Retain ‘buy’ on IRB Infra with revised Target Price of Rs 154

By: |
February 29, 2020 1:00 AM

Toll collections for IRB are set to improve on the company bagging the tolling and maintenance of the Mumbai-Pune project for 10 years.

IRB, IRB infraIRB is looking to tie up for partnership for this project in 51:49 ratio, which is expected to be finalised by June 2020.

Toll collections for IRB are set to improve on the company bagging the tolling and maintenance of the Mumbai-Pune project for 10 years. With GIC payment also coming through, we expect IRB to benefit from the partnership in the current and upcoming projects. We incorporate the recent project win and lower stake in projects and arrive at a revised fair value of `154 (from `145). Retain buy rating.

IRB has received LOA from MSRDC for tolling, operation and maintenance for Mumbai-Pune Expressway and Mumbai-Pune Section of NH-48 (Old NH4) for a period of 10 years and two months with a total payment of `82.6 bn. This involves an upfront payment of `65 bn to be paid by June 2020 and two subsequent payments of `8.5 bn each payable by March 2021 and March 2022. The remaining payment of `620 mn is to be paid by March 2023. Including DSRA, pre-operative expenses and taxes, total project cost stands at `89 bn to be funded with D:E of 74:26. While tolling will commence from March 2020, toll rate hike of 18% will happen from April 2020, thereby making the project earn revenues of nearly `12 bn per annum from FY2021 as per our estimates. IRB will share revenues in the ratio of 90:10 with MSRDC beyond threshold revenues of `31.5 mn per day, starting from March 2020. Our estimates currently factor in lower toll collections thereby not requiring any revenue share with MSRDC. We expect the project to generate equity IRR of 17% taking into account the selective toll rate hikes beyond FY2024 for the project. IRB is looking to tie up for partnership for this project in 51:49 ratio, which is expected to be finalised by June 2020. This will reduce equity commitment required from IRB.

Our SoTP-based fair value gets revised to `154 (`145 earlier). Retain buy rating.

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