IRB stock price has corrected by 34% in the past three months since 23rd Aug 2010, while correcting 17% in the last 3 trading session post the housing finance scam. In our interaction with the management, they clarified no involvement in any unfair practise with the financial/banking entities mentioned in the CBI report.

The fall in stock price is speculative and provides a very healthy entry point for long-term investors.

The company has a healthy track record on execution. Currently it has a portfolio of 16 BOT projects (10 operational and 6 under construction). The performance in H1FY11 has been above expectation with sales growth of 30.2%, EBIDTA margin of 48.5% and PAT growth of 42.3%. It is well in place to achieve 63% growth in sales for FY11, EBITDA margin of 41.2% and PAT growth of 34.2% at Rs5.2bn.

The consolidated one year forward P/E has corrected from 20x to 13x which is compelling, though we value the company on a SOTP basis at Rs301, which includes Rs10 as cash per share and Rs15 for land value at Mumbai-Pune Expressway.

The stock is available at a compelling P/BV of 2.7 & 2.3 for FY11 and FY12. RoE and RoCE are stable at 19% and 21% FY12 respectively.