emkay irb infrastructure developers ltd. research...

EmkayResearch

IRB Infrastructure Developers Ltd.

Ideal Growth Builder

15 April 2008

C-6, Ground Floor, Paragon Center Pandurang Budhkar Marg, Worli, Mumbai – 400 013. India

BUY

Price TargetRs182 Rs 240

Sensex - 15,808

Price Performance

(%) 1M 3M 6M 12M

Absolute (6) NA NA NA

Rel. to Sensex (4) NA NA NA

Source: Capitaline

Stock Details

Sector Construction

Reuters IRBI.BO

Bloomberg IRB@IN

Equity Capital (Rs mn) 3324

Face Value (Rs) 10

No. of share o/s (mn) 332.4

52 Week H/L (Rs) 214/163

Mkt. Cap (Rs bn/USD mn) 61/1518

Daily Avg Vol (No of shs) 4809964

Daily Avg Turnover (US$ mn) 21.9

Shareholding Pattern (%)Promoters 74.4

FIIs /NRI’s 18.0

Institutions 2.3

Private Corp 0.2

Public 5.1

Source: BSE,18 Feb.2008

Init

iati

ng

IRB Infrastructure Developers Ltd (IRB), the holding company for the infrastructureand construction SPVs of the IRB Group, is one the largest road BOT operators in thecountry with 11 operational BOT projects under its belt. IRB continues to aggres-sively scout for profitable BOT concessions- the recently signed Bharuch-Surat andSurat Dahisar concessions being a case in point. Moreover, IRB is one of the fewintegrated developers in the road BOT segment having its own E&C arm. IRB's E&Carm boasts of an order backlog of Rs 60.25bn (22XFY08 E&C revenues). We believeIRB is on the brink of a steep growth trajectory, led by aggressive asset accretionthrough new BOT concessions and execution of buoyant order backlog for the E&Cdivision. An 18% hike in toll rates for the Mumbai Pune expressway, kick start ofrevenues from new BOT concessions and faster execution of its E&C order book arelikely to drive a 118% consolidated earnings CAGR over FY2007-10E. Bagging of theKolhapur city road development BOT concession would further lead to acceleratedgrowth. We initiate coverage on IRB with a BUY and a SoTP price target of Rs240.

Lucrative portfolio of road BOT concessionsIRB boasts of holding amongst the most lucrative BOT concessions in the country. Forexample- Its prized asset, the Mumbai-Pune Expressway (MPEW) and NH4 highwayhas an equity IRR of 177%. The asset, which contributes around 36% to IRB's consoli-dated revenues, has hiked toll rates by 18% in April 2008. This coupled with a 10% trafficgrowth would mean that the SPV would record close to 30% growth in topline in FY2009,there by providing a significant boost to IRB's revenues.

Asset accretion to accelerate through new BOT concessionsIRB has recently bagged two highly lucrative road concessions covering the high trafficand fast growing economic centre of Surat. These BOT concessions of Bharuch-Suratand Surat-Dahisar together would contribute a staggering Rs5.6 bn or 54% to IRB'sBOT revenues in FY2010.

E&C order backlog at 22X FY08E revenuesIRB's E&C business is thriving on the back of captive orders from the new concessionsbagged by its BOT SPVs. Consequently, the E&C order book position of Rs60.25 bn,which is at 22 X the E&C division's FY2008 E revenues, lends a lot of earnings visibility.We expect the E&C revenues to grow very rapidly at a CAGR of 87% over FY2007-10E.

Valuations attractive - Initiate coverage with a BUY: Price target Rs240With IRB being the holding company for its three ventures, we believe SoTP is the bestmeasure to value IRB. Our SoTP value for IRB comes to Rs240 per share. We havevalued the 13 BOT projects on FCFE basis and the value works out to Rs145 per share.We have valued IRB's E&C business at Rs65 per share i.e. 13X its FY2010E earnings,which is at 15% discount to our target multiple for construction majors. We have valuedthe total land bank of 1400 acres on land sale basis, which works out to Rs24 per shareand we have taken present value of loans to SPVs at Rs6 per share. Our SoTP value ofRs240 per share for IRB does not factor in any growth premium on account of furtherasset accretion. For example- IRB has already been declared L1 for the Kolhapur cityroad development, with a concession period of 30 years and a real estate sweetenerwith land bank of 700,000 sqft in prime commercial area of Kolhapur. Even if we take aconservative value of this concession, it works out to Rs7.5 per share of IRB. This is agood 5% value accretion to the current value of IRB's BOT portfolio. Hence, by not givingany holding company premium to IRB, we are not factoring in any growth, through newBOT concessions. We initiate coverage on IRB with a BUY and a price target of Rs240.

Key financials (Rs mn)

*Proforma numbers

Y/E, Mar Net EBIDTA EBIDTA APAT EPS EPS ROE PE(Rs. mn) sales (%) (Rs.) growth (%) (%) (x)

FY2007(P)* 5,251 2,802 53.4 337 1.8 16.2 99.3FY2008E 6,317 3,497 55.4 996 3.0 63.1 6.8 60.9FY2009E 11,643 5,299 45.5 2,700 8.1 170.9 15.6 22.5FY2010E 23,946 11,931 49.8 6,361 19.1 135.6 26.9 9.5

Ajit [email protected]

Chirag [email protected]

Initiating

15th April, 2008 2Emkay Research


Company Background

IRB Infrastructure Developers Ltd (IRB) is a holding company for the infrastructure as-sets of the IRB group. The company, earlier known as DVJ Leasing and Finance PrivateLimited, was incorporated as a private limited company in 1998 and was formed to fundthe capital requirements of the infrastructure and construction sector ventures of the IRBGroup. IRB is a pioneer in the road BOT business and is one the largest road BOToperators in the country with over 13 BOT projects under its belt. The constructionbusiness complements its BOT vertical by executing the engineering and construction(E&C) and the Operation & Management (O&M) portion of BOT concessions. VariousBOT concessions managed through SPVs were restructured in 2007 and subsequently,IRB became the holding company for the group. Post restructuring, various group SPVsbecame either direct or indirect subsidiaries of IRB (details in flow chart). IRB is cur-rently headed by Mr. Virendra D. Mhaiskar. IRB came out with its maiden IPO in January2008 and raised Rs 9.5 bn through issue of 51 mn equity shares constituting 15.3% ofpost issue capital.

Business Profile

IRB, India's premier road infrastructure company, operates through two business verti-cals viz, road BOT and construction business. In the road BOT segment, IRB currentlyhas 13 projects, out of which 11 are operational, one under construction and one atfinancial closure stage. Being an early entrant in the road BOT space has helped IRBbuild an extremely lucrative portfolio of road BOT concessions along with a rich experi-ence of structuring and operating these concessions. IRB, through its E&C businessarm- Modern Road Makers (MRM), has gathered significant experience (approx 1200kms) in constructing in-house road projects and also funded road construction projects.Road BOT projects currently contribute around 55% to IRB's FY2008 consolidate rev-enues, whereas the E&C business and the O&M business contribute 35% and 10%respectively. With its 66:33 JV with Aryan Infra, IRB plans to foray into the real estatesector by developing a township near Pune. The company already has a land bank of925 acres and plans to buy additional 475 acres for the proposed township project.

Company Background

Initiating


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Initiating



Investment Rationale

IRB on steep growth trajectoryIRB is expected to witness a steep growth trajectory on the back of (1) lucrativeportfolio of 11 BOT concessions, (2) aggressive asset accretion through 2 new BOTconcessions and (3) buoyant E&C order backlog of Rs60.25 bn. An 18% hike in tollrates for 'jewel in the crown' Mumbai Pune expressway, kick start of revenues fromnew BOT concessions of Bharuch-Surat and Surat-Dahisar along with faster execu-tion of 'high margin' E&C order book are likely to result in a 118% consolidated earn-ings CAGR over FY2007-10E. Monetization of IRB's land bank at Pune for real estatedevelopment remains the longer term growth driver for the company.

1. Lucrative road BOT concessions

IRB boasts of holding some of the most lucrative BOT concessions in the country.Focus on the prosperous western states of Maharashtra and Gujarat have enabledIRB bag lucrative road concessions covering high traffic and fast growing economiccentres of India like Mumbai, Pune and Surat. For example - IRB operates BOTconcessions for all the four exit points of India's financial capital Mumbai and all thefour exit points of Pune. Consequently, its prized asset, 'the Mumbai-Pune Express-way (MPEW)' and NH4 highway, has an equity IRR of 177%. The asset, which con-tributes close to 60% to IRB's BOT revenues and 36% to its consolidated revenue,has hiked toll rates by 18% in April 2008. This, coupled with a projected 10% trafficgrowth would mean that the SPV would record close to 30% growth in topline inFY2009, thereby providing a significant boost to IRB's revenues.

2. Kick start of revenues from new BOT concessions

Building on the knack of bagging road concessions of the key economic centres ofthe state, IRB has bagged two highly lucrative BOT concessions on the Bharuch-Surat (69 kms) and Surat - Dahisar (239 kms) stretch. Surat, the jewel of Gujarat, hasbeen a bustling economic centre and has recently recorded the highest growth rateof 11.5% in the country. These two priced assets would contribute a staggeringRs5.6 bn to the BOT revenues and a massive Rs2.7 bn to net profit in FY2010E. Thisis more than 130% of IRB's FY2009E BOT revenues and net profit.

3. Buoyant E&C order book at Rs60.25 bn - 22X FY2008 E&C revenues

IRB's E&C business is thriving on the back of captive orders from the new conces-sions bagged by its BOT SPVs. For example- The E&C division is responsible forexecuting the Rs31.5 bn EPC part and the Rs17.25 bn O&M part of the recentlybagged Surat Dahisar and Bharuch Surat BOT concessions. Consequently, the E&Cbusiness now boasts of an extremely strong earnings visibility with a buoyant orderbook position of Rs60.25 bn, which is close to a staggering 22 X the division'sFY2008E revenues.


