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IRB Infrastructure Developers Ltd
IRB Infrastructure Developers Ltd
NSE:IRB
Earnings Call Analysis
Q2-2024 Analysis
IRB Infrastructure Developers Ltd
Investors and analysts were briefed on IRB Infrastructure Developers' earnings call, embellishing major strides in project expansion and financial outlook. Forefront, the Hyderabad Outer Ring Road project by IRB Golconda Expressway started tolling, bankrolled by an upfront concession fee and an infusion of capital through a rights issue. Another venture, Samakhiyali Tollway, achieved financial closure, fortifying its 6-lane prowess in Gujarat. Markedly, refinancing vectored towards IRB's project SPVs trimmed interest rates significantly, enabling savings on amortization over the next five years. Cumulatively, the refinancing initiative is poised to amplify cash flow to unitholders.
Toll collection evidenced notable upticks as key routes like Mumbai-Pune and Ahmedabad-Vadodara observed a 20% surge, while the Private InvIT tolls soared by 25%, an uptrend credited to tariff revisions, traffic increases, and the inclusion of the IRB Golconda Expressway. The sustenance of revenue is reflected in the fortified order book that towers at INR 32,700 crores, cementing revenue visibility for the construction segment for the ensuing years, further augmented by a promising O&M order book.
The financial landscape emerged robust with the consolidated income and construction revenues climbing by 30% and 36%, respectively. Toll revenues weren't far behind at a 19% increase. Operational efficiency echoed through a 21% rise in EBITDA, though interest and depreciation costs also edged upwards. Moral of the story: The pre-tax and after-tax profits rose by 43% and 12%, coupled with a solid 34% jump in cash profit, signaling a well-padded financial pillow for the company.
Looking ahead, IRB sets the stage for boundless opportunities in BOT projects, estimating a significant proportion of NHAI awards favoring this structure. The spotlight's on almost INR 80,000 to 85,000 crores worth of projects ripe for the bidding, with BOT possibly accounting for up to 45% before year-end. Evolving from such strategic moves, the company submits a confident look towards future prospects engendering from these projects. The anticipated distribution from the Private InvIT that introduces capital repayments will set the cash flow gears turning favorably for IRB.
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Good evening, ladies and gentlemen. Welcome to the IRB Infrastructure Developer's conference call for discussing the financial results for the quarter ended September 30, 2023, along with recent developments. We have with us on the call today, Mr. Virendra Mhaiskar; Mr. Dhananjay Joshi; Mr. Sudhir Hoshing; Mr. Anil Yadav; Mr. Mehul Patel; Mr. Tushar Kawedia, Mr. R.S. Sharma; and Mr. Amitabh Murarka. [Operator Instructions] Please note that the duration of the call would be 45 minutes and any queries left unanswered after the call can be subsequently mailed to the management for adequate response and resolution. Please note that this conference is being recorded. I now request Mr. Yadav to give you an overview of the significant developments during the quarter. Thank you, and over to you, sir.
Good evening, everyone. I welcome all the investors and analysts to our earnings call for Q2 FY '23. I hope you all have been able to go through our detailed numbers as well as presentation, which were released yesterday. I will briefly cover the key highlights for the quarter, maiden distribution from the Private InvIT, which will reflect in the cash flow in Q3 and new project wins. We are pleased to inform that IRB Golconda Expressway Pvt Ltd, the SPV incorporated to implement the prestigious Hyderabad Outer Ring Road project has been received appointed date from the HMDA and commence the toll collection on the project from August 12, 2023. The SPV has paid upfront concession fees of INR 7,380 crores to the Hyderabad Authority for equity for [ HOR ] the trust has made INR 2,862 crores through a right issue from IRB and GIC Affiliates to fund the equity for Hyderabad ORR project in a ratio of 51:49. The Samakhiyali Tollway Private Limited has achieved a financial closure, comprising of upgradation to 6 lane with the paved shoulder of NH-27 from Samakhiyali to Santalpur section in Gujarat. The consortium of lender has extended a debt support of INR 1,446 crores for the project. On achievement of this financial closure, all the projects are financially closed. We expect to receive the appointed date for the project very soon. IRB Infrastructure Trust has received a sanction of INR 6,390 crores towards refinancing IRBs project SPVs. And out of that, the Trust has already drawn INR 2,417 crores to refinance the SPV level debt of 2 of its SPV that is Kaithal Tollway and Westcoast. Upstreaming of the project level debt to the InvIT will significantly improve the cash flow for the unitholder, given the back-ended amortization, optimization of the tax treatment and the lower interest rate due to pooling of the cash flow from the completed projects at first level. The salient features for the refinancing, the interest rate has reduced from 9.7% to 8.55%. That is a saving of 115 basis points. And saving in the amortization during the next 5 years, the