IRB Infrastructure Rating: buy: Second quarter results were a mixed bag

IRB reported mixed results for the quarter and has also announced a fund raise via preferential allotment to Ferrovial and GIC for Rs 54 bn. This will help the company achieve deleveraging at a faster pace, provide access to growth capital and help it gain from technical expertise and global best practices from backing of both the investors. We revise estimates and Fair Value to bake in debt reduction and access to growth capital. Revise Fair Value to Rs 245 (Rs 173 earlier). Retain Buy.

Mixed quarter on results
IRB’s revenues were lower than our estimates on lower construction revenues. Toll collection from Mumbai-Pune and Ahmedabad-Vadodara project improved q-o-q and y-o-y on improved traffic volumes. Ebitda margin was ahead of our estimates in the construction segment. Interest and depreciation charges remained high y-o-y. A sequential increase in depreciation is driven by higher toll revenues q-o-q.

Order inflow during the quarter stood at Rs 9 bn. The company has achieved full CoD for Chittorgarh-Gulabpura project resulting in 58% increase in tariff at full rates. We expect toll revenues for other projects of private InvIT to improve sharply on completion of construction during FY2022.

Raising equity up to Rs 54 bn from Ferrovial S.A and GIC
IRB announced two equity fund raises through preferential allotments to Cintra INR Investments BV, a 100% subsidiary of Cintra Global S.E. and Bricklayers Investment Pte. Ltd, an affiliate of GIC. Cintra Global S.E, a 100% subsidiary of global infrastructure giant Ferrovial S.A would invest Rs 31.8 bn for 24.9% and GIC would invest Rs 21.7 bn for a stake of 16.9%.

The company would issue additional shares at Rs 212 per share to these post necessary approvals and promoter shareholding will come down to 34% subsequently. IRB expects to utilise funds of up to Rs 32.5 bn for deleveraging and Rs 15 bn as growth capital. Cintra is one of the leading companies in the private development of transportation infrastructure throughout the world and GIC has been an investor with IRB and IRB public and private InvIT. These fund raises are subject to approvals. Revise consolidated Ebitda estimates by 3%/6% and Fair Value to Rs 245 (Rs 173 earlier)

We revise our Ebitda estimates by 3%/6% for FY2023/24 on improved Ebitda margins in the construction business. Revision in Fair Value to Rs 245 takes into account debt reduction post completion of the deal, improved valuation of construction business as it can target more opportunities and incremental value from growth capital along with roll forward on an expanded equity capital base. Retain Buy.