IRB operates all the four entry points of

Mumbai as well as Pune

IRB’s two priced BOT assets on Surat-

Bharuch and Surat-Dahisar routes to

contribute a staggering Rs5.6 bn to the

BOT revenues and Rs2.7 bn to net profit

in FY2010E

E&C order book to grow to Rs60.25 bn

which is close to a staggering 22x of the

division’s FY2008E revenues

Initiating



0.2 0.3 0.91.70.6 0.9

1.8

4.9

0.0

1.5

3.0

4.5

6.0

7.5

FY2007 FY2008E FY2009E FY2010E

Rs

bill

ion

s

EPC BOT

CAGR - 118%

3.2 3.6 4.410.42.1 2.7

7.3

13.5

0.0

6.0

12.0

18.0

24.0

30.0

FY2007 FY2008E FY2009E FY2010E

Rs

bill

ion

s

BOT EPC

CAGR - 66%

E&C-Captive,

30.3

O&M, 25.5

E&C-Funded

Projects, 4.4

Order backlog Rs60.25 bn

Lucrative Road BOT Concessions

Mumbai assets Exit to

Mumbai Pune Expressway Pune/Bangalore

Karpada-Patalganga Bridge Goa

Thane Ghodbunder Surat/Baroda

Thane Bhiwandi Bypass Nashik

Pune assets Exit to

Mumbai Pune Expressway Mumbai

Pune Nashik Nashik

Pune Sholapur Hyderabad

Khambatki Ghat Bangalore

Surat assets Exit to

Bharuch Surat Baroda/Ahmedabad

Surat Dahisar Mumbai

Source: Company

Buoyant Order Backlog for E&C business

Estimate IRB’s revenues to grow at 66% CAGR and net profit to grow at 118% CAGR over FY2007-10E

Source: Emkay Research


}}

Initiating



Massive Rs 1,470bn opportunity in the road BOT segmentWith the government's continued focus on road development, we estimate an invest-ment potential of approximately Rs3,000bn or USD 76 bn in development of nationalhighways, state highways and rural roads over the next five years. The positiveresponse from the private sector and the government's strained finances, havemade PPP the preferred route for execution and development of road infrastructure.According to data published by NHAI, BOT concessions for a staggering 37,060 kmsare yet to be awarded, which would entail a massive investment of close to Rs1,470bn or USD 37 bn. We are enthused by the huge opportunity available to players in theBOT segment and believe that players with better execution skills, scale and experi-ence in managing BOT projects will be prime beneficiaries.

50,000 kms of national highway to be developed by NHDP

India's economy continues to grow unabated with its GDP recording an 8.5% CAGR inthe last three years. Typically, vehicular traffic grows at 1-1.2X the GDP growth of thecountry/region. Assuming a thumb rule traffic growth of 1.2x GDP, India's vehicular trafficis expected to grow at 10% over the next few years and majority of this traffic is expectedto be plying on national highways. However, with national highways forming barely 2% ofthe total roadways in India, the pressure on this 65,000 km stretch is enormous. In orderto support this traffic growth, the government has initiated road development programmeslike the National Highways Development Project (NHDP), which seeks to massivelyexpand India's highway network covering a total length of more than 50,000 kms.

Road development to attract investment of approximately Rs3,000bn

The government kick started NHDP with its two flagship schemes - the Golden Quadri-lateral (5,846 kms) and the North South - East West corridors (7,300 kms). The initialsuccess of the Golden Quadrilateral (GQ) and NSEW have led to increasing the scopeof the highway development programme. The NHDP seeks to develop over 40,000kmsof additional national highways under the balance 5 phases. Various states like Gujarat,MP etc are also running their road improvement programmes. The government alsoplans to develop rural roads to improve their connectivity. With the government's contin-ued focus on road development, we estimate an investment potential of approximatelyRs3,000bn or USD 76 bn for development of national highways, state highways andrural roads over the next five years. The outlay of Rs2,140 bn for roads in the 11th FYP isalready an indicator of the pace of road development in India.

PPP to be the primary route of execution in road construction

Over the last 4-5 years, a clear political will has emerged on the need for speeding upthe country's road infrastructure, resulting in a robust flow of investments into the sector.While the need for accelerating the pace of investments in road infrastructure is nowwell established, rising government deficit is acting as a speed breaker. Hence, in orderto bridge the gap between the funds required and funds available, the government hasadopted the public-private partnership (PPP) mode to fund road infrastructure develop-ment. The government through its nodal agency NHAI embarked upon PPP model byawarding annuity/ toll based BOT road concessions. The initial success of annuity/tollbased BOTs has seen an influx of participation from the private sector to lap up BOTprojects. Taking into consideration the positive response from the private sector and itsown strained finances, the government now plans to execute majority of its road devel-opment program through PPP route. Hence, it is pretty clear that PPP would be theprimary route of execution in India as far as road construction is concerned. The follow-ing exhibit clearly depicts this fact.

India’s vehicular traffic expected to grow

at over 10% over the next few years with

majority of traffic expected to ply on

national highways

PPP would be the primary route of

execution in India as far as road

construction is concerned


Initiating



15%

30%

100% 100% 100% 100% 100%

0%

20%

40%

60%

80%

100%

Phase I Phase II Phase III Phase IV Phase V Phase VI Phase VII

BOTs as % of total length

PPP - a major success in India’s road sector

Source: NHAI


87%of the BOT concessions yet to be awarded - opportunity of more than37,000 Kms

Even though PPP model in the road infrastructure has been a major success, the sheersize of the road development is so large that almost 87% of the total envisaged roadBOT concessions under NHDP are yet to be awarded. According to data published byNHAI, out of the total 42,707 kms of road to be developed under the NHDP through PPProute, BOT concessions for a staggering 37,060 kms are yet to be awarded. NHAIexpects these concessions to be awarded by FY2014-15. According to industry and ourestimates, development of these 37,000 kms of road would entail a massive invest-ment of close to Rs1,470 bn or USD 37 bn. This opportunity is a long term opportunity.The phase III and phase V of NHDP present a near term lucrative BOT opportunity. UnderNHDP phase III and phase V, which have got the cabinet approval, a total opportunity of15,626 kms of BOT road concessions are waiting to be unlocked. These concessionsare likely to be awarded over the next 24-36 months and would entail investment of closeto Rs1,000 bn or USD 25 bn. We are enthused by the huge opportunities available toplayers in the BOT segment and believe that players with better execution skills, scaleand experience in managing BOT projects will be prime beneficiaries.

NHDP

(Length In Kms) GQ NS - EW Phase III Phase IV Phase V Phase VI Phase VII NHDP Total

Total Length 5846 7300 12231 20000 6500 1000 NA 52877.0

Through BOT 864 2163 12180 20000 6500 1000 42707.0

As a % 0f total length 15% 30% 100% 100% 100% 100% 100% 81%

Others 51 0 0 51.0

Completed 5650 1962 44 0 0 7656.0

Under Implementation 196 4359 1994 0 1030 0 7579.0

Balance for award 821 10156 20000 5470 1000 37447.0

Through BOT 434 10156 20000 5470 1000 37060.3

As a % 0f balance length 0% 53% 100% 100% 100% 100%

Estimated investment (Rs bn) 24 559 300 438 150 NA 1470.1

Source: NHAI, Plan Documents, Emkay Research

Total Road BOT opportunity in NHDP - Rs1470 bn or USD 37 bn

BOT Concessions of more than 15500 Kms under NHDP PhaseIII & V. Concessions to be signed and completed by FY2014.Estimated investment close to Rs1000 bn or USD 25 bn.

Balance opportunity of more than 37000 Kms of BOT roadconcessions under NHDP alone, envisaging investment ofRs1470 bn or USD 37 bn

}}}

Initiating



Phase wise details of NHDP

Phase I:

Phase I of the NHDP was the flagship phase- popularly known as GoldenQuadilateral (GQ). GQ envisaged four laning of highways connecting the fourmetros of India and covered 5846 kms. The Golden Quadrilateral project is closeto completion.

Phase II:

The NSEW envisages connecting the North-South and East-West corridors cov-ering 7,300 kms. The NSEW corridor is currently under progress with close to27% of the work completed and 60% of the project already under implementa-tion. The orders for the remaining 13% are likely to be awarded over the next oneyear.

Phase III:

Phase III involves development of 12,231 kms of roads, connecting state capitalsand places of economic and tourist importance to Phase I and Phase II. The workunder this phase involves two development sections - Phase IIIA involving 4015kms and Phase IIIB involving 8216 kms. This is amongst the biggest phasesunder NHDP and envisages more than 80% of the total length to be awarded onBOT. As a matter of fact, the entire phase III B is to be awarded on BOT basis. Amassive 10,000 kms of BOTs are still to be awarded under this phase.

Phase IV:

Phase IV involves the four-laning of a single lane network of approximately 20,000km. Phase IV has only received an in-principle approval and has been plannedcompletely on a BOT-annuity basis.

Phase V:

NHDP V involves the six-laning of 6,500 km of high-density, already four-lanedroads on GQ and NSEW. NHAI has already identified stretches on the GQ and1030 kms is already under implementation. The balance contracts are expectedto be awarded over next 24-36 months.

Phase VI:

The phase VI envisages construction of 1,000kms of access controlled express-ways of 4-6 lanes to be built on high-traffic density parts of the country. However,the phase VI has only received an in-principle approval and is yet to receivecabinet clearance

Phase VII

Under phase VII, NHAI plans to develop ring roads, byepasses, over-bridges,service roads, etc to enhance the utilization of the highway network. Phase VII isstill in conceptual stage.


Initiating



IRB ideally placed to exploit the growth opportunity in the road BOTspace

With 13 BOT projects under its belt, IRB today boasts of extensive experience andsuccessful track record of structuring and executing road BOT concessions. Alsowith an in-house E&C division, IRB is one of the few integrated infrastructure devel-opers in the roads and highways sector. Hence, we believe that IRB would be aprimary beneficiary of the massive opportunity in road BOTs in India. We believe, thecompany's aggressive management would be able to leverage its strong projectmanagement and execution skills and exploit significant growth potential in the roadBOT space in India, there by providing a positive tailwind.

Extensive experience and strong track record as road BOT developer

We believe that the road BOT model in India is still evolving with the duration, length andcomplexity of concession structure increasing, thereby increasing the risks associatedwith these projects. With 13 BOT projects under its belt and an in house constructiondivision, IRB has extensive experience and successful track record of structuring andexecuting road BOT concessions. Having executed some of the large and complexprojects in the country on or before time (MPEW/NH-4 being a case in point), IRB cantoday boast of superior project execution and management skills in the road BOT space.The testimony to this successful track record can be gauged from the fact that IRB hasbeen among the few developers who have achieved pre-qualified status for certainNHDP Phase V projects. Hence, we believe that IRB would be a primary beneficiary ofthe massive opportunity in road BOTs in India. We believe the company's aggressivemanagement would be able to leverage its strong project management and executionskills and exploit significant growth potential in the road BOT space in India, therebyproviding a positive tailwind.