earlier amortization was 23.6%, revised amortization is 8.5% and almost 15% saving in the amortization of debt of roughly INR 6,400 crores. So that translates roughly INR 1,000 crores for the next 5 years. On toll collection front, Mumbai-Pune and Ahmedabad-Vadodara per day toll collection has improved from INR 6.25 crores for the quarter ended September 30, 2023, as compared to INR 5.3 crores per day for the quarter ended September '22, a growth of 20%. For Private InvIT, the per day toll collection has improved to INR 6.83 crores for the quarter ended September 30, 2023, as compared to INR 5.43 crores per day for quarter ended September '22, a growth of 25%. Increase in total collection is on account of tariff revision, increase in traffic and addition of the IRB Golconda Expressway Private Limited. The order book for the company stands to INR 32,700 crores. Within this, EPC order book is roughly INR 7,500 crores, providing good revenue visibility for the next 2, 2.5 years for the construction segment and further bolstered by the 3 years executable O&M order book close to INR 2,500 crores to 3,000 crores. This order book does not include order of TOT-12, which is expected to add roughly INR 600 crores on EPC side and around INR 3,300 crores on O&M side. EPC order book of TOT-12 would include the initial CapEx that will get executed in year 1. Now with respect to the upcoming opportunity, we believe that the mode of award will change significantly, and BOT pie of award will increase significantly. We expect the NHAI should be able to do additional 3,000 kilometers in this financial year. And out of which, 40% will be on BOT. We will participate in BOT, TOT, HAM in the same order of the projects. There are list of 46 TOT projects on the website of NHAI with a total kilometer more than 2,600, which will come for the bidding in near future. Considering the debt prepayment out of the preferential allotment, our consol net debt to equity is reduced from 2.25:1 that is less than 1:1 in the last 2 years. We are well capitalized to tap the upcoming opportunity, which will consist of 40% of BOT, along with our partner, GIC Affiliate. Now moving to the maiden distribution from the Private InvIT. The Board of Private InvIT has approved maiden distribution of INR 155 crores for half year ended September 2023 for FY '24. This will reflect in the cash flow of IRB in Q3 of FY '24. Further, large portion of the distribution is in form of capital repayment and the same will lead tax saving for the IRB. We expect distribution from Private InvIT will continue in future as well. Now moving to the new project wins. We are pleased to announce that Private InvIT has emerged as preferred bidder for TOT-12 of NHAI. We have also received the Letter of Award from NHAI. The project was bidded through Pvt InvIT where IRB owns 51% and 49% by GIC. The brief detail on the project. The project is spread over 316 kilometers spread between Lalitpur and Lakhnadon in Madhya Pradesh. Project marks entry in the state of Madhya Pradesh that is 12th Indian state for the group. The project entails tolling and operation and maintenance activity on 316-kilometer stretch and revenue-linked concession of 20 years. Project includes the initial CapEx of INR 576 crores and O&M opportunity of roughly INR 3,300 crores to come to IRB Infra, being a project manager for IRB Infrastructure Trust. With this wins the IRB's Group market share in TOT space increases, company will make upfront payment of INR 4,428 crores to NHAI upon achieving the financial closure. The project to be cash positive from year 1. The strong order book position provides high visibility for the construction segment and is supported by the favorable trend in the toll revenue. We have started Hyderabad ORR project from August and expect to start Samakhiyali project soon. These projects will contribute in toll collection as well as in construction revenue. Full impact of the same will be visible from Q3 and Q4. Typically, we have observed H2 is better in terms of toll collection and construction as well. The distribution from Private InvIT will add to the cash flow of IRB. These factors gives us confidence for the healthy performance in Q3 and Q4 of this financial year. Now I will request Tushar to cover the financial highlights for Q2. Over to you, Tushar.
Yes. Thank you, sir. So I'll take you through the financial analysis for Q2 FY '24 versus Q2 FY '23. The total consolidated income for Q2 FY '24 has increased to INR 1,875 crores from INR 1,439 crores, an increase by 30%. The construction revenues for Q2 FY '24 have increased to INR 1,286 crores from INR 944 crores, an increase of 36%. The consolidated toll revenues for Q2 FY '24 have increased to INR 588 crores from INR 494 crores, increased by 19%. EBITDA has increased to INR 924 crores from INR 761 crores, an increase of 21%. Interest costs increased to INR 435 crores as against INR 389 crores, increased by 12%. And depreciation has increased to INR 233 crores from INR 192 crores, increased by 21%. PBT has increased to INR 257 crores from INR 180 crores, an increase of 43%. PAT after share from JV has increased to INR 96 crores from INR 85 crores, up by 12%. And cash profit has increased to INR 404 crores as against INR 302 crores, an increase of 34%. Now I request moderator to open the session for questions and answers.
