Fundamental Analysis Of IRB Infrastructure: India has the 2nd largest road network in the world, spanning a total of 6.3 Million kilometers (km). This network transports 64.5% of all goods in the country and 90% of India’s total passenger traffic uses the road network to commute. Such a large and ever-growing network is a boon to multiple infrastructure development Companies in the country.
Hence, let us look at one of India’s leading Infrastructure developers, who has a massive presence in India’s highway development projects. In this article on Fundamental Analysis of IRB Infrastructure, We will then understand more about the scale of his business, before taking a deeper look into its financials.
Table of Contents
Fundamental Analysis Of IRB Infrastructure – Company Overview
IRB Infrastructure Developers is India’s leading infrastructure developer in the highways sector. Founded in 1998, it was India’s first Company to execute a project on the Build-Operate-Transfer (BOT) Model.
The Company also holds the record for operating and maintaining the first expressway project, launching and listing the first Infrastructure Investment Trust (InvIT), and is the first Indian Company to tap offshore bond markets.
Some of the key clients of the Company include the Ministry of Road Transport and Highways, the Uttar Pradesh Expressways Industrial Development Authority, the Maharashtra State Road Development Corporation, and the National Highway Authority of India.
Over the last 25 years of Operations, IRB has completed over 17,200 Lane Kms of Highway Build Operate Transfer, Toll Operate & Transfer, and Hybrid Annuity Model projects. Out of the 17,200 Km, 13,739 Km of road projects are still under IRB’s concession and 1706 Kms projects are still under development.
During FY23, the Company bagged two projects. One of them is the upgradation of NH27 to a 6-lane in Gujarat at the cost of 2,132Cr with a concession life of 20 years. Another project is the development of Outer Ring Road (ORR) for Hyderabad. An 8-lane highway is being built at the cost of Rs. 7380Cr for a concession period of 30 years.
IRB currently has 4 highway projects spread across 11 Indian states, with 13,739 Lane Kms under operation. It has 64 Toll Plazas with 736 Fastag Compliant lanes. It also has a 20% Share in the Golden Quadrilateral Project. The total order book of the Company as of June 30, 2023, is Rs. 33,708Cr including the Hyderabad ORR project.
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Industry Overview
India’s infrastructure sector is rapidly evolving and the key trends demonstrate positivity and optimism. The market for roads and highways in India is projected to exhibit a CAGR of 36.16% during 2016-2025, on account of growing Government initiatives to improve transportation infrastructure in the country.
In FY19, the Government launched the National Infrastructure Pipeline (NIP), an investment plan unveiled by the Central Government for enhancing infrastructure in identified sectors to provide world-class infrastructure effectively across the country and improve the quality of life for all citizens.
As a result, over the last 8 years, the length of National Highways has gone up by 48.12% from 97,830 km in FY15 to 1,44,955 km in FY23. The Ministry of Road Transport & Highways has set out a target of 2,00,000 km for 2024-25. The Fundamental Analysis Of IRB Infrastructure have helped us in understanding more about the IRB Infrastructure.
Fundamental Analysis of IRB Infrastructure – Financials
Revenue & Net Profit
IRB Infrastructure’s revenue increased by 10% from Rs. 5804 Cr in FY22 to Rs. 6402 Cr in FY23. This is the 2nd year of consistent growth for the Company. In FY20 and FY21 revenue growth was slow and even faced a de-growth of 23% in FY21. Hence, since FY21 IRB’s revenue has decreased by 1.17% CAGR.
Net Profit of IRB Infrastructure skyrocketed to 99% growth, from Rs. 361Cr in FY22 to Rs. 720Cr in FY23. The increase in profits was due to a significant reduction in Finance Costs leading to an expansion of margins. The Long-term looks just as dire as Net Profits dropping by 4% CAGR since FY21.
| Fiscal Year | Gross Revenue | Net Profit |
|---|---|---|
| 2023 | ₹ 6,401.64 | ₹ 720.00 |
| 2022 | ₹ 5,803.70 | ₹ 361.40 |
| 2021 | ₹ 5,298.63 | ₹ 117.15 |
| 2020 | ₹ 6,852.22 | ₹ 720.86 |
| 2019 | ₹ 6,707.01 | ₹ 849.97 |
| 4-Year CAGR | -1.16% | -4.06% |
Profit Margins
Operating Margins of the Company remain rather strong at 50% in FY23, increasing by 200 from FY22. The biggest Operating expense for the Company is Road work & site expenses which cost 32.4% of the revenue from operations. These costs increased by just 9% leading to an expansion of margins.