Integrated infrastructure developer model - IRB at strong competitiveadvantage

The business model of BOT concessions is all set to assume new dimensions with thegovernment's introduction of the new Model Concession Agreement (MCA) with a viewto cap the traffic growth upside for BOT projects. This move aims to curb excessive IRRsin the BOT business. In a scenario where the maximum traffic growth that a developercan capture is more or less pre-defined, the viability of BOT concessions will increas-ingly depend on the ability of a player to manage and execute the project on time andwithin the budgeted costs. IRB with an in-house E&C division, MRM, is among the fewintegrated infrastructure developers in the roads and highways sector. MRM, on the backof its association with IRB has gathered significant experience by constructing approxi-mately 1200 kms of road projects. MRM helps IRB in executing the E&C and O&M part ofthe BOT project, thus providing IRB, a strong competitive advantage of executing highvalue projects on or before time within the budget.

Non-compete agreements for existing BOTs to enhance return potential

IRB has managed to enter into economically beneficial arrangements with respect tosome of its BOT assets. The agreement for Pune-Sholapur and Pune-Nashik BOTprojects include assurance from the government that no parallel competing project willbe built before the expiry of the contract. For the Bharuch - Surat BOT project, the govern-ment has undertaken that no toll road will be made open before the end of the contractwith IRB. Further, we do not expect any competition on Mumbai Pune BOT as both MPEWand NH 4 routes are operated by IRB. We believe that these arrangements help inprotecting IRB's economic interest and enhance IRRs of these projects.

IRB with a strong track record in executing

BOT projects on time has achieved pre-

qualified status for certain NHDP Phase

V projects

In-house construction division MRM gives

IRB the competitive edge under the new

MCA

Few BOT projects protected by non-

compete agreements drastically reduces

project revenue risks


Initiating



Asset accretion to accelerate through new BOT concessions

Under road BOT concessions, usually vehicular traffic has a direct co-relation to thegrowth of the region. Also as the toll charges are linked to WPI and are predefined in theconcession agreement, revenues for a BOT road project are fairly predictable and growat a steady pace. Hence, for infrastructure developers, asset accretion is the key toaccelerated growth. IRB has recently bagged two highly lucrative BOT concessions onthe Bharuch-Surat and Surat - Dahisar stretch. Surat is a bustling economic centre andhas recently recorded the highest growth rate of 11.5% in the country. We expect thesetwo priced assets to be the primary growth drivers for IRB from FY2010 onwards. Basedon the current traffic and expected growth of 9%, these two assets together are likely tocontribute a staggering Rs5.7 bn or 54% to IRB's BOT revenues and this would be morethan 130% of IRB's FY2009E BOT revenues.


New concessions to contribute 54% to IRB's FY2010E BOT revenues

Source: Company, Emkay Research

The asset accretion in IRB's BOT portfolio is expected to continue, with IRB alreadybeing declared L1 for the Kolhapur city road development project. The concessionincludes toll collection for a period of 30 years and a real estate sweetener in the form ofa land bank of 700,000 sqft in the prime commercial area of Kolhapur.

Two new project wins, Surat Dahisar BOT

and Bharuch Surat BOT bode well for IRB

3.2 3.6 4.4 4.7 5.3

5.76.4

0.0

3.0

6.0

9.0

12.0

FY2007 FY2008E FY2009E FY2010E FY2011E

Rs

bill

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s

Old Concessions New BOTs

Initiating



Key details of the new concessions bagged by IRB

Surat Dahisar BOT

As mentioned earlier, IRB is among the few developers who are pre-qualified forbidding in phase V of NHDP. In the first round of BOT awards for phase V, IRB haswon the Surat Dahisar BOT project. The project entails six laning of the 239 kmstretch on the Surat Dahisar section of NH 8. Since Surat Dahisar strech isalready a four lane road and the tolls are already being collected, revenue fromthe concession would start from day one. Even though the construction periodwould be of 30 months, the toll charges would be collected by IRB for the entireconcession period including the construction period. The total construction costof the project is estimated at Rs25 bn, which is to be completed in 30 months.The project will be funded through Rs17.5 bn debt and the balance Rs7.5 bnthrough internal accruals and fresh equity. O&M expenses for the project wouldbe Rs12 bn spread over 12 years.

Since the project is being awarded under the new model concession agreement,it entails revenue sharing with NHAI to the tune of 38% in the first year and anincrease of 1% every year for the next 12 years. Further, any incremental revenuesfrom traffic above the design capacity would be fully transferred to NHAI. Hence,the maximum PCU that IRB can toll fully is approximately 110,000 PCUs (pas-senger car units). We have assumed that the revenues for the project will startfrom April 2009. We expect traffic growth of 9% till FY2015 with the growth thengradually tapering to 7% by FY2021E. The increase in toll rates is linked to theWPI. Accordingly, we expect the project to generate net revenues of Rs3.3 bn,Rs3.7 bn and Rs4.2 bn in FY2010E, FY2011E and FY2012E respectively.

Bharuch Surat BOT

The Bharuch Surat BOT on NH 8 is another feather in IRB's cap. IRB won thisproject by paying the highest negative grant of Rs5 bn to NHAI. The stretch con-nects two important business centres in Gujarat and is marked by high trafficdensity throughout the year. The total estimated cost of the project is Rs14.1 bn,which comprises of construction cost of Rs9.1 bn and upfront payment of Rs5 bnto NHAI. The total cost would be funded through Rs12.1 bn debt and Rs2.0 bnequity. The project has a concession period of 15 years, which includes 30months construction period. The aggregate value of the EPC contract for theconstruction of this project is Rs6.5 bn and the aggregate value of the operationand maintenance contract relating to this project is Rs5.3 bn.

There is significant vehicular traffic density on this stretch throughout the yearcharacterized by a higher proportion of commercial traffic. Traffic is expected togrow at around 8% over the life of the project. The toll rates for the project arelinked to the wholesale price index and are expected to grow at around 5%. Wehave assumed that the revenues for the project will start from April 2009 consid-ering the various approvals required for starting the toll collection process. Weexpect traffic growth of 9% till FY2014 with growth tapering down to 7% by FY2022E.The increase in toll rates is linked to the WPI. Accordingly, we expect the project togenerate net revenues of Rs2.36 bn, Rs2.7 bn and Rs3.1 bn in FY2010E, FY2011Eand FY2012E respectively.


Initiating



2.32.9

3.8

9.3

0.0

2.0

4.0

6.0

8.0

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Rs

bill

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s

EBIDTA

CAGR - 59%

3.2 3.64.4

10.4

0.0

2.4

4.8

7.2

9.6

12.0

FY2007 FY2008E FY2009E FY2010E

Rs

bill

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BOT revenues

CAGR - 49%

BOT net profit to grow at 107% CAGR over FY2007-10E Cash accruals to grow at 69% CAGR over FY2007-10E


BOT earnings to grow at a CAGR of 107% over FY2007-10E

With an 18% hike in toll rates for MPEW and with the kick start of revenues from the newconcessions of Bharuch-Surat and Surat-Dahisar, we expect IRB's BOT revenues togrow at a CAGR of 49% with revenues of Rs10.4 bn in FY2010E. As majority of the costfor the BOT concessions are fixed and outsourced, we expect IRB's BOT EBIDTA to growat a CAGR of 59% over FY2007-10E, with EBIDTA of Rs9.3 bn in FY2010E. And since theinterest charges typically come down with debt repayment (BOT projects are usuallyhighly leveraged), IRB's BOT net profit is expected to grow very steeply at a CAGR of107% over FY2007-10E, with net profit of Rs4.9 bn in FY2010E.

BOT revenues to grow at 49% CAGR over FY2007-10E BOT EBIDTA to grow at 59% CAGR over FY2007-10E



} }

}}

0.60.9

1.8

4.9

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Net Profits

CAGR - 107%

1.3 1.5

2.6

6.2

0.0

1.6

3.2

4.8

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FY2007 FY2008E FY2009E FY2010E

Rs

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Gross Cash accruals

CAGR - 69%

Initiating


IRB Infrastructure Developers Ltd.Investment Rationale

IRB well equipped to face the evolving business models in the BOTspace

The PPP model in the road sector in India has evolved from plain vanilla annuitybased concessions to the more recent revenue sharing concessions. The PPPs areincreasingly being structured in ways that cap the IRRs of the BOT operators. Underthe new Model Concession Agreement (MCA), construction period is now a part ofthe concession period and hence, completing a construction on or before time holdsthe key to achieving higher profitability. In a scenario, where the maximum IRR adeveloper can get is more or less pre-defined, the viability of BOT concession willincreasingly depend on the ability of a player to manage and execute the project ontime and within the budgeted costs. We believe IRB, armed with an experienced inhouse E&C division and 13 BOT concessions under its belt is among the few playerswho can withstand such strong entry barriers.

Increasing complexity of concession structure

The new MCA is froth with complexity in the concession structure, which makes it difficultto accurately estimate the returns generated from the project. Under the new MCA, thekey project parameters such as the project technical design, concession period, tollrates and hike in toll rates are a part of an upfront structured bidding document. Thebidders have to quote a revenue share that they are ready to offer NHAI and the bidderoffering the highest revenue share is awarded the concession. However, the share ofNHAI keeps increasing at 1% every year. In other cases where there is no revenuesharing arrangement, the bidders are required to specify only the positive/negative grantfor the concession. In case of negative grant, the bidder who pays the highest negativegrant to NHAI is awarded the project.

Cap on maximum traffic growth for a concession

Under the new MCA, the NHAI has put a ceiling on the maximum traffic a concession cantoll based on the basic design capacity of the road. The ceiling is 120% of the basicdesign capacity. For example, post construction, if the basic design capacity of a road isstated at 100,000 PCUs (Passenger car units), then the developer can collect toll chargestill the traffic on the road hits 120,000 PCUs. Once it hits 120% of the basic designcapacity, the incremental toll collection goes directly to NHAI. Hence, with a ceiling on themaximum PCUs that a developer can toll under the new MCA, the maximum returns orequity IRRs a developer can generate are essentially capped. Under the grant basedBOT project, the concession period is usually 20 years. Once the traffic crosses acertain threshold level, the road needs to be expanded from four lanes to six lanes.Upon the expansion of the road, the project life will be extended so as to enable theprivate developer to earn returns on the increased project.

Construction period now a part of the concession period

In earlier BOT projects, period of construction was usually excluded from the conces-sion period. However, under the new MCA, the time required for construction is includedin the period of concession. Hence, any delay in construction of the road will essentiallymean reduction in the period of concession thereby affecting the toll collection periodand subsequently, the return generated on investment. This demands impeccable ex-ecution skills on the part of the developer. We believe that developers with in houseconstruction skills have a competitive advantage as against pure infrastructure devel-opers.