[Operator Instructions] The first question is from the line of Alok Deora from Motilal Oswal.
Sir, I just had a couple of questions. First on this project pipeline. You mentioned in your comment that BOT proportion will increase. Could you just add what we are looking at because till date as in YTD, the ordering has been pretty slow. So just some indication on what we could expect in the next 2, 3 months?
So our sense is that -- I mean, you are very right that the bidding on EPC HAM also has been very, very slow. And from whatever insight we could get in terms of the project pipeline, almost INR 80,000 crores, INR 85,000 crores worth of projects are likely to be bid out by -- before December. And of that, our understanding is that at least 40% to 45% of those will be on BOT basis.
Sure. And sir, this -- so the projects, are there any projects which we have bid for on tolling bases, which already live tenders are there for these BOT toll projects which we have already bid for?
No, at the moment, there is none.
Got it. Just one last question. This associate, the loss has increased on a Q-o-Q basis. So how do we see that moving ahead in coming quarters?
Alok, if you look at the associate loss, there is a fair valuation loss of approximately INR 80 crores. If we adjust for the same, I think the losses were in the line of the previous quarter itself. If you adjust for the noncash, which is fair valuation loss, and if you adjust that, the losses are in line with the previous quarter.
Got it. Just last question. So any change in the guidance on the construction bidding of growth for this year? Or are we largely maintain our guidance for the execution side?
We largely maintain our guidance for this financial year, and we believe that Q3 and Q4 will be better in terms of execution, we maintain our guidance.
[Operator Instructions] The next question is from the line of Prem Khurana from Anand Rathi.
Congratulations on...
Sir, your audio is not coming clear. Can you please speak through the handset?
Is it better now?
Slightly.
Yes. Congratulations on the new TOT projects. So sir, I have 3 questions. So one was eventually when I look at refinancing that you spoke about in your opening remarks. I think, we had earlier done similar sort of exercises for Solapur-Yedeshi and Yedeshi-Aurangabad. So when you say, I mean, we've been approved INR 6,400-odd crores vis-à-vis financing of highways and would these Solapur-Yedeshi and Yedeshi will also be a part of this? Or I mean, these are new highways which you've been able to manage this refinancing?
These are the new projects, Solapur-Yedeshi and Yedeshi-Aurangabad and [ U.S. ] project, as you rightly mentioned, we have done that last time itself. This time, the project includes Kaithal-Rajasthan, Westcoast Tollway Private Limited, Kishangarh Gulabpura Tollway Limited, Agra Etawah Tollway Limited and Hapur Moradabad Limited.
Okay. Okay Sure. Okay. So I mean, amortization, the benefit that you have so eventually, you have some excess cash flows now to be able to deploy. So would it be a fair assumption the equity requirement that you need or like if you were to go in bid for some of these projects through Private InvIT and given the fact that you've been able to push the amortization now and there will be some sort of free cash flow generation that -- I mean for some of these new projects that you've bid, you won't be required to kind of put in money from your pocket and you could upstream this money from SPVs and find the part of the growth needs that you have? Or were there some mismatches and which is why...
Principally, you're right. So either you take the distribution and redeploy back as equity or you deploy the money directly from it. But technically, you are right that no new money from IRB end would be required.
Okay. Okay. Sure. Okay. And sir, just I mean -- so when you've done this fundraising from -- GIC and Cintra, the preferential allotment, I think, given the sense that and the money that you have and you'll be able to go and bid for some INR 20,000 crores worth of new orders and with these 2 large TOTs, I mean, the Hyderabad ORR, wherein the equity requirement is almost around INR 2,800 crores and this new TOT now plus Samakhiyali and Ganga before that, how much more would you believe and you would be able to go and bid without any incremental fundraise or any assets monetization? And how much of that INR 200-odd billion, I mean, you would believe and is already utilized and then the balance is what you'd be able to bid unless you will decide [indiscernible] and some of these assets are gained.
Yes. With respect to the existing project, including Hyderabad, equity is already funded and the projects which are ongoing, including the Samakhiyali and Ganga, the IRB share of equity is roughly INR 636 crores. And out of which, INR 414 crores will be spent in this financial year and roughly INR 222 crores will be spent in FY '25. with respect to Hyderabad ORR, we have taken some additional debt and use that as an equity. We have a cash balance of around INR 2,300 crores to INR 2,500 crores, and that cash can be used for funding the new equity requirement. And Hyderabad also, our equity share was roughly INR 1,400 crores plus only because the balance was brought in by the financial partner, GIC. And similar, as you might be knowing that this project also we have bidded through a Private InvIT. Our equity requirement will be only 51%, and 49% will be brought in by GIC. I think considering the large cash balance and as distribution also started coming from the Private InvIT, I think we can fund through internal accruals and plus the cash which we have available on books. And further, Mumbai-Pune also contributes around INR 500 crores to INR 600 crores of cash surplus from this financial year.
