IRB Infra soars 10%, most among A-group stocks, after 3x price target

Debt reduction, renewed govt focus on BOT projects, attractive valuations and strong revenue growth forecasts could lead to a re-rating of the stock

Road developer IRB Infrastructure Developers surged nearly 10 per cent—most among ‘A’ group stocks—after domestic brokerage Ventura said its stock could jump more than 3x in 30 months. The stock traded at Rs 237, up 9.6 per cent over its previous day’s close.

Debt reduction, renewed government focus on BOT (build–operate–transfer) projects, attractive valuations and strong revenue growth forecasts could lead to a re-rating in the stock, Ventura Securities has said. The brokerage has come up with a price target of Rs 729 in 30 months.

“IRB has historically underperformed the broader market as investors feared that the management strategy to mostly undertake BOT projects can lead to stress on the balance sheet. However, the management has strategically deleveraged its balance sheet through InvITs, private InvIT in partnership with marque investor GIC (IRB stake at 51 per cent), capital raise of Rs 5,347 crore through preferential allotment to Cintra for 24.9 per cent stake (subsidiary of Ferrovial) and GIC for 16.9 per cent stake and a public InvIT (16% stake with IRB),” Ventura has said in a note.

Experts said the National Highways Authority of India (NHAI) has embarked upon aggressive road development, which bodes well for road developers such as IRB and Adani. These firms have good ratings for its road projects from the NHAI.

“The fact that NHAI has upped its ante in terms of ordering contracts should now lead to removal of any fear from investor’s minds and hence, should lead to re-rating of the stock, given the current lucrative valuation.” Ventura has said in its note.

The brokerage estimates IRB’s revenue and profit to grow at an annualised rate 14.7 per cent and 64 per cent to Rs 9,602 crore and Rs 1,593 crore, respectively, over FY22-25. Further, deleveraging exercise  is expected to improve IRB’s net debt-to-equity and net debt-to-EBITDA ratio from 0.9x and 3.5x in FY22 to 0.4x & 1.3x in FY25.

Ventura says IRB’s stock is currently available at less than 10x its FY24 earnings estimate. The projections, however, hinge on faster than expected growth in road traffic.