The new MCA restricts the traffic a

concession agreement can toll to upto

120% of the basic design capacity, thus

capping revenue growth

The new MCA makes construction

execution of paramount importance as

any delay will decrease the operation

period of the project

Initiating



Developers with impeccable execution skills to be key players in BOT segment

Given that the new MCA puts a time limit on achieving financial closure, any delays in thesame will impact profitability of the project. Moreover, with the construction period now apart of the concession period, any delay in achieving financial closure and completingconstruction shortens the effective period available for toll collection. Hence, completinga construction on or before time is the key to achieving higher profitability. This providesan incentive to developers for an early completion of construction in order to maximizereturns from the project. Hence, we believe that only players with strong execution skillsand in-house construction capabilities can execute such projects efficiently on time.This we believe has helped established players like IRB who have advantage of havingan experienced in house E&C division.


Initiating



Details of MRM order book

Funded Projects Size Billed Unbilled Amt Completion(Rs mn) (Oct 2007) (Rs mn)

Nagpur Hyderabad Section 1152.4 286.4 866.0 Apr-08

Nagpur Hyderabad Section 1170.0 221.7 948.3 Apr-08

Bus Rapid Transport System 1329.9 1.9 1328.0 May-09(From Narol-Naroda)

Bus Rapid Transport System 783.6 0.0 783.6 Jan-09(From Danilimda-Narol)

Improvement Of Tapi Bridge 441.5 0.0 441.5 Jul-09

Total 4877.4 510.0 4367.4

O&M Contracts

MPEW & NH4 7547.9 816.5 6731.4 Aug-19

Thane Ghodbunder 1108.6 38.0 1070.6 Dec-20

Pune - Nashik 302.4 20.3 282.1 Sep-21

Pune - Solapur 233.1 32.4 200.7 Mar-19

Bharuch Surat 5253.7 0.0 5253.7 Jan-22

Surat Dahisar 12000.0 0.0 12000.0

Total 26445.7 907.2 25538.5

EPC of ongoing BOT projects

Bharuch Surat 6460.0 1116.9 5343.1 Jul-09

Surat Dahisar 25000.0 0.0 25000.0 Jul-09

Total 31460.0 1116.9 30343.1

Grand Total 60249.0

Source: Company

E&C business - Icing on the cake

E&C business riding on captive orders from BOT SPVs - order backlog ofRs60.25 bn - 22X FY2008E revenues

IRB's dominant presence in the road BOT segment is complemented by its E&C armMRM, which has gathered significant experience of constructing approximately 1200kms of road projects. Apart from executing in house BOT projects, MRM also undertakesfunded construction projects, which are independent of its BOT business segment.IRB's E&C business is thriving on the back of captive orders from the new concessionsbagged by its BOT SPVs. For example- The E&C division is responsible for executingthe Rs31.5 bn EPC part and the Rs17.25 bn O&M part of the recently bagged Surat-Dahisar and Bharuch-Surat BOT concessions. Consequently, the E&C business nowboasts of an extremely strong earnings visibility with a buoyant order book position ofRs60.25 bn. The order backlog of Rs 60.25bn is close to a staggering 22X the division'sFY2008 E revenues. Out of the Rs60.25 bn order backlog, 50% is the captive E&C part ofthe Bharuch-Surat and Surat Dahisar BOTs, where as 42% is the O&M part for the BOTbusinesses of IRB. The balance 7% or Rs4.36 billion is the outstanding order backlogof the funded projects.

E&C arm, MRM to benefit immensely

from BOT SPVs with its order backlog

jumping to Rs60.25 bn which is almost

22x its FY2008E revenues


Initiating



MRM revenues to grow at 87% CAGR over FY2007-10E MRM EBIDTA to grow at 77% CAGR over FY2007-10E

0.5 0.6

1.5

2.6

0.0

0.6

1.2

1.8

2.4

3.0

FY2007 FY2008E FY2009E FY2010E

Rs

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s

MRM EBIDTA

CAGR - 77%

2.1 2.7

7.3

13.5

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FY2007 FY2008E FY2009E FY2010E

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MRM revenues

CAGR - 87%

MRM revenues to grow at a CAGR of 87% over FY2007-10E

On the back of new BOT concessions won by IRB's BOT division, the E&C order bookposition of Rs60.25 bn (22 X the E&C division's FY2008 E revenues) lends a lot ofearnings visibility. Since the E&C division is executing the Rs31.5 bn EPC part and theRs17.25 bn O&M part of the recently bagged Surat Dahisar and Bharuch Surat BOTconcessions, we expect the division's revenues to grow very sharply at a CAGR of 87%over FY2007-10E with revenues of Rs7.3 bn FY009E and Rs13.5 bn in FY2010E. In fact,with such a steep growth, the division would actually overtake the growth of the BOTbusiness and contribute close to 60% to revenues in FY2010E.


Higher EBIDTA margins due to own aggregate mines and constructionequipments

With experience of constructing over 1,200 kms of road, IRB has gained significantinsights into managing key costs of a road construction project. The testimony to thisfact is the 20% EBIDTA margin that the E&C division enjoys. The key cost involved in aroad construction project is the cost of aggregates, rentals of construction equipmentand labour cost. With IRB having its own aggregate mines across various locations, itsE&C division derives significant cost advantage over its competitors. For example- Theprice of aggregates in the open market is in the range of Rs500-Rs550 per tonnewhereas cost of mining these aggregates is close to Rs300-350 per tonne. Hence, thisresults in substantial savings of around Rs200 per tonne for IRB. To quantify the ex-ample further, the six laning of the 239 km Surat Dahisar stretch will require around 10million tonnes of aggregates (based on thumb rule of 40,000-42,000 tonnes of aggre-gate required per kilometer of road). This translates into savings of approximately Rs2bn on a total project cost of Rs25 bn, i.e. a good 8% of the total project cost. Also, IRBowns a fleet of sophisticated construction equipment including crushers, graders,batching plants and sensor pavers, and has the capacity to undertake 7 projects simul-taneously. This also results in substantial savings as IRB does not have to incur signifi-cant rentals for construction equipment. Consequently, IRB's ability to execute its ownconstruction work and savings from owning aggregate mines and construction equip-ment translates into higher EBITDA margins of around 20%.

MRM net profit to grow at a CAGR of 90% over FY2007-10E

As MRM does minimal outsourcing of work and has its own aggregates mines andconstruction equipment, the margins of MRM are high at around 20% compared to theindustry average of around 10%. Consequently, on the back of strong revenue traction,we expect MRM's net profit to grow at a staggering 90% over FY2007-10E with net profitof Rs0.86 bn in FY2009 and Rs1.65 bn in FY2010E.

}}


Initiating



0.36 0.42

1.03

1.85

0.00

0.40

0.80

1.20

1.60

2.00

FY2007 FY2008E FY2009E FY2010E

Rs

bill

ion

s

Gross Cash Accruals

CAGR - 72%

0.24 0.27

0.86

1.65

0.00

0.40

0.80

1.20

1.60

2.00

FY2007 FY2008E FY2009E FY2010E

Rs

bill

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s

MRM net profit

CAGR - 90%

MRM net profit to grow at 90% CAGR over FY2007-10E MRM Cash accruals to grow at 77% CAGR over FY2007-10E


Real estate venture- Future growth driver

IRB has recently ventured into the real estate business through its 66% subsidiary,Aryan Infrastructure Investments Pvt Ltd (AIIPL). IRB plans to setup an integrated town-ship at Mauje Taje and Mauje Pimpoli Taluka, near Pune, Maharashtra. The proposedtownship would be spread over 1,400 acres, with a total development potential of ap-proximately 30.6 mn sq ft (0.5X FSI). Of this, around 60% would be residential and therest will be developed for commercial activities. The company has a land bank of 925acres in Mauje Taje and Mauje Pimpoli Taluka (Pune district) and plans to acquireadditional 475 acres for its proposed township. The Mumbai Pune belt is getting devel-oped as a major hub for IT and ITES industry and demand for commercial space is veryhigh. Further, with influx of major IT companies in and around the main city of Pune, webelieve that the real estate venture could be a long term growth driver for the company.

Real estate business to fuel long term growth

The company plans to complete this development over a period of 8-10 years. Based oncurrent commercial and residential real estate prices, the township has a total revenuepotential of approximately Rs80 bn (USD 2 bn) and profit (PBT) potential Rs40 bn (USD1bn). If we assume an 8 year even development schedule and today's real estate prices,the town ship can generate yearly revenues of Rs8.7 bn and profits of Rs4.3 bn. How-ever, we have not built in earnings estimates of realty business in the consolidatedearnings.

Key Concerns

Ø The company's activities are focused in two states, Maharashtra and Gujarat. Anyslowdown in the economic activities of these states could lead to lower traffic growthon IRB assets, which in turn would affect the revenues of the company.

Ø The company's funded construction business (MRM) mainly caters to its BOT verti-cal. IRB's inability to get more BOT projects could affect MRM. Further, MRM hasagreed to purchase 1.26 mn sq ft of commercial space in the proposed township atPune at a consideration of Rs 5.04 bn, thus exposing it to the project risk of theintegrated township.

Ø The proposed township at Pune is IRB's first project in Real Estate development.The company owns 925 acres of land and is yet to acquire the balance 475 acres.Failure to obtain the additional land could seriously affect the company's real estateplans.

} }

IRB forays into real estate business with

plans to develop an integrated township

at Mauje Taje and Mauje Pimpoli near

Pune


Initiating



Revenue CAGR of 66% over FY2007-10E EBIDTA CAGR of 62% over FY2007-10E

2.8 3.55.3

11.9

0.0

3.0

6.0

9.0

12.0

15.0

FY2007 FY2008E FY2009E FY2010E

Rs

bill

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s

EBIDTA

CAGR - 62%

Financials

Financials

New road concessions and strong E&C orders to drive revenues over FY2007-10E

We believe IRB is in on the verge of a steep growth trajectory led by aggressive assetaccretion of BOT concessions and buoyant order backlog for the E&C division. With hikein toll rates for its jewel, "The Mumbai Pune expressway", kick start of revenues fromnew BOT concessions and faster execution of its E&C order book, we expect IRB to post66% consolidated revenue CAGR over FY2007-10E. Monetization of IRB land bank forreal estate development remains the longer term growth driver for the company.

