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In-line performance; execution poised to accelerate with a robust order book

* IRB Infrastructure (IRB)’s revenue grew 30% YoY to INR19.7b in 3QFY24 (8% above our estimate). EBITDA margin came in at 44.2% (down 500bp YoY, below our estimate of 45.8% margin). EBITDA grew 17% YoY to INR8.7b, in line with estimates. Higher interest cost was offset by lower tax outgo, which led to APAT growth of 33% YoY to INR 1.9b, in line.

* Construction revenues stood at INR 13.5b, up 38% YoY during the quarter, while BOT revenue stood at INR 6.15b (+16% YoY).

* The order book stood at ~INR362b (excl GST) at 3Q end. The O&M order book stood at INR293b and the construction order book stood at INR69b.

* In 3QFY24, IRB’s Private InvIT was awarded TOT-12 and TOT-13 projects in Madhya Pradesh and Rajasthan. With these order wins, IRB’s market share in the TOT space rose to 38%, the highest among any private player in the sector. Further, IRB witnessed 25% YoY growth in toll collection, driven by higher traffic and increased tariff.

* While FY24 has been muted so far in terms of order awarding, there is a large pipeline of tenders, which would likely get awarded in 4QFY24. With a strong order book of INR362b as of Dec’23 and a robust tender pipeline, driven by BOT projects, we expect a revenue CAGR of ~13% over FY23-26. We increase our APAT estimate for FY26 by ~19%, given strong order execution outlook and stable margin profile. We reiterate our Neutral rating with a revised SoTP-based TP of INR60 per share.

Robust order book despite subdued awarding activity by NHAI

* Awarding by NHAI has been muted in FY24 with only 1,000 kms of projects awarded until date. Despite this, IRB has secured orders worth INR 160b YTDFY24. The tender pipeline is strong and IRB’s priority would be BOT toll projects, followed by TOT projects, and then HAM projects.

* As of Dec’23, the order book stood at INR362b. In the order book, the EPC segment accounted for INR69b, providing robust revenue visibility for the construction segment for the next two-to-three years. The O&M order book is close to INR292b.

Key takeaways from the management commentary

* In Jan’24, Yedeshi Aurangabad Tollway Ltd (YATL), with IRB as the EPC Contractor, secured a INR 16.8b arbitration award. YATL intends to allocate the award to IRB to compensate for the time and cost overrun encountered during the construction period. It could take 1-1.5 years for IRB to receive funds from this award.

* IRB Infrastructure Trust successfully concluded the debt refinancing for its five project SPVs, totaling INR 63.9b. This will lead to a reduction in the interest rate by 1.1% and savings of ~INR 10b in amortization over the next five years.

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