Recovery in toll collections, order flows driving IRB Infra's prospects

Construction segment too may pick up in second half, but high debt still a concern

Infrastructure developers continue to see improving prospects led by rising toll collections, pick-up in execution and good order flows. India's largest road toll operator, IRB Infrastructure Developers' performance for the quarter ending September (Q2), too, saw benefits from sharp increase in toll collections that touched pre-Covid level across portfolio by September end.

However, while toll collection was strong, overall performance was a mixed bag with monsoon season leading to soft EPC (construction segment) revenues. Construction revenues at Rs 732 crore were flat sequentially. Toll revenues, however, were up 34 per cent sequentially to Rs 391 crore, and beat expectations. Kotak Institutional Equities had pegged toll revenues at Rs 302 crore.

Thus, overall revenues at Rs 1,169 crore grew 9 per cent sequentially. The results are not comparable on year-on-year basis due to transfer of nine road assets to private InvIT.

Both segments, however, saw strong margins (27 per cent for construction and 90 per cent for BOT; build-operate-transfer projects), which meant that Ebitda grew 16 per cent sequentially to Rs 555 crore, beating consensus estimate of Rs 510 crore.

Lower other income and higher interest costs played spoilsport. Pre-tax profit was still down 53 per cent sequentially while net profit at Rs 22 crore declined 52 per cent sequentially and came lower than consensus estimate of Rs 35 crore.

 

The high debt on IRB's books though remains a concern. The company expects to raise Rs 510 crore through second tranche of equity issuance in InvIT via a rights issue. However, analysts at HDFC Securities expect the consolidated net debt, which has increased to Rs 12,700 crore from Rs 11,900 crore at end of June 2020, to increase further as remaining two tranches of payment (Rs 850 crore each) for Mumbai-Pune project are scheduled in March-21 and March-22. Thus, some moderation in debt is expected only after FY22.

Though debt reduction remains a monitorable, the Mumbai-Pune expressway toll collections are driving toll revenues. Analysts expect further boost to be provided by Yedeshi-Aurangabad project (15.5 per cent increase in tariff by end of Q3'FY21) and the Agra-Etawah project which is expected to be completed soon with 65-70 per cent increase in tariff.

Likewise, IRB's management expects EPC execution to recover now with monsoon behind. The construction order book of Rs 12,160 crore (order-book-to-sales ratio of 2.9x trailing construction revenues) is strong and IRB is targeting 4-6 projects worth Rs 5,000-7,000 crore from Rs 60,000 crore ordering expected in second half of FY21.

With improved revenue prospects, analysts maintain positive ratings but have also tweaked earnings estimates due to debt. Kotak Institutional Equities has cut FY21 profit estimate by 9 per cent but arrive at fair value of Rs 145 for the stock trading at Rs 113.70.