1. Hike in toll rates for its jewel 'Mumbai -Pune Expessway': The MPEW and NH4,owned by IRB's 100% subsidiary, Mhaiskar Infrastructure Pvt Ltd (MIPL), contributesaround 60% to IRB's BOT revenues and 36% to its FY2008 consolidated revenues.MIPL has hiked toll rates for the MPEW by 18% from April 2008. The concessionagreement allows MIPL to hike toll rates every 3 years. This would mean that the SPVwould record close to 30% growth in topline in FY2009 (18% toll hike + 10% trafficgrowth), which would be a big boost to IRB's FY2009E revenues. Moreover, the BOTrevenues are expected to grow at 49% over FY2007-10E to Rs10.4 bn in FY2010E.Since the operating costs are more or less fixed, the entire toll hike and the trafficgrowth would flow to the EBIDTA and lead to margin expansion for the BOT business(BOT margins at 80% in FY2008E to increase to 89.8% in FY2010E).

2. Kick start of revenues from new BOT concessions of Bharuch-Surat and Surat-Dahisar: We expect kick start of revenues from the recently won concessions ofBharuch-Surat and Surat Dahisar to catapult IRB's growth into new trajectory. Thesetwo assets would contribute a whopping Rs5.6 bn or close to 24% to IRB's FY2010Erevenue and a massive Rs2.7 bn or 40% to FY2010E net profit.

3. Buoyant order book position for its E&C division: On the back of new BOT conces-sions won by IRB's BOT division, its E&C business now boasts of an extremelybuoyant order book position of Rs60.25 bn, which is close to a staggering 22 X theE&C FY2008 E revenues. Since the E&C division is executing the Rs31.5 bn EPCpart and the Rs17.25 bn O&M part of the recently bagged Surat Dahisar and BharuchSurat BOT concessions, the division revenues would grow at a CAGR of 87% overFY2007-10E. In fact with such a steep growth the division would actually overtake thegrowth of the BOT business and contribute close to 60% to revenues in FY2010E.


} }

5.3 6.3

11.6

23.9

0.0

6.0

12.0

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24.0

30.0

FY2007 FY2008E FY2009E FY2010E

Rs

bill

ion

s

Revenue

CAGR - 66%

Initiating



5.0 5.7

10.9

24.3

0.0

6.0

12.0

18.0

24.0

30.0

FY2007 FY2008E FY2009E FY2010E

Rs

per

shar

e

CEPS

CAGR - 70%

0.61.0

2.7

6.4

0.0

1.5

3.0

4.5

6.0

7.5

FY2007 FY2008E FY2009E FY2010E

Rs

bill

ion

s

Net profit

CAGR - 118%

118% consolidated earnings CAGR over FY2007-10E

On the back of strong 66% revenue CAGR and lower interest growth, depreciation andtax charge, IRB's net profit is expected to grow at a much faster pace. We expect IRB'snet profit to grow at a CAGR of 118% over FY2007-10E with net profit of Rs2.7 bn inFY2009E and Rs6.4 bn in FY2010E. This translates into a whopping 6 fold jump in IRB'sEPS from Rs3 in FY2008 to Rs19.1 in FY2010E. Also IRB's gross cash accruals areexpected to grow at a CAGR of 77% over FY2007-10E, with gross cash accruals of closeto Rs8.1 bn in FY2010E.

Earnings to grow at a CAGR of 118% over FY2007-10E


Gross cash accruals to grow at a CAGR of 120% over FY2007-10E


Sharp transformation in return ratio

Currently, IRB's return ratios are a bit poor as the company is in the early stage of BOTconcessions. However, with steep 118% earnings CAGR over FY2007-10E, IRB's returnratios over this period are expected to improve very sharply. The consolidated RoE isexpected to improve from a mere 6.8% in FY2008 to 27% in FY2010E. Similarly, its RoICis expected to improve from a meager 10.9% to 29.5% in FY2010E.

Financials

} }

}}

1.83.0

8.1

19.1

0.0

5.0

10.0

15.0

20.0

25.0

FY2007 FY2008E FY2009E FY2010E

Rs

per

shar

e

EPS

CAGR -118%

1.7 1.9

3.6

8.1

0.0

2.0

4.0

6.0

8.0

10.0

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Rs

bill

ion

s

Gross Cash Accruals

CAGR - 70%

Initiating



9.3% 10.9%

15.2%

29.6%

0%

7%

14%

21%

28%

35%

FY2007 FY2008E FY2009E FY2010E

RoIC

16.2%

6.8%

15.6%

26.9%

0%

6%

12%

18%

24%

30%

FY2007 FY2008E FY2009E FY2010E

RoE

ROE of more than 25% in FY2010E


Financials

RoIC to jump to 29.5% in FY2010E

Initiating


IRB Infrastructure Developers Ltd.Valuations

Valuations

Given the diverse nature of its three businesses and IRB being the holding company forthese ventures, we believe SoTP is the best method to value IRB. The reason being -,consolidated earnings disregard profit earned by captive businesses like E&C. How-ever, these captive businesses have significant economic returns, which, when valuedseparately, would have earned higher valuations. Our SoTP value comes to Rs240 pershare. We have briefly discussed our case for valuing BOT concession on DCF basis inthe exhibit on the next page. Even on traditional valuation parameters like PER, IRB istrading at an extremely attractive valuation of 9.5X its FY2010E earnings, given its strongearnings CAGR of 102% and decent consolidated RoE of 27%.

Value of BOT portfolio - Rs48.2 bn or Rs145 per share.

We have valued the 13 BOT projects on FCFE basis and the value of the same works outto Rs48.2 bn or Rs145 per share. We have arrived at cost of equity of 13% for IRB, wherein we have assumed a risk free rate of 7.8% and a risk premium of 6.2%. Hence, ourassumption of returns expected from the market works out to 14%. Incidentally, SensexCAGR return for the last 12 years (1996-2008) also works out to 13.9%. Also, since IRBis a recently listed stock, its beta at 0.29 is lower. In order to weed out any anomaly inassumption, we have taken beta of 24 construction and infrastructure companies. Simi-larly, we have taken into consideration average beta for the last 10 years and for the last2 years. Also, assumption for cost of equity for the BOT project is adjusted for the risksassociated with respective projects. For example- The risk premium for an operationalBOT project like MPEW is lower, since the project is on a busy traffic route and is alreadygenerating cash flows. However, we have assumed a higher risk premium for an underconstruction project like Bharuch Surat and Surat Dahisar, as all the risks associatedwith the project are still not mitigated. As the projects move closer to operational stage,the risks will gradually get mitigated and consequently, our risk premium will be lower. Atour target value, the implied P/B for the BOT portfolio works out to 3X its FY2010 E bookvalue, with an overall RoE of 32% for the BOT portfolio.

Value of E&C business at Rs21.5 bn or Rs65 per share

We have valued IRB's E&C business at Rs21.5 bn i.e. 13X its FY2010E net profit, whichis at 15% discount to our target valuation multiple for construction majors like HCC,NCC and IVRCL. We believe that our valuation of IRB's E&C business is conservative,considering its higher earnings growth of 90% CAGR and comparatively superior EBIDTAmargins (20% EBIDTA margins as compared to an average 10% for its peers).

Value of real estate business at Rs8.1 bn or Rs24 per share

IRB, through its 66% subsidiary AIIPL plans to setup an integrated township at MaujeTaje and Mauje Pimpoli Taluka, near Pune, Maharashtra. We have valued the total landbank of 1400 acres on land sale basis. We have assumed the current land price ofRs175-Rs200 per sq ft in the Mauje Taje region and added the development cost ofRs65 per sq ft that IRB would incur for providing basic utility infrastructure facilities.Consequently, we derive the total value of real estate venture at Rs12.36 bn and takinginto consideration IRB's 66% holding, we arrive at a value of Rs8.1 bn or Rs24 share.

Finally, we have taken present value of loans to SPVs at Rs6 per share.

Initiating



IRB SoTP fair value of Rs240 per share

SPV Asset Operated Holding Valuation Disc Value Value/ RoE FY10Measure rate (Rs mn) Share P/BV

Modern Road Makers EPC & O&M Business 100% PER 13X 21487 65 43% 5.9

Mhaiskar Infrastructure MPEW & NH4 100% FCFE 12% 20921 63 43% 5.8

Surat Dahisar SPV Surat Dahisar 90% FCFE 13% 5206 16 17% 1.2

IDAA Infrastructure Bharuch Surat 100% FCFE 13% 12813 39 23% 5.3

MMK Toll Road Mohol-Mandrup 100% FCFE 13% 1069 3 35% 3.6

IRB Infrastructure Karpada-Patalganga 100% FCFE 13% 471 1 16% 1.3

NKT Road & Toll Nagar Tembhurni 100% FCFE 13% 669 2 22% 1.6

Thane Ghodbunder Toll Road Thane Ghodbunder 100% FCFE 13% 1865 6 36% 2.7

ATR Infrastructure Pune Nashik 100% FCFE 13% 1853 6 15% 2.1

Aryan Toll Road Pune Sholapur 100% FCFE 13% 1314 4 15% 1.6

Ideal Road Builders 100% FCFE 13% 2008 6 15% 1.1

Thane Bhiwandi Bypass

Kaman Paygon

Bhiwandi Wada

Khambatki Ghat

Total BOT Portfolio 48189 145 32% 3.1

Aryan Infra Investment Real Estate JV 66% land sale 8122 24

Add: PV of Loans to SPV 2,066 6.2

Total 79864 240

Our SoTP does not factor any growth premium for IRB

As mentioned earlier, for an infrastructure developer, asset accretion is the key to accel-erated growth and sustained value creation. We believe that IRB is among the fewdevelopers in India, who are likely to be the key beneficiaries of the Rs1470 bn BOTopportunity in India. However, our SoTP value of Rs240 per share for IRB does not factorin any growth premium on account of further asset accretion in IRB's BOT portfolio. Forexample- IRB has already been declared L1 for the Kolhapur city road development, witha concession period of 30 years. The concession also includes a real estate sweetenerwith land bank of 700,000 sqft in prime commercial area of Kolhapur. Even if we take aconservative value of this concession, it works out to Rs2.5 bn or Rs7.5 per share of IRB.This is a good 5% value accretion to the current value of IRB's BOT portfolio. Hence, bynot giving any holding company premium to IRB, we are not factoring in any growth,through new BOT concessions.

Initiate coverage with a BUY and a price target of Rs240

Overall, we like IRB's strategy of adding stable cash flow road BOT concessions andleveraging the same for its E&C business. Hence, while these road concessionssupport the consolidated earnings with reasonable certainty, at the same time they arenot dilutive on RoE (RoE of 32% for BOT portfolio). We initiate coverage on IRB with aBUY and a price target of Rs240.

