Why IRB Infra Share Price is Rising

IRB Infra has been one of the most requested companies by our community.

Given the strong nature of the company's business, and more lucrative now with several InvITs on the cards, it's particularly apt for a newsletter called 'Views on News' to take a closer look.

So here we go!

In the past 5 days, IRB Infra shares are up over 15% while in 2024 so far, shares are up almost 75%!

Let's find out the key triggers driving the rally and what lies ahead for this civil construction firm.

#1 Rating Upgrade Triggers Buying

According to a rating agency, analysts have projected strong growth prospects for the stock of IRB Infra, given it possesses considerable growth potential stemming from its increased number of free cash flow generating projects.

In a report, the ratings got a boost as analysts highlighted this in the research note:

• Cintra (an affiliate of Ferrovial) is looking to acquire a shareholding of 24 per cent in IRB Infrastructure Trust from GIC.
  
  The valuation exercise undertaken for this transfer values the initial 10 projects of IRBTrust at Rs 19,000 crore. This raises the value of IRB's share of 51 per cent to Rs 9700 crore for 10 assets.

Apart from this report, there are several other brokerages that have raised target price for the stock.

This slew of upgrades has led to the positive sentiment around IRB Infra in the past couple of trading sessions.

#2 Commencement of Toll Collection on New Projects

The other reason why IRB Infra shares are in focus is because the company recently announced commencement of toll collection on two NHAI projects.

• The SPVs (special purpose vehicles) of IRB Infrastructure Trust, India's largest highways infrastructure investment trust (InvIT), namely IRB Lalitpur Lakhnadon Tollway Pvt Ltd representing TOT 12 project, IRB Kota Tollway Pvt Ltd and IRB Gwalior Tollway Pvt Ltd, representing TOT 13 bundle, have started tolling from April 1, 2024.

With these tolling operations, the company's entire TOT portfolio is now operational and yielding revenue.

#3 Record Inflow in InvITs

Note that investor interest in infrastructure investment trusts (InvITs) is growing with fundraising through this avenue breaching records in FY24.

An InvIT consists of infrastructure assets like highways.

Industry experts have expressed optimism about the outlook for InvITs in the current fiscal year FY25, citing regulatory amendments and a strong infrastructure development pipeline.

IRB Infra already has its listed InvIT.

The company made headlines earlier this year when its InvIT won an arbitration claim against the National Highways Authority of India (NHAI).

The benefit to IRB Infra comes in the form of receiving compensation for the time and cost overruns experienced as an Engineering, Procurement, and Construction (EPC) contractor.

What Next?

Last month, IRB Infrastructure raised US$540 million through senior secured notes.

This comes after the private road developer's bond issuance received orders worth more than US$2 billion from international investors.

As of March 2024, IRB Infra has a cash balance of Rs 23-25 bn.

IRB Infra is currently sitting on a heavy order book with some prestigious projects. The company stands out in its segment as it has low dependency on external subcontracting. Usually, companies like IRB subcontract orders for execution. But IRB Infra already has a subsidiary - Modern Road Makers - which primarily focuses on EPC segments plus operation and maintenance.

As far as industry outlook is concerned, the government's continued focus on creating infrastructure and IRB Infra's ability to build its order book is expected to result in healthy revenue and profit growth.

With India on its path to becoming a US$ 5 trillion economy, infrastructure will play a major role. By boosting infrastructure, the government aims to boost many other sectors such as cement, steel, automobile, and real estate.

A word of caution...

Infra companies have time and again come under scrutiny on concerns about their debt. For IRB Infra, the debt to equity has been reducing consistently.

Moreover, the company has improved its margins in the past two years, with more expansion expected in the current financial year.

Financial Snapshot

Rs m, consolidated	FY19	FY20	FY21	FY22	FY23
Net Sales	67,070	68,522	52,986	58,037	64,016
Growth (%)	18%	2%	-23%	10%	10%
Operating Profit	31,391	31,756	27,064	33,527	35,373
OPM (%)	47%	46%	51%	58%	55%
Net Profit	8,500	7,209	1,171	3,614	7,200
Net Margin (%)	13%	11%	2%	6%	11%
ROE (%)	0.3	0.5	0.0	0.0	0.2
ROCE (%)	14.2	11.1	1.7	3.7	5.6
Dividend (Rs)	12.3	14.2	9.5	9.1	9.0
Debt to Equity (x)	2.6	1.4	2.7	1.3	1.2

Data Source: Ace Equity

Before you choose any infra or construction company to ride the infra wave, look for consistency in revenue and profit growth.

Second, look for debt in the balance sheet and how the company has been managing it. Increasing debt can be a warning sign.

Last, check the future prospects of the company. A good order pipeline will translate into higher revenues, ultimately indicating good growth prospects.

How IRB Infra Share Price has Performed Recently

In the past five days, IRB Infra shares have gained 15%. In the past one month, the stock is up 22%.

In 2024 so far, IRB Infra is up 72% while over the past six months, IRB Infra shares are up around 130%.

IRB Infra has a 52-week high of Rs 73 touched today and a 52-week low of Rs 25 touched in August 2023.

In the past one year, share price of IRB Infra is up 179%.

Here's a table comparing IRB Infra with its peers -

Comparative Analysis

Company	IRB Infra	ISGEC Heavy	ITD Cementation	JP Associate	PNC Infra
ROE (%)	5.6	9.3	10.5	0.0	16.6
ROCE (%)	9.0	11.2	19.4	1.6	15.1
Latest EPS (Rs)	0.9	35.2	12.9	-4.9	25.7
TTM PE (x)	74.2	27.3	25.9	-	16.7
TTM Price to book (x)	2.9	2.9	4.1	-	2.3
Dividend yield (%)	0.3	0.3	0.2	0.0	0.1
Industry PE	46.5
Industry PB	5.5

Data Source: Equitymaster, Ace Equity

About IRB Infra

IRB Infrastructure Developers has extensive experience in road and highway construction.

The company, which operates projects like Mumbai Pune Expressway and Ahmedabad Vadodara Expressway, is a leader in India's road sector, managing more than 15,000 lane km of build-operate-transfer (BOT), toll-operate-transfer (TOT) and hybrid-annuity-model road assets across 12 states.

It is also present in multiple other sectors, including real estate, airport development, and maintenance of roads.

To know more, check out the company's financial factsheet and its latest quarterly results.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...