IRB Infrastructure Developers: Buy

Investors with a three-five year perspective can consider buying the stock of IRB Infrastructure Developers. The company’s lucrative portfolio of 14 operational toll roads render superior earnings visibility compared with some of the infrastructure companies struggling to achieve financial closure or are strapped for funds to meet working capital requirements. Over the last year, the company has demonstrated its ability to not only achieve financial closure of its Surat-Dahisar project but also roped in private equity to contribute part of the equity capital for its special purpose vehicle.

At the current market price of Rs 104, the stock trades at 10 times its consolidated per share earnings expected for FY10. Given the volatility witnessed in the company’s stock, investor can consider buying the stock on declines linked to broader market.

As an early entrant in toll road operation, IRB has enjoyed certain privileges which include retaining the full share of revenues from toll roads, unlike recent public private partnership projects which come with a revenue sharing clause. This has resulted in the company enjoying operating profit margins of over 41 per cent, way beyond the infrastructure industry average of 10-14 per cent.

Order book of Rs 3,200 crore on the construction side, provide strong earnings visibility for the next couple of years. At the same time, high density traffic in Western highways such as the Mumbai Pune Expressway is likely to provide regular revenues.