IRB Infrastructure Developers and Finolex Cables: ShareKhan Stock Recommendations

IRB Infrastructure Developers and Finolex Cables: ShareKhan Stock Recommendations

Stock market research house and brokerage ShareKhan has recommended hold for Finolex Cables and Buy for IRB Infrastructure Developers in its latest stock recommendation report. Indian markets are trading at their all-time high and investors are upbeat about many companies reporting stronger earnings, mainly due to tax reduction in Indian government. Many companies reported good quarterly results but the larger impact of tax reduction will be seen in upcoming quarterly results.

IRB Infrastructure Developers Buy Call with Target Price of Rs 105

During Q2, IRB posted consolidated net earnings growth led by 43% y-o-y rise in construction revenue and lower ETR. BOT toll revenue affected by handover of key project and muted traffic growth across most projects. Strong order backlog of Rs. 11,381 crore, which is 2.5x its TTM EPC income and expected order inflows by FY2019 end give management confidence of maintaining EPC revenue growth momentum during FY2020-FY2021.

Ahmedabad Vadodara project received award from the High Court for continuation of relief from payment of Premium to NHAI till the outcome of Section 17 proceedings under arbitration.

Outlook: We maintain Buy on IRB Infrastructure with a revised PT of Rs. 105 on account of comfort on valuation post building lower BOT valuation versus GIC deal.

Finolex Cables Target Price of Rs 390

Finolex posted lower-than-estimated financials led by weak performance in electrical and communication with a decline in OPM. Net profit was higher due to lower ETR. We expect slowdown in construction and funding crunch in OFC to limit its revenue growth along with higher ad spends in FMEG to weigh on overall OPM over FY2020-FY2021. The issue regarding re-appointment of key managerial personnel also remains unresolved with the matter now sub-judice.

Outlook: We reiterate our Hold rating with a revised PT of Rs. 390 on account muted net earnings growth during FY2019-FY2021E and unresolved issues surrounding promoters of group companies.

Analyst Views: