Buy IRB Infrastructure – CLSA
April 5, 2010
The Buy recommendations are once again back on the Street. IIFL initiated coverage with a BUY on KSK Energy Ventures and now CLSA Pushed the BUY button on IRB Infrastrcuture.
The recent changes to improve financial viability of road-highway projects, increase land acquisition thresholds before award to cut delays, make eligibility norms pragmatic and streamline procedural bottlenecks. Consequently, we expect over 34,000km of new highway projects be awarded in the next four years – 1.7x that in the last decade. This opens up a US$60bn project award opportunity by FY14.
Given the market opportunity, we expect IRB to add to its portfolio; our models assume an accretion of 800km over FY10-14. This will represent ~7% of ~12,000km of projects in Phases III and V; similar to its 8% share so far. If Phase-IV project awards (20,000km) accelerate, we foresee additional portfolio gains. With six projects aggregating Rs67bn already in the execution phase, EPC will drive earnings growth over FY10-13 with BOT earnings driving growth thereafter as projects get completed. We forecast a 33% consol EPS Cagr over FY10-13 and ~20% EPS Cagr over FY10-20CL
IRB is expected to report an EPS of Rs 9.1 for FY 10 and Rs 14.5 for FY11. CLSA has set a target price of Rs 325.