IRB Infrastructure Developers Ltd

NSE:IRB

Earnings Call Analysis

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, welcome to the IRB Infrastructure Developers Limited conference call for discussing the financial results for the quarter ended September 30, 2024, along with recent developments. We have with us on the call today, Mr. Virendra Mhaiskar; Mr. S. S. Rana; Mr. Sudhir Hoshing; Mr. Anil Yadav; Mr. Mehul Patel, Ms. Poonam Nishal; and Mr. Tushar Kawedia. [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 an overview for the significant development during the quarter. Thank you, and over to you, sir.

[Anil Yadav, executive]

Thank you. Good evening, everyone. I welcome all the investors and analysts to our earnings call for Q2 financial year '24-'25. I trust you have reviewed our detailed numbers and presentation. I will briefly highlight the key points for the quarter. We are pleased to inform that IRB successfully completed the TAP issuance and allotted USD 200 million, 7.11% senior secured notes having a final maturity in FY '32 at a premium. Proceeds of the notes will be utilized for capital expenditure and/or refinancing of the existing loans availed for the capital expenditure. This will further strengthen our liquidity position, thereby ensuring business stability.

Being the issuer, IRB was rated Ba1 and BB+ by reputed international rating firm Moody's and Fitch, respectively. We have received an encouraging response with participation seen from the marquee investors like BlackRock, Lombard and HSBC, T. Rowe Price, PIMCO, BFAM Partners, Wellington, Goldman Sachs, et cetera. The notes are listed on India International Exchange Limited, that is India INX.

Now moving to the performance for the quarter. Toll collection for the quarter was significantly impacted due to heavy rains across India, with many states witnessing their highest rainfall in this monsoon, leading to flooding. Despite of the impact of the heavy rains, toll collection has shown a growth. The Mumbai-Pune and Ahmedabad-Vadodara corridor reported 2.3% increase in daily toll collection from INR 6.25 crores in Q2 of FY '24 to INR 6.40 crores in Q2 of FY '25. In the view of the forthcoming festive season, we are optimistic about sustaining the growth driven by the increased travel and economic activity. The second half of the year typically is much better for our toll collection prospective -- from a toll collection prospective.

For private InvIT, the per day toll collection has increased to INR 9.94 crores for the quarter ended September 2024 as compared to INR 6.82 crores per day for quarter ended September 2023, recording a growth of 46%. This increase is attributed to traffic growth, toll tariff revision and the addition of the new project. Private InvIT has generating positive cash flow since last financial year and has declared a distribution of INR 64 crores in Q2 of FY '25, which will reflect in the IRB's cash flow to the extent of its holding, that is 51% in the coming quarter.

In line with our dividend policy, the company has declared an interim dividend of 10%, amounting to INR 60 crores. The total order book now stands at INR 32,600 crores with an EPC order book approximately INR 4,000 crores. Next 2 years executable order book, including EPC and O&M is close to INR 6,200 crores, excluding the change of scope and utility shifting. Crisil rating has affirmed its rating Crisil AA-, stable rating for long-term credit facility of the company. Long-term opportunity in the sector, NHAI has announced the plan to double the national highway from 1 lakh kilometer to 2 lakh kilometer at an investment of almost INR 50 trillion over the next 8 years. Considering the existing high leverage, the authority is likely to increase their portfolio of projects that are being awarded on PPP basis. We expect around 40% of the plan will come approximately around INR 20 trillion on PPP mode, even 10% of the market share in the proposed PPP would mean addition of INR 2 trillion worth of projects for IRB portfolio over the period of 8 years.

IRB has transformed into self-sufficient powerhouse, poised with the continued growth and leadership fortification. Our cash flow generation strategy fueled by asset monetization to InvIT and asset churn, that is the BEST approach, that is bid, execute, stabilize and transfer. Supported by our extensive asset portfolio and prudent long-term leverage management will enable us to triple our portfolio over the period of 6 to 8 years, building on the established asset base of -- in financial year '25. As of now, we have asset base of INR 80,000 crores.