Valuations

Initiating



How to value road BOT concessions

DCF approach - the ideal valuation tool for valuing road BOTs

We believe that the traditional valuation tools like PER or EV/EBIDTA can bemisleading, as the tools assume perpetuity cash flow streams to the SPV, whichis a faulty assumption as the concessions have a fixed life and are not perpetualin nature. We believe road BOT concessions should ideally be valued on the DCFbasis. The reason being, usually vehicular traffic has a direct co-relation to thegrowth of the region. As toll charges are linked to WPI and are predefined in theconcession agreement, revenues for a BOT road project are fairly predictable.Further, as the O&M part of the project is usually outsourced for the period ofconcession, the operating costs are more or less pre-determined. Consequently,cash flows for BOT road projects can be predicted with reasonable accuracy.These projects typically have gearing ratios. As the concession is for a fixedperiod of time, it eliminates the problem related to determining a terminal growthrate. Hence, DCF is the best tool for valuing BOT projects.

Leverage levels for a concession - key determinant of free cash flows toequity

As mentioned earlier, DCF is the best tool for valuing BOT projects. However, it isworthwhile to mention that discounting should be done for free cash flows toequity (FCFE) rather than free cash flows (FCF) to the firm. The key reason is that,BOT projects are typically highly leveraged projects with the leverage rangingbetween 3-4x. However, in some cases, the gearing can be as high as 8-9x also,thereby resulting in lower equity contribution in BOT road projects. The Mumbai-Pune Expressway and the adjoining NH-4 is a case in point, where the projectwas funded at a gearing of 11:1. Once the projects start operations, the debtstarts getting repaid every year and hence, year on year the gearing levels of theproject start coming down. This change in the gearing means that the WACC forthe firm increases year on year and is the highest at the end of the concessions.So, if we do the FCF, the project value will be inflated because while discountingthe cash flows, there is an implicit assumption of the same gearing throughoutthe life of the project, which is a faulty assumption. Hence, we believe FCFE is theright DCF approach to value road BOT projects as it removes distortions in thevalue of the project due to gearing of the SPV.

Calculation of cost of equity

Valuations

COE Rf+b(Rm-Rf)

COE 13.0%

Rf 7.8%

Risk Premium 6.2%

Rm=(Rf+Risk Premium) 14.0%

Sensex CAGR returns 13.9%

Beta 0.84

Initiating



Cash Flow

Y/E, Mar (Rs. m) FY2007(P)* FY2008E FY2009E FY2010E

Profit before Tax n.a. 1382.9 3386.2 8109.6Add : Depreciation n.a. 775.0 925.3 1499.8Add : Non Cash n.a. 0.0 0.0 0.0Less: Tax Paid n.a. -256.5 -686.7 -1519.4Net changes in WC n.a. -573.3 474.3 497.2Operational Cash Flows n.a. 1328.1 4099.1 8587.2Capital expenditure n.a. -4491.8 -4491.8 -12700.0Investments n.a. -8140.0 0.0 -2000.0Investing Cash Flows n.a. -12631.8 -4491.8 -14700.0Borrowings n.a. 2178.2 2530.5 7545.5Issue of shares n.a. 9445.7 0.0 0.0Add/Redn of Reserves n.a. 0.0 0.0 0.0Dividend paid n.a. 0.0 0.0 0.0Financing Cash Flows n.a. 11623.9 2530.5 7545.5changes in cash n.a. 320.2 2137.8 1432.7Opening balance n.a. 3703.4 4023.6 6161.4Closing balance n.a. 4023.6 6161.4 7594.1

*Proforma numbers

*Proforma numbers

*Proforma numbers

*Proforma numbers

Financials

Income Statement


Net Sales 5250.9 6317.0 11643.3 23946.2Growth (%) 20.3 84.3 105.7Total Expenditure 2449.3 2819.5 6344.0 12015.1Growth (%) 15.1 125.0 89.4Direct Expenses 2044.6 2286.5 5587.2 10552.2% of sales 38.9 36.2 48.0 44.1Periodic Maintainance 0.0 200.5 0.5 10.6% of sales 0.0 3.2 0.0 0.0Personnel expenses 206.1 190.4 452.7 879.8% of sales 3.9 3.0 3.9 3.7Office admn & other exp 198.5 142.2 303.5 572.5% of sales 3.8 2.3 2.6 2.4EBIDTA 2801.6 3497.5 5299.3 11931.1Growth (%) 24.8 51.5 125.1EBIDTA % 53.4 55.4 45.5 49.8Other income 228.5 53.3 171.5 342.6Interest 1386.5 1392.9 1159.2 2664.2Depreciation / Amortization 862.2 775.0 925.3 1499.8EBT 1055.4 1382.9 3386.2 8109.6Prov for Tax 260.6 256.5 686.7 1519.4EAT 794.8 1126.5 2699.5 6590.2Minority Interest 183.6 130.0 0.0 229.2Adjusted PAT 611.1 996.5 2699.5 6361.0Growth (%) 195.6 170.9 135.6EAT (%) 11.6 15.8 23.2 26.6

Key ratios

FY2007(P)* FY2008E FY2009E FY2010E

EPS (Rs) 1.8 3.0 8.1 19.1CEPS (Rs) 5.0 5.7 10.9 24.3Book Value Per Share (Rs) 11.3 43.8 51.9 71.0Dividend Per Share (Rs) 0.0 0.0 0.0 0.0Valuations Ratios (x)PER 99.3 60.9 22.5 9.5P/CEPS 36.6 31.9 16.7 7.5P/BV 16.1 4.2 3.5 2.6EV/EBIDTA 29.3 24.0 15.9 7.6EV/Sales 15.6 13.3 7.2 3.8M-Cap/EBIDTA 21.7 17.3 11.4 5.1M-Cap/sales 11.6 9.6 5.2 2.5Financial ratiosRoCE (%) 7.2% 7.6% 9.9% 19.4%RoNW (%) 16.2% 6.8% 15.6% 26.9%Debt/Equity 6.7 1.9 1.7 1.6Dividend yield (%) 0.0 0.0 0.0 0.0

Balance Sheet


Equity share capital 2472.7 3323.6 3323.6 3323.6Share Premium 0.0 8935.1 8935.1 8935.1Reserves & surplus 1296.9 2293.4 4992.9 11353.9Shareholders Funds 3769.6 14552.1 17251.7 23612.6Minority Interest 1115.3 1245.3 1245.3 1474.5Secured Loans 22403.5 24581.8 27112.2 34657.8Unsecured Loans 2776.0 2776.0 2776.0 2776.0Loan Funds 25179.6 27357.8 29888.3 37433.8Total Liabilities 30064.5 43155.3 48385.2 62521.0Gross Block 1269.0 1842.3 1954.5 1983.1Less: Acc Depreciation 381.4 545.9 734.5 947.4Net block 887.6 1296.4 1220.0 1035.7Capital WIP 5553.1 9798.9 14090.7 12500.0Intangible Assets 17994.0 17376.4 16639.7 29443.6Investment 413.5 8553.5 8553.5 10553.5Current Assets 7366.1 10160.2 15516.7 21417.4Inventories 91.7 111.9 199.8 371.1Sundry Debtors 1436.5 1960.6 5091.4 9388.0Cash and Bank 3703.4 4023.6 6161.4 7594.1Loans and Advances 2134.5 4064.1 4064.1 4064.1Current Liab & Prov 2326.0 4206.3 7811.5 12605.3Current liabilities 1029.5 2968.5 6573.7 11347.5Provisions 1296.4 1237.8 1237.8 1257.8Net current assets 5040.2 5953.9 7705.2 8812.1Net Deferred Taxes -8.3 -8.3 -8.3 -8.3Miscellaneous Exps 184.4 184.4 184.4 184.4Total Assets 30064.5 43155.3 48385.2 62521.0

Initiating



Annexures

Initiating



Mhaiskar Infrastructure Pvt Ltd (MIPL)

(Assets operated: Mumbai Pune Expressway & NH4)

The project involves expansion of an existing stretch on the NH 4 (111 kms) into fourlanes and to make value additions to the Mumbai – Pune Expressway (95 kms). MIPLpaid an upfront fee of Rs 9.2 bn to MSRDC and the total construction costs are estimatedat Rs 3.2 bn, thus taking the total project cost to Rs 13.0 bn. MIPL has received 15 yearsconcession period, which includes 2 years concession and 13 years operation periods.Tolling on Mumbai Pune Expressway began on August 09 2004 and tolling on NH 4began, subsequent to completion four laning of the NH 4 highway in September 2006.

The project is characterized by higher proportion of non commercial vehicles having acontribution of around 65 – 70% in the total traffic density. The traffic growth on thisstretch is expected to grow at a high rate of 10% till FY2014 and at 9% till FY2020. Theagreement with MSRDC specifies a 16% and 18% increase in toll rates on NH 4 andExpressway every 3 years.

MIPL has the highest equity IRR of 177.6% amongst the various BOT projects of IRB.Further, as both the NH 4 and Mumbai Pune Expressway are tolled by IRB, we do not seeany potential threat of competition.

Key Data

Holding 100%

Base year traffic/Day 40634

Length - MPEW (kms) 95

Length - NH 4 (kms) 111

Concession Period (years) 15

Construction Period 2

Operation Period 13

Start date of tolling 09/08/2004

Completion date 07/09/2006

End Date 10/08/2019

Total Cost 13,016

Construction Cost 3,226

Upfront to MSRDC 9,180

Debt: Equity 9.83

Total Debt 11,814

Equity 1,050

Internal accruals 152

Cost of Debt 9.5%

Cost of Equity 12%

WACC 9.7%

Key Financials

FY08 FY09 FY10 FY11 FY12

Revenues 2277.96 2938.34 3232.17 3555.39 4586.40

EBIDTA 1675.32 2511.54 2779.76 2520.84 4078.07

EBIDTA (%) 74% 85% 86% 71% 89%

Net Income 259.66 988.88 1266.80 1091.35 2401.74

Gross Cash accruals 641.69 1481.63 1808.80 1687.53 3170.75

ROE 20% 43% 35% 23% 34%

Share capital 1050.00 1050.00 1050.00 1050.00 1050.00

Net worth 1324.09 2312.97 3579.77 4671.12 7072.86

DEBT 11870.44 11401.56 10885.81 10318.47 9586.62

Capital Employed 13194.53 13714.54 14465.58 14989.60 16659.48

Cash flow & NPV Workings


Cash flow from operations 836 1,630 1,875 1,760 3,403

Capital expenditure 35.38 0.00 0.00 0.00 0.00

Free Cash Flow to Firm (FCFF) 872 1,630 1,875 1,760 3,403

Less: Debt repayment / (raised) 0.00 -468.87 -515.76 -567.33 -731.85

Free Cash Flow to Equity (FCFE) 871.66 1161.37 1359.16 1192.93 2670.91

NPV 20920.53

NPV per share 62.94

Equity IRR 177.6%

Annexures

Initiating



Surat Dahisar BOT project

(Assets operated: Surat Dahisar BOT)

This is the latest addition to IRB's array of BOT projects. IRB will hold a minimum of 80%in the proposed SPV with Deutsche Bank AG, which will hold the balance equity. Theproject entails six laning of 239 km stretch on the Surat Dahisar section of NH 8. Thetotal construction cost of the project is estimated at Rs25 bn spread over 2.5 years. Theproject will be funded through Rs17.5 bn debt and the balance Rs7.5 bn through internalaccruals and fresh equity. O&M expenses for the project would be Rs12 bn spread over12 years. Tolls will be collected for the entire concession period including the construc-tion period. Tolling will be done at 4 points along the Dahisar Surat stretch.

