India's largest pure-play Road Developer, IRB Infrastructure Developers Ltd., seems to be now on smooth growth path, though not at a very high pace. Between December'12 to December'14, IRB's T-T-M Total Income hovered between Rs.3700 to 3900 crores mark. But IRB has now managed to post near-10% Y-o-Y Growth in Total Income for three consecutive quarters, after 4 consecutive quarters of slight negative Y-o-Y growth, which has helped the company take it's T-T-M Total Income past the Rs.4000 crores mark at the end of June'15, for the first time in the company's history. Have a look at the charts below:
IRB's EBITDA has done much better than it's Total Income in terms of growth. IRB's EBITDA was growing at a modest pace till March'14 quarter, but the growth pace has clearly picked up from June'14 quarter. Until the September'13 quarter, IRB's EBITDA margin was steady at little over the 46% mark. But since then the company has worked hard on reducing it's overheads and minor operating costs, which has helped bring the company's EBITDA margin to around the 59% mark by June'15 quarter. This is fabulous work!! IRB's management clearly used the lean period of growth to work on lowering costs, which will help the company tremendously in the coming quarters.
On one hand IRB was managing to curtail it's operating costs, but on the other hand it's Interest cost was rising sharply between June'13 quarter to September'14 quarter. IRB's T-T-M Interest Cost stood at Rs.627 crores at the end of June'13 quarter, which was about 35% of it's EBITDA then. In the following 5 quarters, it shot up to touch a figure of Rs.857 crores by Sept'14 quarter, constituting about 41.2% of the company's EBITDA then. Over the last 3 quarters, the company's Interest Cost rise has been slightly lower than growth in EBITDA, which helped bring down the Interest-to-EBITDA % down to 39.7%. During the last 3 quarters, the company's Interest Cost has continued to increase Y-o-Y & Q-o-Q, but the EBITDA has grown at a slightly faster pace. The recent marginal rate cuts by banks and the possibility of further rate cuts from RBI in the coming month(s) will only help IRB to control it's Interest burden and improve it's Profit margins.
IRB has also increased it's Depreciation provisioning starting from June'14 quarter. It's T-T-M Depreciation number has jumped to over 30% of the company's EBITDA now, compared to around 25-26% figure till June'14 quarter. This does not impact the company's Cash Profits, but does impact it's Net Profit numbers. But in a way it's good, because lower Profit-before-Tax also means lower Tax Outgo and it's Assets are De-capitalised sooner due to higher Depreciation provisioning.
Valuations: IRB recently raised some Equity Capital via issue of shares, which led to dilution of Equity to the tune of about 6%. This additional capital will help the company either curtail it's Interest Cost or while Investing in newer projects. Post dilution of Equity, IRB's T-T-M Net EPS stands at almost Rs.16/-, while it's Cash EPS stands at over Rs.36/-. That means at the current price of around Rs.220 per share, it trades at less than 14 times it's Net EPS and just about 6 times it's Cash EPS. I think this valuation is on the cheaper side, considering the company's recent improvement in Financial performance and also the potential growth in the Industry that the company operates in. The Indian Govt. is giving a major thrust to the country's Infrastructure development and construction of Roads & Highways forms the most prominent part of it. There will be no dearth of projects to bid for in the coming months & years. And I am pretty sure that IRB's management will judiciously bid for projects that they can comfortably handle & commission. IRB's growth can continue at a steady pace in the coming many quarters. Hence I think it makes sense to be invested in a company like IRB at the current valuations with potential of more than doubling in the next 1-2 years.
 |
| T-T-M numbers |
On one hand IRB was managing to curtail it's operating costs, but on the other hand it's Interest cost was rising sharply between June'13 quarter to September'14 quarter. IRB's T-T-M Interest Cost stood at Rs.627 crores at the end of June'13 quarter, which was about 35% of it's EBITDA then. In the following 5 quarters, it shot up to touch a figure of Rs.857 crores by Sept'14 quarter, constituting about 41.2% of the company's EBITDA then. Over the last 3 quarters, the company's Interest Cost rise has been slightly lower than growth in EBITDA, which helped bring down the Interest-to-EBITDA % down to 39.7%. During the last 3 quarters, the company's Interest Cost has continued to increase Y-o-Y & Q-o-Q, but the EBITDA has grown at a slightly faster pace. The recent marginal rate cuts by banks and the possibility of further rate cuts from RBI in the coming month(s) will only help IRB to control it's Interest burden and improve it's Profit margins.
IRB has also increased it's Depreciation provisioning starting from June'14 quarter. It's T-T-M Depreciation number has jumped to over 30% of the company's EBITDA now, compared to around 25-26% figure till June'14 quarter. This does not impact the company's Cash Profits, but does impact it's Net Profit numbers. But in a way it's good, because lower Profit-before-Tax also means lower Tax Outgo and it's Assets are De-capitalised sooner due to higher Depreciation provisioning.
Valuations: IRB recently raised some Equity Capital via issue of shares, which led to dilution of Equity to the tune of about 6%. This additional capital will help the company either curtail it's Interest Cost or while Investing in newer projects. Post dilution of Equity, IRB's T-T-M Net EPS stands at almost Rs.16/-, while it's Cash EPS stands at over Rs.36/-. That means at the current price of around Rs.220 per share, it trades at less than 14 times it's Net EPS and just about 6 times it's Cash EPS. I think this valuation is on the cheaper side, considering the company's recent improvement in Financial performance and also the potential growth in the Industry that the company operates in. The Indian Govt. is giving a major thrust to the country's Infrastructure development and construction of Roads & Highways forms the most prominent part of it. There will be no dearth of projects to bid for in the coming months & years. And I am pretty sure that IRB's management will judiciously bid for projects that they can comfortably handle & commission. IRB's growth can continue at a steady pace in the coming many quarters. Hence I think it makes sense to be invested in a company like IRB at the current valuations with potential of more than doubling in the next 1-2 years.
No comments:
Post a Comment