CLSA on IRB Infra

CLSA initiates coverage on IRB Infra with a `Buy’ rating. As one of India’s largest integrated players in the space with in-house EPC complementing its BOT (build, operate and transfer) developments, IRB is a natural beneficiary. CLSA expect IRB to add to its existing BOT portfolio over the next few years, therefore, anticipates EPS rising at a about 20% CAGR over FY10-20CL. Road highway project activity is to intensify manifold. 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. Increased access financing have largely removed the key hurdles holding back investments in India’s road sector.

Consequently, over 34,000 km of new highway projects is to be awarded in the next four years - 1.7x that in the last decade. This opens up a $60-billion project award opportunity by FY14. With six projects aggregating Rs 67 billion already in the execution phase, EPC will drive earnings growth over FY10-13 with BOT earnings driving growth thereafter as projects get completed. Even without the new wins, EPS will still grow at a 16% CAGR over the next decade. New project wins are to be the key catalyst; five projects aggregating 576 km where IRB is on the final shortlist, will be awarded in the next quarter while it is in the pre-qualification stages for another 1,925 km. Lower than expected traffic and slower than expected awards are key risks.