Margins surprise again, but lower target price

IRB again surprised with better than expected results for Q3FY11 with 45.5% growth in PAT at Rs1.3bn vs Rs1.2bn expected. Again major part of the surprise came from high margin in the EPC division of 25% (PBITD). We are lowering our FY12E sales estimates for the EPC division by 20% and upgrade our BOT sales estimates by 7.5%. The net impact on PAT for FY12E is 7.7% increase in PAT estimates largely due to increase in margin estimates for the EPC division from 16% EBITDA to 18% (22.8% FY11E). We see near-term concerns in IRB’s valuation like risk of maintaining margins in the EPC division, new order growth (OB reduced by 5% QoQ), SEBI enquiry on price rigging charges & increasing interest rate scenario. But we are positive on the long-term value accretion proposition of IRB, we maintain BUY with a lowered target price of Rs 269.

EPC division surprises again

The EPC division surprised with a PBITD margin of 25%, as per the management this margins are likely to be maintained over the next 2-4 quarters, as on-going projects were build with escalated input cost at the time of bidding. Dahisar-Surat project recorded good execution during the quarter. Jaipur-Deoli, Pathankot-Amritsar and Talegaon-Amravati contributed higher revenue compared to previous quarter.

BOT division largely on course

We have marginally upgraded our BOT estimates inline with the latest reported trend in traffic growth. BOT division is expected to close FY12E with revenue of close to Rs10bn. The average toll collection has increased to Rs27mn per day which is a increase of 7.6% YoY.

VALUATIONS AND RECOMMENDATION

We are lowering our target price to Rs269 from Rs301, which largely factors the lower valuation for the EPC division. Our target price includes Rs10 per share for land value and Rs15 per share towards cash in book. We maintain our ‘BUY’ recommendation.