Dahisar - Khaniwade 59 kmsKhaniwade - Charoti 60 kmsCharoti - Bhagwada 60 kmsBhagwada - Bhoriach 60 kms

The agreement entails revenue sharing with NHAI to the tune of 38% in the first year andan increase of 1% every year for the next 12 years. Further, any incremental revenuesfrom traffic above the design capacity would be fully transferred to NHAI. The traffic isexpected to grow at around 8% and the increase in toll rates are linked to the WPI. Theproject is on the high traffic density route connecting the prosperous city of Mumbai toSurat, the jewel of Gujarat. Surat has been on a fast growth track and has recentlyrecorded the highest growth rate of 11.5% in the country. We expect a strong trafficgrowth of 9% till FY2012 and then the growth will taper down to 7% by FY2021E. Theincrease in toll rates is linked to the WPI. We have assumed that the revenues for theproject will start from April 2009 considering the various approvals required for startingthe toll collection process.

Key Data

Holding 90%


Length (kms) 239


Construction Period 2.5

Operation Period 12

Concession agreement date 01/03/2008

Start Date for construction 01/01/2009


End Date FY2021

Start Date for toll collection 01/01/2009

Total Cost 25,000.0


Debt: Equity 2.33

Total Debt 17500.0

Equity 7500.0

Fresh 4,000

Internal Accruals 3,500

Cost of Debt 9.0%

Cost of Equity 13%

WACC 8.4%

Key Financials


Revenues 0.00 0.00 3304.7 3721.3 4189.2

EBIDTA 0.00 0.00 3013.41 3409.55 3855.64

EBIDTA(%) 0.00 0.00 91.2% 91.6% 92.0%

Adjusted Net Profit 0.00 0.00 2292.21 1979.49 282.77


ROE 0.00 0.00 53% 24% 3%

Share capital 0.00 0.00 2000.00 4000.00 4000.00

Net worth 0.00 0.00 4292.21 8271.70 8554.46

DEBT 0.00 0.00 8750.00 17500.00 17500.00




Cash flow from operations 0 0 2,316 1,981 2,289

Capital expenditure 0.00 0.00 -12500.00 -12500.00 0.00

Free Cash Flow to Firm (FCFF) 0.00 0.00 -10183.80 -10519.34 2289.25

Less: Debt repayment / (raised) 0.00 0.00 8750.00 8750.00 0.00

Free Cash Flow to Equity (FCFE) 0.00 0.00 -1433.80 -1769.34 2289.25

NPV 5784.12

NPV per share 17.40

Equity IRR 51.0%

Annexures

Initiating



IDAA Infrastructure Pvt Ltd (IDAA)

(Assets operated: Bharuch Surat BOT)

The project involves expansion of the 65 km stretch on NH 8 into a six lane highway. Thetotal estimated cost of the project is Rs14.1 bn which comprises of construction cost ofRs9.1 bn and upfront payment of Rs5 bn to NHAI. The total cost would be funded throughRs12.1 bn Debt and Rs2.0 bn equity. The project has a concession period of 15 years,which includes 30 months construction period. The aggregate value of the EPC contractfor the construction of this project is Rs6.5 bn and the aggregate value of the operationand maintenance contract relating to this project is Rs5.3 bn.

There is significant vehicular traffic density on this stretch throughout the year character-ized by a higher proportion of commercial traffic. Traffic is expected to grow at around 8%over the life of the project. The toll rates for the project are linked to the wholesale priceindex and are expected to grow at around 5%.

The scope of work has been recently expanded to include the balance of the construc-tion work on an additional three lane bridge and the improvements of an existing bridgeand its approaches across the River Tapi. The total cost for the additional work isestimated at Rs441.5 mn, which would be financed through internal accruals.

Key Data

Holding 100%


Length (kms) 65



Operation Period 12.5


Start Date for construction 02/01/2007

Construction period 30 months


End Date 01/01/2022

Start Date for toll collection

Total Cost 14,090.7


Upfront to NHAI 5,040

Pre-Operative exp 2,590

Debt: Equity 6.11

Total Debt 12109.5

Total Equity 1981.2

Cost of Debt 9.25%

Cost of Equity 13%

WACC 8.8%

Key Financials


Revenues 0.00 0.00 2363.83 2705.40 3096.34

EBIDTA 0.00 0.00 2144.72 2483.75 2861.38

EBIDTA(%) 0.00 0.00 90.7% 91.8% 92.4%

Net Income -0.35 -0.31 437.55 729.73 1070.07


ROE 0% 0% 18% 23% 25%

Share capital 1981.20 1981.20 1981.20 1981.20 1981.20

Net worth 1980.85 1980.54 2418.10 3147.83 4217.89

DEBT 9343.17 12709.50 12387.79 12015.23 11586.02




Cash flow from operations 0 0 875 1,287 1,710

Capital expenditure -4291.81 -4291.80 0.00 0.00 0.00

Free Cash Flow to Firm (FCFF) -4291.81 -4291.80 875.47 1287.10 1709.69

Less: Debt repayment / (raised) 3966.33 3366.33 -321.71 -372.56 -429.21

Free Cash Flow to Equity (FCFE) -325.47 -925.47 553.77 914.53 1280.48

NPV 12813.22

NPV per share 38.55

Equity IRR 47.9%

Annexures

Initiating



IRB Infrastructure Pvt Ltd

(Asset operated: Bridge over Patalganga river)

The project involves construction of a 1,400 meter high-level bridge over the Patalgangariver and a rail over bridge near Village Kharpada on NH 17 (the Mumbai-Goa route). Thetotal cost of the project was Rs320 million which was financed by a combination ofequity, internal accruals and debt. Currently, the project is entirely debt free. The projecthas a concession period of 17 years and 9 months and is scheduled to end in August2015. The concession period includes construction period of 2 years, which the com-pany managed to complete in 18 months.

The total cost of the project was Rs320 million which was financed by Rs100 millionequity and Rs220 million debt. The entire debt has been repaid and the project is nowdebt free.

Key Data

Holding 100%


Length 1400 meter

high-level bridge

Concession Period (years) 17.75




End Date 28/08/2015

Total Cost 320

Debt: Equity -

Total Debt 0

Total Equity 100

Key Financials


Revenues 76.69 82.82 89.45 96.60 104.33

EBIDTA 72.69 78.82 85.45 92.60 100.33

EBIDTA(%) 95% 95% 96% 96% 96%

Net Income 45.47 51.69 59.17 67.39 75.97


ROE 17% 16% 16% 15% 15%

Share capital 100.00 100.00 100.00 100.00 100.00

Net worth 265.18 316.87 376.04 443.43 519.40

DEBT 0.00 0.00 0.00 0.00 0.00




Cash flow from operations 52 73 82 92 103


Free Cash Flow to Firm (FCFF) 51.61 73.27 82.43 92.46 103.01

Less: Debt repayment / (raised) 0.00 0.00 0.00 0.00 0.00


NPV 471.05

NPV per share 1.42

Annexures

Initiating



NKT Road & Toll Pvt Ltd

(Assets operated: Nagar-Karmala-Tembhurni BOT)

The project involved widening and improvement of 60 kms on Ahmednagar- KarmalaTemburni Road on SH 141. The scope of this project involved widening the subjecthighway, widening and reconstructing minor bridges, providing junction improvementservices, constructing bus bays, constructing toll plazas, and providing road furnitureitems. The total cost of the project was Rs368 mn, which was financed by Rs150 mnequity and Rs218 mn debt. The project has a concession period of 15 years and isscheduled to end on December 2016. The concession period includes constructionperiod of 30 monhts, which the company managed to complete in 21 months.

The agreement requires prior approval of Public Works Department, Maharashtra forany increase in tolling levels. The department also has rights to reduce the toll rates by10% once during the concession period. Further, the contract protects IRB from a drop ofover 20% in toll collections for more than 24 hours due to any unforeseen events.

Key Data

Holding 100%


Length 60





End Date 11/12/2016


Total Cost 368

Construction Cost

Upfront to MSRDC

Debt: Equity 1.45

Total Debt 218

Total Equity 150

Key Financials


Revenues 94.96 107.69 122.12 138.48 157.04

EBIDTA 93.46 106.19 99.62 128.48 155.54

EBIDTA(%) 98% 99% 82% 93% 99%

Reported PAT 56.33 77.53 72.61 98.28 123.26


ROE 21% 22% 17% 19% 19%

Share capital 150.00 150.00 150.00 150.00 150.00

Net worth 267.41 344.94 417.55 515.82 639.08

DEBT 278.82 247.84 216.86 185.88 154.90






Free Cash Flow to Firm (FCFF) 54 103 101 130 160



NPV 668.96

NPV per share 2.01

Annexures

Initiating



Thane Ghodbunder Toll Road Pvt Ltd

(Assets operated: Thane Ghodbunder Toll Road BOT)

The project involves improvement of existing 14.9 kms four-laned Thane GhodbunderRoad, provide concrete pavement for the project, provide junction improvement ser-vices, construct bus bays, engage in landscaping activities, construct toll plazas andprovide road furniture items. Thane Ghodbunder road is a major link road connectingMumbai-Ahmedabad NH8 to Mumbai-Agra NH3.

The project has a concession period of 15 years, which includes 1.5 years of construc-tion period. The total cost of the project was Rs2.46 bn, which was financed by Rs2.17bn debt and Rs0.30 bn equity.

