IRB Infrastructure & Developers: Share Analysis

8 Nov 2023 From Ventura

Since we initiated coverage on IRB Infrastructure Developers Ltd (IRB) on Oct 14, 2022, the stock has surged 67.4% to reach its record high of INR 36 per share, attributed to enhanced cash flows from ongoing projects and robust cash flows from private InvIT distribution.

Given the substantial business developments that have taken place over the past 12 months, we reinitiate coverage on IRB as a buy with the recommended price target of INR 94.5 per share (FY26 P/E of 37.7X). This represents an upside potential of 173.9% from the CMP of INR 34.5 over the next 24 months.

Our optimism stems from the fact that over the period FY23-26, IRB’s revenue/ EBITDA/ net earnings are expected to grow at a CAGR of 13.9%/ 11.5%/ 28.1% to INR 9,456.7 cr/ INR 4,485.7 cr/ INR 1,402.3 cr respectively, while the company’s net margins are expected to improve by 476bps to 16.0% by FY26E. Consequently, the company’s RoE is expected to increase by 384bps, reaching 9.2%, and RoIC is expected to rise by 142bps, reaching 10.5% by FY26E.

Going ahead the outlook for the industry is extremely buoyant given that NHAI plans to award INR 854 bn worth of priority category road projects in FY24, with INR 400 bn specifically designated for BOT road projects, where the competitive intensity is lower. IRB’s partnership with GIC, in the ratio of 51:49, in the private InvIT provides a strong developmental platform to bid for BOT and TOT projects. This augurs very well for IRB.