Share Trading Tips

IRB INFRASTRUCTURE
Reco price: Rs 244.70
Current market price: Rs 241.85
Target price: Rs 297
Upside: 22.8%
Brokerage: HSBC Securities

IRB Infrastructure has the largest portfolio of build-operate-transfer (BOT) toll assets (1,154 km across 16 projects). IRB is estimated to record a CAGR of 47 per cent in earnings through FY09-12, driven by four contracts it has won in the last six months, new projects that are expected to be awarded over the next year and revenue from two new toll roads. Given the government’s renewed focus on building of highways, IRB is estimated to capture around 6.5 per cent share ($2.6 billion) of India’s road sector during 2009-13. IRB would need to raise fresh capital to fund this growth. Its historical capital utilisation record has been positive; the value of existing projects is estimated at 1.9 times its invested equity.

IRB’s sum-of-the-part value consists of Rs 138 for existing projects, Rs 113 for its construction business, Rs 10 for other businesses and Rs 37 for future growth. IRB is expected to deliver 62 per cent earnings CAGR during FY09-11 and return on equity of 20 per cent for 2010-11 and is superior to its Chinese peers. Superior fundamentals justify IRB’s higher price-to-book of 3.3 and price-to-earnings of 17.8. Factor in IRB’s impending Rs 1,200 crore fund-raising, the stock trades at an implied 2010-11 estimated price-to-book of 2.5. The key risk to the valuation includes a sharp drop in traffic growth and increase in interest rates.

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