Key Data

Holding 100%


Length 14.9





End Date 23/12/2020


Total Cost 2,463


Upfront to MSRDC 1,404

Debt: Equity 7.29

Total Debt 2166

Total Equity 297

Key Financials


Revenues 257.32 277.91 300.14 376.02 406.10

EBIDTA 236.32 249.81 267.64 296.22 369.00

EBIDTA (%) 92% 90% 89% 79% 91%

Net Income 82.04 179.34 190.06 202.65 263.23


ROE 26% 36% 28% 23% 23%

Share capital 237.54 237.54 237.54 237.54 237.54

Net worth 318.36 497.70 687.76 890.41 1153.64

DEBT 2070.00 1910.77 1751.54 1592.31 1433.08









NPV 1865.13

NPV per share 5.61

Annexures

Initiating



ATR Infrastructure Pvt Ltd

(Assets operated: Pune Nasik BOT)

The project entails extension of existing 29.81 kms stretch on Pune Nasik road (NH 50),highway into a four lane highway, construction of major bridges, widening minor bridgesrelating to the project, etc.

The Pune - Nashik project was awarded to a consortium comprising of Ideal RoadBuilders Private Limited and Mudajaya Corporation Berhad. However, the entire equityfor this project was funded by IRB.

The total cost of the project was Rs737 mn, which was financed by debt of Rs727 mnand the balance through equity. The entire debt has been prepaid and currently, theproject is debt free.

The project has a concession period of 18 years, which includes 2 years of constructionperiod.

Key Data

Holding 100%


Length 29.81



Operation Period 16



End Date 24/09/2021

Total Cost 737

Debt: Equity -

Total Debt 0

Total Equity 10

Key Financials


Revenues 191.06 212.65 236.68 263.43 293.19

EBIDTA 191.06 212.65 236.68 263.43 293.19

EBIDTA(%) 100% 100% 100% 100% 100%

Net Income 91.14 114.82 141.31 171.16 204.78


ROE 14% 15% 16% 16% 16%

Share capital 517.50 517.50 517.50 517.50 517.50

Net worth 646.08 760.90 902.21 1073.38 1278.16

DEBT 696.95 647.17 597.38 547.60 497.82









NPV 1852.89

NPV per share 5.57

Annexures

Initiating



Aryan Toll Road Pvt Ltd

(Assets operated: Pune- Solapur BOT)

The project involves extension of an existing road into four lanes and strengthening of acumulative 26 kms stretch of the Pune - Solapur road (NH 9).

The project was awarded to a consortium comprising of Ideal Road Builders PrivateLimited and Mudajaya Corporation Berhad. However, the entire equity for this projectwas funded by IRB.

The total cost of the project was Rs630 mn which was financed by debt of Rs450 mn andequity of Rs180 mn. The project has a concession period of 16 years, which includes 2years of construction period, which the company managed to complete in 21 months.

Key Data

Holding 100%


Length 26



Operation Period 14



End Date 19/03/2019

Total Cost 630

Debt: Equity 2.50

Total Debt 450

Total Equity 180

Key Financials


Revenues 141.39 163.31 188.62 217.86 251.63

EBIDTA 126.55 147.57 171.94 200.18 232.89

EBIDTA(%) 90% 90% 91% 92% 93%

Net Income 67.45 103.88 127.21 154.69 186.99


ROE 12% 15% 16% 16% 16%

Share capital 450.00 450.00 450.00 450.00 450.00

Net worth 578.29 682.16 809.38 964.07 1151.06

DEBT 579.74 527.04 474.33 421.63 368.92









NPV 1314.33

NPV per share 3.95

Annexures

Initiating



Ideal Road Builder Pvt Ltd (IRBPL)

IRBPL is 100% subsidiary of IRB. IRBPL operates 4 road BOT projects

i) Thane Bhiwandi Bypass BOT - The project entails widening of existing two-lanecarriageway (from km 0/115 to km 23/509) and to carry out certain other construc-tion activities. The total cost of Rs1040 mn was financed by Rs700 mn debt andRs340 mn equity. The project has concession period of 18.5 years, which in-cludes 3 years construction period.

ii) Kaman Paygaon BOT - The project involves road and bridge widening activitieson 22 kms stretch from on Naka-Kaman-Paygao-Bhiwandi road, road alignmentand strengthening services, construction of toll plazas, etc. The total cost of theproject of Rs144 mn was financed by Rs44 mn equity and Rs100 mn debt. Theproject has concession period of 15 years, which includes 2 years constructionperiod.

iii) Bhiwandi Wada BOT - The project involves improving, strengthening and blacktopping a cumulative 18 kms of SH 35 in Taluka Bhiwandi, Thane Taluka on aBOT basis. The total project cost of Rs94.5 mn was financed by Rs70 mn debtand Rs24.5 mn equity. The project has a concession period of 10 years and 8months including construction period of 2 years, which the company completedin 1 year.

iv) Khambatki Ghat BOT - The project involves expansion of a segment of NH 4 by anadditional two lanes and a tunnel, including strengthening of existing weak two-lane stretch over 8 kms in Khambatki Ghat between Pune and Satara. The totalcost of the project of Rs450 mn was financed by debt of Rs300 mn and equity ofRs150 mn. The project has a concession period of 9.75 years including 2 yearsof construction period, which the company managed to complete in 21 months.

Key Financials


Revenues 457.3 456.6 433.0 495.6 567.4

EBIDTA 419.25 443.60 429.96 492.65 494.42

EBIDTA(%) 92% 97% 99% 99% 87%

Net Income 194.63 250.68 260.68 324.41 335.53


ROE 14% 15% 14% 15% 13%

Share capital 610.00 610.00 610.00 610.00 610.00

Net worth 1382.67 1633.35 1894.03 2218.45 2553.98

DEBT 1457.86 1295.87 1133.89 971.91 809.92









NPV 2008.38

NPV per share 6.04

Annexures

Initiating



Key Data

Holding 100%


Length 24




Tripartite agreement date 21/09/1998


End Date 13/03/2017

Total Cost 1,040

Debt: Equity 2.06

Total Debt 700.0

Total Equity 340.0

Thane Bhiwandi Bypass

Key Data

Holding 100%


Length 22



Operation Period 13


End Date 06/12/2013

Total Cost 144

Debt: Equity 2.27

Total Debt 100

Total Equity 44

Kaman Paygaon

Key Data

Holding 100%


Length 18





End Date 22/09/2008

Total Cost 94.5

Debt: Equity 2.86

Total Debt 70.0

Total Equity 24.5

Bhiwandi Wada Road

Key Data

Holding 100%


Length 8





End Date 20/10/2008

Total Cost 450

Debt: Equity 2.00

Total Debt 300

Total Equity 150

Khambatki Ghat

Annexures

Initiating


IRB Infrastructure Developers Ltd.The team

www.emkayshare.com

Institutional equities team

Anish Damania Business Head [email protected] 91-22-66121203

Research Team

Ajay Parmar Head Research [email protected] 91-22-66121258Ajit Motwani Cement & Capital Goods [email protected] 91-22-66121255Amit Adesara Logistics, Engines,Real Estate [email protected] 91-22-66121241Chirag Shah Auto, Auto Ancillaries [email protected] 91-22-66121252Kashyap Jhaveri Banks [email protected] 91-22-66121249Manik Taneja IT [email protected] 91-22-66121253Manoj Garg Pharma [email protected] 91-22-66121257Mehul Mukati Power & Power Equipment [email protected] 91-22-66121250Naveen Jain Construction, Real Estate [email protected] 91-22-66121289Pritesh Chheda, CFA FMCG, Engineering, Mid -Caps [email protected] 91-22-66121273Rohan Gupta Paper, Fertilisers, Real Estate [email protected] 91-22-66121248Sumit Modi Telecom [email protected] 91-22-66121288Vishal Chandak Metals [email protected] 91-22-66121251Chirag Dhaifule Research Associate [email protected] 91-22-66121238Chirag Khasgiwala Research Associate [email protected] 91-22-66121254Pradeep Agrawal Research Associate [email protected] 91-22-66121340Prerna Jhavar Research Associate [email protected] 91-22-66121337Vani Chandna Research Associate [email protected] 91-22-66121272Meenal Bhagwat Database Analyst [email protected] 91-22-66121322

Sales Team

K.N.Sreenivasan Asia Sales Desk [email protected] 91-22-66121264Meenakshi Pai India / UK Sales Desk [email protected] 91-22-66121235Rajesh Chougule Institutional -Manager Sales [email protected] 91-22-66121295Falguni Doshi Institutional Equity Sales [email protected] 91-22-66121236Palak Shah Institutional Equity Sales [email protected] 91-22-66121277Ashok Agarwal Associate Inst.Equity Sales [email protected] 91-22-66121262Roshan Nagpal Associate Inst.Equity Sales [email protected] 91-22-66121262

Dealing Team

Kalpesh Parekh Senior Dealer [email protected] 91-22-66121230Ajit Nerkar Dealer [email protected] 91-22-66121237Dharmesh Mehta Dealer [email protected] 91-22-66121232Ilesh Savla Dealer [email protected] 91-22-66121231Ketan Mehta Dealer [email protected] 91-22-66121233

Derivatives Team

Sandeep Singal Co Head Institutions - Derivatives [email protected] 91-22-66121355Nupur Dhamani Institutional Trader Derivatives [email protected] 91-22-66121222Manish Somani Sales Trader [email protected] 91-22-66121221Faraaz Khan Sales Trader [email protected] 91-22-66121213Manjiri Mazumdar Sales Trader [email protected] 91-22-66121224Pradnya Kulkarni Dealer [email protected] 91-22-66121223Sameer Desai Dealer [email protected] 91-22-66121220Nishant Singhania Dealer [email protected] 91-22-66121218Trupti Dhanani Dealer [email protected] 91-22-66121215Kalpesh Hirpara Dealer [email protected] 91-22-66121214Manish Bangera Dealer [email protected] 91-22-66121218Vishal Thakker Dealer [email protected] 91-22-66121227Nirav Vira Dealer [email protected] 91-22-66121225Venugopal Swamy Dealer [email protected] 91-22-66121214Devendra Vora Dealer [email protected] 91-22-66121226

Technicals Research Team

Manas Jaiswal Technical Analyst [email protected] 91-22-66121274Suruchi Kapoor Jr.Technical Analyst [email protected] 91-22-66121275

Sameer Shetye Associate Analyst [email protected] 91-22-66121276

Emkay Rating Distribution

Derivatives Research Team

BUY Expected total return (%) of stock price appreciation and dividend yield) of over 25% within the next 12-18 months.ACCUMULATE Expected total return (%) of stock price appreciation and dividend yield) of over 10% within the next 12-18 months.REDUCE Expected total return (%) of stock price appreciation and dividend yield) of below 10% within the next 12-18 months.SELL The stock is believed to under perform the broad market indices or its related universe within the next 12-18 months.NEUTRAL Analyst has no investment opinion on the stock under review.

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