Buy IRB Infrastructure with unchanged FV of Rs 150

Toll revenues have now reached 78% of pre-Covid levels.

Decent pick-up in toll revenues. Results were ahead of our estimates on faster recovery in toll collection. Share of losses from SPVs resulted in net loss for the quarter. Cash profit, however, remained positive. Early normalisation of toll collection at its key projects and execution ramp-up is expected in coming quarters.

Order inflow revival is critical for maintaining EPC revenues. The company has sufficient liquidity to meet near-term requirements. Revise estimates by 1%/3% and retain fair value of Rs 150. Buy.

Results are not comparable with 1QFY20 on transfer of projects to InVIT. IRB’s revenues were ahead of our estimates on better-than-expected toll collection. Toll revenues have now reached 78% of pre-Covid levels. EPC execution is gathering momentum and revenues were led by a ramp-up of construction on Agra-Etawah, Hapur-Moradabad and VK-1 HAM projects. Ebitda got a boost from higher other operating income. Interest expense remained higher on increased borrowing at standalone level during the quarter. Share of losses from SPVs resulted in net loss for the quarter. Cash profit, however, remained positive at Rs 2 bn for 1QFY21 versus Rs 3.6 bn in 1QFY20. Interim relief continues for Ahmedabad-Vadodara project till the arbitration panel comes up with a final decision.

NHAI awarding has picked up since June 2020 and it plans to award projects worth Rs 1.3 tn during balance FY2021. Recently announced BOT project win by IRB was cancelled but the company expects to maintain its market share in upcoming BOT project bids. IRB bagged one HAM project worth `18 bn during 2QFY21 and expects inflow of Rs 70-100 bn for the full year. We expect execution of current EPC order book of Rs 57 bn to get completed by 1HFY22 and hence order inflows are critical for future growth of EPC revenues.

IRB has raised NCDs worth Rs 14.5 bn during 1QFY21 to meet near-term liquidity requirements and has cash worth Rs 21 bn at the end of quarter. It is also expecting Rs 31 bn from InVIT for deferred consideration towards sale of SPVs. Near-term large payments to MSRDC for Mumbai-Pune project have already been made. Equity requirements for existing projects stand at Rs 5.5 bn which can be met via internal accruals. Along with this, we expect healthy cash profits from Mumbai-Pune and improving traffic at Ahmedabad-Vadodara project to take care of debt and NHAI premium obligations.

We revise our estimates by 1%/3% for FY2022/23E. Net of roll-forward, our SoTP-based fair value remains unchanged at Rs 150. We value road projects on FCFE and add value of the construction business and value of its investments in InVIT, airport and other projects.