Kotak Securities Picks This Multibagger Midcap Infra Stock Amid Improving Toll Collections, Recommends Buy

Kotak Securities retains the buy call on IRB Infrastructure Developers Limited with a revised SoTP-based target price of Rs 340/share (Rs 310 earlier). If we consider the given target price by the brokerage and the current market price of the stock, it could give a return of up to 14%. IRB is a mid cap infrastructure sector company with a market capitalisation of Rs 18,231.74 crore. It is an infrastructure development and construction company in India with extensive experience in the roads and highways sector.

According to the brokerage, Traffic levels across key stretches of IRB are holding up quite well. The EPC arm is better placed than peers on strong order book despite weak inflows so far from the NHAI. We expect consolidated debt to come down from current levels on debt repayment and new projects being taken under private InVIT.

Stock Outlook & Returns On Investments

The IRB's stock on NSE last traded at Rs 299.45/share. Today, it gained 5.74% as compared to its previous close. Its 52-week low is Rs 178.90 recorded on 20 June 2022, and the 52-week high is Rs 303.50 recorded on 12 December 2022, respectively.

It has given 8.23% in the last 1 week. In the last 1 month, it gave 18.67% positive returns. In the last 3 months, it gave 27.53% positive returns. In the last 1 year, it gave 34.54% positive returns. Whereas, in the last 3 years, it has given 352.45% multibagger returns. In the last 5 years, it has given 48.02% positive returns.

Healthy improvement in toll collection for projects

Toll collections for IRB's key project Mumbai-Pune Expressway and Ahmedabad-Vadodara Expressway have been on an uptrend since April 2022. Part of the increase is also driven by the low base of the Covid-impacted year in FY2021. The improvement in traffic volumes in 8MFY23 drove entire gain of 21% yoy for the Mumbai-Pune Expressway. Traffic improvement stood at nearly 15% yoy for 8MFY23 for the Ahmedabad-Vadodara Expressway for 8MFY23, adjusted with a toll rate hike of 10%. We revise our toll collection estimates for these projects to bake in improved collections in 8MFY23. Traffic improvement is also quite healthy at other stretches of roads within IRB Private InVIT for 8MFY23, which also includes a toll rate revision of 10% in April 2022 and the completion of construction on Hapur-Moradabad project and KG Tollway project which resulted in full tolling. The projects have now stabilized, and we expect blended revenue growth of 10.5-10.8% for private InVIT projects for the remaining tenure.

Better-positioned than other construction peers despite weak inflows from NHAI

IRB is emerging as a platform of road assets with funding from GIC and Cintra, with a portfolio of toll projects, construction arm and growth capital for funding new projects. Available growth capital of Rs11-12 bn can be utilized for bidding for projects worth Rs95-100 bn across both BOT and HAM. The company would keep scouting for opportunities across (1) long-duration TOT projects, which reduce the interest rate and traffic risk over the project term, (2) BOT projects as competitive intensity is low in them, (3) ring road projects where traffic volumes are higher, and (4) large-sized green field projects where Cintra has an expertise in assessing traffic levels. IRB is also exploring asset churning via transfer of assets to public InVIT or listing of private InVIT. This would enable utilization of construction business EBITDA for debt reduction and shareholder payouts, which is otherwise used for reinvestment in new projects.

Revise EBITDA estimates by 4%/8% for FY2024/25 and Fair Value to Rs340 (Rs310 earlier)

Kotak Securities has said, "We revise EBITDA estimates by 4%/8% for FY2024/25E to bake in improved toll revenues. We also incorporate improved valuation of private InVIT projects in SoTP as against the valuation at which GIC had taken the stake in FY2020. The revision in the valuation of private InVIT projects bakes in the completion of construction of projects, improvement in traffic volumes and revision in toll rates. The revised FV stands at Rs340, based on SoTP on December 2024 estimates."

Disclaimer

The stock has been picked from the brokerage report of Kotak Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.