Neutral IRB Infrastructure Ltd For Target Rs.63 by Motilal Oswal Financial Services Ltd
Decent performance; awaiting new order inflows
* IRB Infrastructure (IRB) has aligned its business model for investments in InvITs and related assets. As a result, it assessed eligible investments, including joint ventures under Ind AS 28, for fair value measurement through FVTPL. Consequently, a net fair value gain of INR58b (net of tax) was recognized as an exceptional item.
* Revenue grew 3% YoY to INR20.2b in 3QFY25, which included: 1) gains on InvITs & related assets as per fair value measurement and 2) dividend/ interest incomes from InvITs & related assets. These incomes would be recurring going forward.
* EBITDA margin came in at 48.6% in 3QFY25 (+440bp YoY and +20bp QoQ). EBITDA grew 13% YoY to INR9.8b. APAT grew 18% YoY to INR222m (against our estimate of INR201m).
* Construction revenue was INR11.3b (-16% YoY); BOT revenue was INR6.5b (+5% YoY); and InvIT & related assets revenue stood at INR2.5b (+90% YoY).
* The order book stood at ~INR315b (excl. GST) as of end-Dec’24, of which the O&M order book was INR283b and the EPC order book was INR32b.
* During 9MFY25, revenue was INR54.6b (+2% YoY), EBITDA was INR26bb (+3% YoY), EBITDA margin came in at 48%, and APAT was INR4.6b (+11% YoY).
* IRB's focus on InvIT investments and asset monetization ensures stable recurring income and long-term value creation. A robust order book, growing toll revenue, and strategic project execution, including the Ganga Expressway, position the company for sustained growth and profitability.
* Factoring in higher operational revenue from Private InVIT, we raise our revenue/EBITDA/PAT estimates for FY25 by ~6% each and increase our PAT estimates for FY26/FY27 by 12%/13%. With a strong order book and a robust tender pipeline, driven by BOT projects, we expect a revenue CAGR of ~16% over FY24-27. Reiterate Neutral with an SoTP-based TP of INR63.
Robust order pipeline along with a healthy balance sheet
* Awarding by NHAI was subdued in 9MFY25, primarily due to the general elections in 1QFY25. However, IRB's order book remains healthy. The tender pipeline remains robust at INR2t. IRB’s priority would be BOT toll projects, followed by TOT projects, and then HAM projects.
* IRB’s strategy of aligning its business model with InvITs and asset monetization is expected to unlock long-term value and ensure stable recurring income. The strong order book, continued toll collection growth, and scheduled execution of key projects such as the Ganga Expressway position the company well for sustainable expansion.
Key takeaways from the management commentary
* The first tranche of asset transfer to the Public InVIT was valued at INR150b, of which INR70b was debt. The remaining INR80b will be received by the Private InVIT, which can be utilized for project bidding worth up to INR250b. As more funds from monetization are transferred to the Private InVIT, it enhances the feasibility of project bidding and overall growth.
* Toll revenue across projects in Private InVIT, Mumbai-Pune, and AhmedabadVadodara grew by approximately 21% year-on-year in Q3 FY25. Toll revenues from newly awarded TOT projects have exceeded initial estimates.
* Cash flows generated by the InVIT are distributed to unit holders. Since assets under the Private InVIT have a long lifespan, their value is expected to rise as cash flows increase. The monetization of these assets is an ongoing process, and revenue generated from the Private InVIT will be treated as recurring operating income in the Profit & Loss statement.
* The construction vertical is likely to clock ~15% CAGR over the next two to three years with a stable EBITDA margin.
Valuation and view
* Fueled by a robust order book and a strong tender pipeline, primarily due to BOT projects, we expect IRB’s execution to pick up, leading to a ~16% CAGR in revenue and stable margins.
* Factoring in higher operational revenue from Private InVIT, we raise our revenue/EBITDA/PAT estimates for FY25 by ~6% each and increase our PAT estimates for FY26/FY27 by 12%/13%. With a strong order book and a robust tender pipeline, driven by BOT projects, we expect a revenue CAGR of ~16% over FY24-27. Reiterate Neutral with an SoTP-based TP of INR63.
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