Okay. And sir, how much will be the equity requirement...
Equity requirement, excluding the TOT-12, is INR 636 crores is the IRB's share. Out of that, INR 414 crores will be required in this financial year and INR 222 crores will be required in FY '25.
No, I was asking for equity that you would need to infuse in the hybrid annuity so there are 3 hybrids. I mean, the INR 636 crores is for Samakhiyali and Ganga, right? The 3 hybrids would also need some money.
INR 636 crores including all. The HAM project will require roughly INR 192 crores of equity and balance roughly INR 440-odd crores will be required in the Samakhiyali and Ganga.
Okay. Sure, sir. And on this distribution -- the maiden distribution, I think you said, I mean, this is mostly capital reduction, right? So there won't be any tax implication till the time you've covered more than INR 4,000-odd crores what you've invested. But how about the accounting treatment, I mean, is it fair to assume, it won't reflect the part of the P&L, it will only be a balance sheet item wherein you would get to have this money and this will be adjusted against the investments that you show in Private InvIT, right? So it won't impact my P&L and to the extent it is capital reduction?
Yes, you are absolutely correct. Only interest will reflect through P&L. Capital reduction will get reduced from my investment.
Sure. And this INR 155 crores, does it have any interest component? Or it's only capital reduction for the time being?
Yes, it includes around INR 45 crores of interest and balance towards capital within that.
[Operator Instructions] Next question is from the line of [indiscernible] individual Investor.
Sir, considering now just continuing from the previous question where ECV will have enough cash flow for the equity part, can you take the latest quarter interest cost as the continuing number for the next 6 to 12 months? Or there will be incremental debt coming in and it will still go up? And does the -- does there is any interest reset for any of our debt and therefore also there will be some more impact on the interest cost?
Yes. So yes, on the interest front, what number you are seeing on the Q2 continues for us because the additional borrowing will be only for the assets which are under construction. And as we discuss about the disbursement of those assets will go on until the execution goes on. So there will be a slight increase on account of that part. However, on the rate part, now the reset will be -- has already been done in the SPVs like Mumbai-Pune and the Ahmedabad-Vadodara where we will see a reset in, say, 2 quarters down the line. So that way, we don't see any significant increase in the interest cost other than the disbursement, which we will draw under construction asset.
Under construction most of the assets are -- just to add, most of the under construction assets are under Private InvIT. That interest does not get consolidated in IRB. So with respect to IRB, whatever interest we have seen in the current quarter, probably the similar kind of interest rate -- interest amount we should see in the coming quarter as well.
Understood, sir. So I think -- therefore, I think next 2 quarters, we should see a significant improvement in the bottom line considering a couple of more projects cash flow will start coming in. Would that be a fair understanding?
I think, as I have covered that, H2 is far better in terms of the execution, even in terms of toll collection. Probably, whatever the additional collection and additional EBITDA will come from the construction after time, that will add to the bottom line. To that extent, your assuming is correct.
[Operator Instructions] Next question is from the line of Vaibhav Shah from JM Financial.
Hello? Am I audible?
Yes, Vaibhav. You're audible.
Sir, why does the fair value loss arise in the Trust?
So based on the Ind AS principle, if you have assessed our liability, which is getting matured over the period of 12 months, you have to fair value at on each balance sheet date. And the amount which is there in the Trust book that is payable to IRB, and that amount is not payable within 1 year because that claim amount will be specialized once we get our arbitration award or a court order. But typically, that amount is payable after 1 year. So on each balance sheet date as per Ind AS principle, you have to do a fair value, and that is noncash item for the Trust.
Okay. And sir, what is the debt number on the EPC side, including the OD?
So it's around INR 4,700 crores.
INR 4,700 crores. And sir, lastly, what is breakup of other income?
Breakup of...
Other income for BOT and EPC?
Yes, just a second. Around INR 78 crores in the construction and INR 30 crores roughly in the BOT.
[Operator Instructions]
Nirav, I think there is no further questions. We can conclude this call.
Yes, sir, we don't have anyone in the question queue. Would you like to make any closing comments?
Yes, I would like to thank all of you for being on this call and wish to connect with you soon with the next quarterly results. Thank you, and have a great evening.
Thank you very much, sir. Ladies and gentlemen, this concludes your conference today. We thank you for your participation and for using Researchbytes Conferencing Services. You may please disconnect your lines now. Thank you, and have a great evening ahead.