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IRB Infrastructure Developers – Review

February 3, 2008

IRB is an infrastructure development and construction company in India with extensive experience in the roads and highways sector. The Company has established business in the roads sector and has a large portfolio of completed and operational BOT projects in road infrastructure sector.

IRB also has an advantage of support of experienced promoters and skilled engineering staff. It has recently diversified into the real estate development sector in order to complement its infrastructure development business. Due to its early entrance in the BOT toll road business, IRB operates a number of BOT projects which contributes to robust cash flow and a healthy bottom-line.

Valuation and Recommendation:
As of August 31, 2007, IRB had a total debt of Rs. 27 bn including fully convertible debentures of Rs. 2.6 bn. IRB is planning to use around 65% of the proceeds toward repayment of loans, even after considering the repayment, the debt-equity ratio remains high at 4.2:1. The company has an order book of Rs 2400 crore.

IRB, at the upper and lower price band, is valued at a forward FY08 P/E of 65.3x and 55x, respectively, which is at a substantial premium when compared with the peer group average of 15-20x. The issue price between Rs 185 – Rs 220 appears expensive compared to peers quoting between 20-25x with larger order books.

Only investors with High Risk appetite may consider investing in the IPO as we have seen downgrades in Infrastructure sector especially on GMR from HSBC and Merill Lynch.

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