Net Profit Margins of the Company however remained at 11%, increasing by 400bps on account of lower finance costs. Finance costs which cost over 33% of revenue in FY22 dropped by 20% due to debt repayment, thereby increasing margins.
| Fiscal Year | Operating Profit Margin (%) | Net Profit Margin (%) |
|---|---|---|
| 2023 | 50.00% | 11.00% |
| 2022 | 48.00% | 6.00% |
| 2021 | 49.23% | 2.00% |
| 2020 | 45.75% | 10.00% |
| 2019 | 45.39% | 12.31% |
| 5 Year Average | 47.67% | 8.26% |
Return Ratios
The return on equity of IRB Infrastructure remains quite low at just 5%, however, it increased by 200bps over the previous year. A very high equity base maintained by the Company causes IRB to report a very low return on equity. A highly leveraged balance sheet also means that a greater portion of the Company’s earnings were given away as interest.
Although Return on Equity has sustainably increased over the past year, the same cannot be said of Return on Capital Employed. The Company’s ROCE has stayed steady at 9% over the past three fiscal years.
| Fiscal Year | ROE (%) | ROCE (%) |
|---|---|---|
| 2023 | 5.00% | 9.00% |
| 2022 | 3.00% | 9.00% |
| 2021 | 2.00% | 9.00% |
| 2020 | 11.00% | 11.00% |
| 2019 | 14.16% | 7.25% |
| 5 Year Average | 7.03% | 9.05% |
Debt Analysis
The Debt position of the Company has significantly dropped on the back of increasing equity & deleveraging of the balance sheet by IRB. Debt to Equity had peaked to a 5-year high of 2.53x in FY19, which has significantly dropped down to just under 1x by FY23.
As the debt position of the company improved, the interest coverage ratio has more or less stayed in the 1x-3x zone. An Interest Coverage ratio greater than 1.5x is a great measure of ICR for any Company. We have learnt about the financials in the Fundamental Analysis Of IRB Infrastructure in detail.
| Fiscal Year | Debt / Equity | Interest Coverage Ratio |
|---|---|---|
| 2023 | 0.99 | 2.79 |
| 2022 | 1.11 | 2.01 |
| 2021 | 2.44 | 1.15 |
| 2020 | 1.14 | 1.75 |
| 2019 | 2.53 | 2.31 |
| 5 Year Average | 1.64 | 2.00 |
Fundamental Analysis Of IRB Infrastructure – Future plans
- Going forward, the Company will house Build Operate Transfer, Toll Operate & Transfer projects under the Private InvIT of IRB Infrastructure.
- Hybrid Annuity Model Projects however will be housed by the Company itself & eventually will be monetised by the company post-completion.
- During the year, IRB Infrastructure bagged the project of 6-laning of NH27 on a BOT basis for a concession period of 20 years. The project is worth Rs. 2,132 Cr. Another project for the 8-laning of Hyderabad’s Outer Ring Road was bagged by the company for a sum of Rs. 8,362 Cr.
- The Company’s current order book stands at Rs. 20,572 Cr as of FY23. Out of this, the construction EPC projects worth Rs. 8805 Cr would be executed in the next 2-3 Years. These were few future plans of IRB Infrastructure listed under the Fundamental Analysis Of IRB Infrastructure.
Fundamental Analysis Of IRB Infrastructure – Key Metrics
The Key Metrics of IRB Infrastructure are given below.
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| CMP | ₹ 67.05 | Market Cap (Cr.) | ₹ 39,911.00 |
| EPS | ₹ 1.19 | Stock P/E | 79.63 |
| ROE (%) | 5.00% | ROCE (%) | 3.00% |
| Promoter Holding (%) | 34.39% | FII Holding (%) | 47% |
| Debt to Equity | 0.99 | Price to Book Value | 2.94 |
| Operating Profit Margin | 50.00% | Net Profit Margin | 11.00% |
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Conclusion
In conclusion, the Fundamental Analysis of IRB Infrastructure denotes that, IRB Infrastructure is a leading highway developer in India with over 17,200 lane-km of completed projects and a strong presence across 11 states. In FY23, the company reported a 10% revenue growth to Rs. 6,402 crore and a remarkable 99% jump in net profit to Rs. 720 crore, driven by margin expansion and lower finance costs. However, its long-term growth has been sluggish.
The company’s operating margins remain robust at 50%, while net profit margins improved to 11%. IRB has successfully deleveraged its balance sheet, with the debt-to-equity ratio dropping to nearly 1x. However, return ratios like ROE and ROCE are relatively low due to high equity base and leverage.
With a current order book of Rs. 33,708 Cr, including the recently bagged Hyderabad Outer Ring Road project, IRB Infrastructure is well-positioned to capitalize on India’s infrastructure growth. However, the company’s ability to execute projects efficiently and sustain profitability will be crucial for its long-term success.
Written by Nasir Hussain
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