY23. It included INR4.2b of claims received from NHAI towards its Pathankot Amritsar BOT project. Adjusted for this, revenue was lower by 7% YoY.

* EBITDA grew 52% YoY to INR10.6b. EBITDA was flat YoY when adjusted for the INR3.7b benefit towards claims received in Pathankot Amritsar BOT project. APAT surged to INR3.6b in 1QFY23. Adjusted for claims benefit totaling INR2.7b, APAT grew 30% YoY in 1QFY23.

* IRB is seeing strong opportunity in BOT/TOT projects and would also be open to bid for HAM projects. The company recently received financial closures for two BOT projects and has also tied up funding for the Ganga Expressway project. As these projects move into execution, the revenue would pick up in FY23/24E. Toll revenue is also likely to witness strong growth with improving traffic and tariff increase. We raise our revenue estimates by 4%/5% for FY23/24 with improved outlook. We maintain our Neutral rating with an SoTP-based TP of INR270.

Focus on asset recycling continues

* IRB’s order book stood at ~INR157b at end-1QFY23, of which EPC was ~INR95b (~60% of the total order book). Out of the EPC order book, BOT stood at INR71b and HAM was at INR24b. The BOT order book included INR55b of Ganga Expressway project

* While bidding, IRB would focus on BOT projects followed by TOT and then HAM projects in the order of priority.

* The management expects decent number of BOT projects to be awarded by NHAI during FY23. Even HAM projects could see lower competition as NHAI is looking to reduce their contribution from the current 40% levels.

Valuation and view

* IRB’s order book is strong at INR157b (incl. O&M). The EPC OB/revenue ratio stands at 2x, providing revenue visibility. IRB achieved financial closure for the Meerut Budaun Expressway BOT project and the Chittoor Thachur HAM project in Tamil Nadu. Further, the company has tied up its funding for the Ganga Expressway project. As some of these large projects move into execution, we expect EPC growth to improve going ahead.

* We raise our estimates for FY23/24 to factor in improved outlook on execution and the claim received towards Pathankot Amritsar project. We maintain our Neutral rating with an SoTP-based TP of INR270.

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