Despite the cut in target price, IRB Infra shares still great to buy

Despite the cut in target price, IRB Infra shares still great to buy

IRB Infrastructure Developers Limited shares remain a good buy even after the cancellation of plans to stretch the company’s toll collection beyond the Mumbai-Pune expressway.

It is true share price of IRB Infrastructure Developers began falling after the Maharashtra State Road Development Corporation (MSRDC) discarded the concession agreement last week.

Decision of MSRDC has resulted in fall for five of the last six trading sessions, wiping away nearly 10 per cent of investors’ wealth.

Financial analysts in the country have been reducing their target price, taking into account the cancellation. But the ratings have been retained by them. Analyst’s target price implies 40-45% upside from the current level.

Ashutosh Narkar, analyst at HSBC said, “We maintain our buy rating but cut our target price to Rs 331 from Rs 350 due to cancellation of the Mumbai-Pune extension.”
He added, “We think our valuation is justified by IRB’s market leadership, better balance sheet strength and likely addition of new assets over the next.
Shares of IRB were priced at Rs. 232 on Thursday after 4.19% of fall was recorded. The infra giant will continue to toll the MP e-way existing concession till FY20.

IRB has bagged two big national highway concessions totaling Rs 4,500 crore in the previous quarter. This will not just add 60% to the company’s EPC backlog but also recover 60% of the toll revenue lost due to the termination.
“We remove the MP e-way extension from our valuation and arrive at a target price of Rs 330,” said a Credit Lyonnais Securities Asia (CLSA) note.
Analysts believe IRB will be able to conclude its Infrastructure Investment Trust (InvIT) listing by March 2017. A successful listing would let the developers to bring down consolidated net debt by whopping 37%.

IRB’s Return on Equity (ROE) has averaged 13.7 per cent over the last three years. Analysts at HSBC expect an InvIT listing could shoot up earnings by 16-20 per cent and ROE by 200 bps to 16% over FY17-19.

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