IRB Infra

IRB Infrastructure Developers is entering the capital market on 31^st January 2008, with an issue of 510.58 lakh equity shares of Rs.10 each in the band of Rs.185 to Rs.220 per share.

 Some of the financial highlights of the company are :--

• Book value of Rs.9.80 per share, as at 31-08-2007.
• 24.73 crore equity shares of Rs.10 each, all issued at par, to the promoters.
• 3.40 crore equity shares were issued to private equity investors at Rs.77.55 per share, on 10.09-2007, by converting preference shares, subscribed by them on 23-03-07.
• Net worth of the company was at Rs.381.70 crores as at 31-08-07, of which, share capital was at Rs.247.27 crores. Reserves & Surplus of Rs.134.42 crores, on account of plough back of profit of Rs.65.87 crores and Rs.85.11 crores for capital reserve.
• FY 07, EPS on standalone basis is 34 paise while it is Re.1.20, on consolidated basis.
• Total debt of Rs.2,698 crores as at 31-08-07.
• Intangible Assets (being Toll Collection Rights) of Rs.2,432 crores as at 31-08-07 while net block as on that date were at Rs.103.90 crores.
• Debt equity ratio of 7.10 : 1, as at 31-08-07 on consolidated basis.
• Object of the issue is to repay the debt of Rs.723 crores, out of total requirement of Rs.813 crores.

The company is into construction, development and operation of 12 BOT roads and highway project and all of them are toll based. These projects were acquired by paying toll collection rights, upfront, to the government of Rs.2,432 crores which are reflected as Intangible Assets in the consolidated accounts of the company. However, page 178 of RHP gives a break-up of only Rs.2,255.36 crores of these intangible assets. All these were financed with debt of Rs.2,700 crores due to which, debt equity ratio rose to over 7 to 1.

As the company is balance sheet is highly leveraged, the proposed issue, intends to mobilize Rs.723 crores to repay the debt. Only Rs.90 crores is being used for investment in IDAA. Infrastructure P. Ltd., a subsidiary of the company, carrying out expansion and improvement of 65 kms. of Bharuch to Surat section.

Financial performance of the company even does not justify the pricing. FY 07, on consolidated basis, had a topline of Rs.325 crores with PBT of Rs.44.55 crores and PAT of Rs.22.73 crores on equity of Rs.247.27 crores. 5 months ending 31-08-07, had topline of Rs.285 crores, PBT of Rs.45.17 crores and PAT of Rs.23.97 crores.

The road projects acquired by the company are large in nature with huge upfront payment. Mumbai Pune Expressway and NH4, has 206 km of road, which has project cost of Rs.1,301.64 crores. This is on account of an upfront fee paid to MSRDC of Rs.918 crores and construction cost of Rs.383.64 crores. Operation and maintainance cost is of Rs.754.79 crores for a concession period of 15 years, which commenced on 09-08-2004 and valid upto 10-08-2019. So present validity of this road projects is about 11¹/₂ years. So, about Rs.2,000 crores (of which Rs.1,300 crores having paid) needs  to be recovered in remaining 4,000 days.

Post issue equity of the company, at Rs.332.36 crores, translates into a market capitalization of Rs.7,300 crores at the upper band of Rs.220 per share. Adding net debt of Rs.2,000 crores Enterprise Value works out quite high at Rs.9.300.

 The company has been comparing itself with GMR Infra, J P Associates, IVRCL Infra, and Hindustan Construction which are very large companies with sizeable presence in Airports, Power Generation, Realty, Contracting and Road Projects.

Pure contracting and road project companies are ruling at PE multiple of 15 to 20 times on the secondary market. To justify this valuation, the company needs to earn about Rs.500 crores, annually as PAT, which is not likely in foreseeable future, even after considering development of 1,400 acre of land near Kamshet, Pune.

Overall, issue is very expensive, even at the lower band of Rs.185, as much better diversified, remunerative, and operational infrastructure stocks are available in the secondary market.