In terms of near-term opportunity, large pipeline, approximately INR 37,000 crores comprising of BOT projects and 4 TOT projects is already lined up. Although the bidding and awarding process has been slow, we expect it to accelerate in the second half of the current year. With a lower consolidated net debt to equity, we are well capitalized to tap into these opportunities, which will include the significant portion of BOT, TOT project in the partnership with GIC affiliates and Cintra. We are well prepared and in a strong position to actively pursue these opportunities. We will bid for BOT, TOT, which will be executed through private InvIT, reducing our equity requirement to 51%, approximately 15% of the project cost.

Now I will request Tushar to cover the financial highlights for Q2 of FY '25. Over to you, Tushar.

[Tushar Kawedia, executive]

Yes. Thank you, sir. So I'll just take you through the financial analysis of Q2 FY '25 versus Q2 FY '24. The total consolidated income for Q2 FY '25 was at INR 1,752 crores from INR 1,875 crores, down by 7%. The decrease in the construction revenue is mainly on account of the heavy monsoon during -- heavy monsoon across all states. The consolidated toll revenues for Q2 FY '25 has increased to INR 600 crores from INR 588 crores for Q2 FY '24, registering a growth of 2%. The consolidated construction revenues for Q2 FY '25 decreased to INR 1,152 crores from INR 1,286 crores, down by 10%. EBITDA for Q2 FY '25 slightly increased to INR 933 crores from INR 924 crores, registering a growth of 1%.

The interest cost remains stable at INR 434 crores in Q2 FY '25 from INR 435 crores in Q2 FY '24. The depreciation slightly decreased to INR 231 crores in Q2 FY '25 from INR 233 crores. And the PBT has increased to INR 267 crores as against INR 257 crores, an increase of 4%. PAT after share of JV from -- JV of INR 84 crores has increased to INR 100 crores in Q2 FY '25 from profit of INR 96 crores in Q2 FY '24, an increase of 4%. The cash profit has increased to INR 415 crores from INR 404 crores, an increase of 3%.

Now I request moderator to open the session for question and answers.

[Operator]

[Operator Instructions] The first question is from the line of Alok Deora from Motilal Oswal Financial Services.

[Alok Deora, analyst]

Sir, just a few questions. First is on the execution, which has been pretty soft even on a Y-o-Y basis, if we see. So just wanted to understand what's happened, it's just because of the monsoon or any other reason also could be attributed to this? And how has October again been for us and whether this could continue a little bit in 3Q as well?

[Anil Yadav, executive]

Thank you, Alok. And as I have discussed in the opening remarks, because of the very severe rain and some of the state has even seen the highest rainfall in this monsoon. So that has led us lower execution as far as EPC is concerned. And even the toll revenue were also on the softer side.

[Tushar Kawedia, executive]

Yes. And on the next part, yes, the execution is now picking up because the monsoon is now over, and we will see a good uptick in the construction execution in the third quarter.

[Alok Deora, analyst]

Sure. And this -- just a couple of data points. The other income has jumped quite a lot even Q-o-Q and Y-o-Y. So what -- any one-time included in that?

[Tushar Kawedia, executive]

So as we discussed last time also, there is a fair value gain impact in the other income, which is falling on account of the fair value of deferred consideration, receivable from the private InvIT. So it's the onetime impact of that particular element.

[Alok Deora, analyst]

Sure. And on this share of profit in associate, that has actually the losses have widened in 2Q, so that would normalize ahead or -- just wanted some color on that.

[Tushar Kawedia, executive]

So Alok, if you see the second impact because this fair value impact goes in the private InvIT and then it comes as a share of JV. So as such -- this is a onetime impact what we are observing in this Q2, this will not be a normal -- this will not be similar going ahead. But yes, whenever there is a deferred consideration fair valuation accounting, that time, this comes as a share of JV in the private InvIT from a share...

[Anil Yadav, executive]

Alok, just to add what Tushar has said, if you'll refer our corporate presentation, we have provided the impact of fair valuation in our first slide that includes the result. And if you will adjust for the fair valuation loss, from Q2 of FY '24 and Q2 of FY '25, the fair -- the loss from the private InvIT remains at a similar level in spite of three projects being added in this financial year, which was not fully there in the last financial year. That was Hyderabad ORR and TOT 12 and TOT 13. And as you are aware that any project which gets added, there initially, 1 or 2 years, those generate the positive cash flow. But because of the amortization, there will be losses. In spite of these three projects being getting added, there is no increase in the losses from the private InvIT.

[Alok Deora, analyst]

Got it. Just one last question. So you have, again, in the presentation highlighted the bid pipeline across toll and TOT. So just wanted to understand, we are already at October end now. So have projects started coming up and we started bidding, are there projects where we have bid and outcome has not come yet or it will mostly come from December onwards?

[Tushar Kawedia, executive]

So Alok, you're right. This is a concern, the entire sector is having on its mind. And if you see only one TOT has so far seen actual bidding going through, and other 4 TOTs are now likely to happen between now and end of December. And the BOT projects also have been keeping -- getting postponed, and we now expect a few of them to get actually bid out in the third quarter, assuming no further delays are led by NHAI on this. So that's -- I would say that it is moving in a similar direction, what we have seen in the last couple of years where the bidding activity escalates significantly towards the end of the financial year.

[Alok Deora, analyst]

Sure, but we are not changing our order inflow target or guidance or anything of that sort?

[Tushar Kawedia, executive]

No.

[Operator]

[Operator Instructions] The next question is from the line of Deepak Krishnan from Kotak Institutional Equities.

[Deepak Krishnan, analyst]

Maybe just one question on -- so you indicated that EPC revenue pipeline for next 2 years is INR 6,200 crores. We did about INR 4,900 crores in FY '24. So in case there are sort of no wins, how are we looking at EPC revenues for this particular year, the construction revenue for this particular year as well as sort of FY '26?

[Anil Yadav, executive]

Krishnan, as the order book is around INR 6,200 crores for a couple of years. And we also get -- this order is excluding the utility shifting and change of scope. And typically, ranging from INR 200 crores, INR 250-odd crores is the typical execution for CoS and utility shifting work. So depending upon that work, one can assume an order book of around INR 7,000 crores to be executed over the period of 6 quarters. So I think we have a visibility for next 6 quarters. But considering the doomsday situation, if we don't get over the period of 1, 1.5 years will not get the order book, then definitely, that time, EPC will reduce. But just by that time, our O&M revenue itself will be roughly INR 2,000 crores, INR 2,500 crores from the O&M contract, which we have a 20 years' visibility. So we have 6 quarters visibility. And thereafter, we have visibility in terms of O&M revenue. It will not happen that our revenue will become 0. The EPC revenue will be reduced to 40% to 50%. But we are hopeful that we'll bag the order, and we should be able to grow our EPC in the line of growth what we have shown in the past.

[Deepak Krishnan, analyst]

Sure. And maybe just wanted to understand, till what time would we sort of continue to see losses from associates, like what are we expecting for the full year? And when does this sort of impact of fair value go away and the impact of holding new assets come through and we start seeing -- we're seeing cash flow, but we're not seeing profitability. When does that starts showing up in the associate line being positive, is it FY '26 or would it be FY '27?

[Anil Yadav, executive]

I think FY '26, it will become a positive.

[Tushar Kawedia, executive]

I think you are very right, and you have touched upon a very good question. What is happening is these investments today reflect at book value and the real value that this portfolio is generating is not getting duly captured in the essence of the results to my mind. And the company is working on this because the cash flows are very robust, as you know, that we have already started the distribution from this platform. So we are working on it. I think you should see results on that line sooner than later.

[Deepak Krishnan, analyst]

Sure. And any impact of this new change in toll collection now moving to satellite-based toll collection with first, I think, 30-odd kilometers no toll collection. Does this impact us in any way? Or there is no sort of financial impact?

[Tushar Kawedia, executive]

None of the things which you mentioned have become operationalized. These are all academic discussions underway. And none of the toll notifications of any of the projects have seen any change. And to my understanding, these are all futuristic thought processes. The new software or the new technology is much in a primitive testing mode as of now. So it will take some time for that to happen. And as the outcome of the FASTag has been extraordinarily good for the company, we believe the new technology also will further add value to the portfolio going forward.

[Anil Yadav, executive]

And in terms of the reform what has taken place in the sector, whether we call it moving from WPI  -- tariff revision linked with the WPI and thereafter 3% fixed plus 14% of [indiscernible] all the changes were with a prospective effect. So ideally, we assume that the changes whenever will happen will happen for the new project to begin with. And secondly, the concession agreement provides adequate compensation in case of there is any change of the regulation.

[Deepak Krishnan, analyst]

Sure. And just one other thing. The onetime impact of fair value, how much would that be? If I look at Q-o-Q, other income is up by INR 47 crores and the loss is up by INR 30 crores. What would be sort of the onetime impact in both of them?

[Tushar Kawedia, executive]

So for this quarter, it was around INR 80 crores, onetime impact in the IRB results.

[Deepak Krishnan, analyst]

And part of it gets obviously adjusted out of the associate.

[Tushar Kawedia, executive]

Yes, that's right. That's right.

[Deepak Krishnan, analyst]

So I think you sort of already touched upon, but do you kind of see acceleration of bidding happening in second half? Do we sort of finally see all of these awards picking up substantially? How are we looking at it from -- or are there still some uncertainties? Are we at a place where L1s are about to be awarded or do we still probably think that L1 gets awarded 2, 3 months?

[Tushar Kawedia, executive]

So we are tracking more of the BOT and TOTs. And in that, we can say that there are 4 TOTs lined up for bidding as per the presented before end of December. And there are 6 to 7 BOT projects, which are also up for bidding, which are likely to happen between now and March. So there is a good visibility. And see, you have to understand that all these BOT projects, which have come after a long time for bidding, involve a lot of queries and clarifications that have to come from the client, which are being asked by the prospective bidders. And that entire exercise of understanding the project much better before we put in a bid is what is taking time and pushing the dates of submission forward. But I can say that in majority of this 6, 7 bids, most of the iterations are wanting to understand the nuances of the project, more clarification on the scope of work and timelines, et cetera, have all been iterated now. And we don't expect further more delay in the date of submission now. That's why we believe that between now and March, these 6, 7 BOTs and 4 TOTs should see the end of the tunnel.

[Operator]

[Operator Instructions] The next question is from the line of Parikshit Kandpal from HDFC Securities Limited.

[Parikshit Kandpal, analyst]

Congratulations on a decent quarter. Sir, what will be the sizes of these BOT assets which are coming up for bidding?

[Tushar Kawedia, executive]

Parikshit, the bidding size of the BOTs are in the range of INR 4,000 cores to INR 7,000 crores each. I may not be able to give you a number because that is the upfront number what we have to quote, but these are decent-sized TOTs as well.

[Parikshit Kandpal, analyst]

Each BOT project could INR 4,000 crores to INR 7,000 crores, and the equity requirement will be almost INR 1,200 crores to INR 2,000 crores for each project.

[Tushar Kawedia, executive]

Yes. And as you will appreciate, our requirement falls to 51% of that, and we are very well capitalized because we will be partly redeploying the construction profit back to fund our share of equity. So we are quite comfortable in terms of our ability to fund the equity for the project that may come our way.

[Parikshit Kandpal, analyst]

And how do you envisage this? I mean will this be on a positive this thing like revenue share with NHAI, or do you think there could be some grant elements. So how this new bidding which kicks in, so how do you read into these bids?

[Tushar Kawedia, executive]

Very difficult to say because each of the bid will be different. But largely, it will be grant projects.

[Parikshit Kandpal, analyst]

We're expecting it, so -- but not touching 40% types grant, I mean, will be much smaller grant.

[Tushar Kawedia, executive]

So upper limit is 20% now. The contract provides for highest grant of 20%.

[Parikshit Kandpal, analyst]

So 30% is the highest and 20%...

[Tushar Kawedia, executive]

20%, 20% is the highest.

[Parikshit Kandpal, analyst]

Okay. So now we have -- I mean, this will require a huge outlay and even we are bidding for TOTs. So in that sense, how do you -- between private InvIT, so where the assets are getting matured. So how do you look at monetization internally because TOTs will not give you much of value addition as BOTs because BOT bring in a construction element and then you reinvest that profits into equity. But since you're also doing -- following both the parts. So how do you now look at monetization of the private InvIT assets, especially the ones which have now some history or nearing maturities from stability on revenues?

[Tushar Kawedia, executive]

So you've touched upon a very valid point. And even at the risk of jumping the gun, I would say that, yes, we have been working on a BEST policy, as we have always articulated, which is, bid, execute, stabilize and transfer. And while I will not be able to give you a detailed color on what is underway, we are seriously working on this strategy so as to ensure that we, at all times, will have enough resources to tap the upcoming TOT opportunities and bid on them. And you will see more color of what we are trying to say here in the near future in terms of our strategy to rise to this requirement of government of India wanting to do asset monetization, and we will be positively supplementing and supporting this initiative.

[Parikshit Kandpal, analyst]

Okay. Sir, how many projects do you think realistically you can win? I mean there will be limited competition given the sizes are humungous, and we have never seen -- I mean we rarely see this kind of sizes coming in. So what kind of appetite do you think we can have -- you have a partner, obviously. But do you think in terms of order inflows, can you -- how much can you take in the financial year?

[Tushar Kawedia, executive]

Parikshit, no cost is attached to wishing. So definitely, we would like to retain our market share that we presently command, which is 34%.

[Parikshit Kandpal, analyst]

So this 5, 6 projects, each is about INR 7,000 crores to INR 30,000 crores, INR 35,000 crores. Do you think...

[Tushar Kawedia, executive]

I would refrain myself from putting a math on a number to it.

[Parikshit Kandpal, analyst]

The guidance wise -- order inflow guidance wise, I mean how much...

[Tushar Kawedia, executive]

Please do not take this as a guidance, but I'm giving you a roundabout strategy, what our wish list would be.

[Parikshit Kandpal, analyst]

Okay. Sure. But we have that kind of appetite. I mean if we can get 2, 3 projects, and we need to invest INR 4,000 crores of equity. So that is like enough bandwidth on our equity side to do that, take up that.

[Tushar Kawedia, executive]

100%.

[Operator]

[Operator Instructions] The next question is from the line of Prem Khurana from Anand Rathi Group.

[Prem Khurana, analyst]

So sir, I mean, most of my question on the quarterly results are already answered. I mean I had two questions on the observations from my annual report. If you could help me understand those. One was our deferred consideration first take sales seems to have gone up. I mean we have not transferred any new asset. I mean these are all old assets which were transferred long back. Why would we see any increase in the deferred consideration? I mean I was under the impression ideally, they should come down because Yedeshi was ruled in our favor, so I thought that money would come to you and which is where the number should ideally come down over a period of time, whenever you get to have that money come to you. But the number seems to have gone up.

And second, the thing that I want to clarify was, so when I look at the investment part, some of these assets, which are with the private InvIT, we seem to have infused money from our balance sheet. I mean, it's shown as a part of subordinate debt INR 1,600 crores, INR 1,700 crores [indiscernible]. I mean there are multiple entities. So I mean, why would you invest directly in these SPV are subordinated? Ideally I mean it should have gone to private InvIT, and then private InvIT should have invested money, right, if there was any requirement. Why would we use our balance sheet to do that?

[Anil Yadav, executive]

I think Prem with first question, as you are aware that the defer consideration were accounted on a discounted basis. And as we are moving closer to the receipt date, automatically discount -- automatically the amount will increase. And with respect to Yedeshi Aurangabad, you are absolutely correct that we have received arbitration award of INR 1,700 crores plus and plus the extension in the concession period, but that amount is yet to be received from the NHAI. And once we will receive that, then automatically, that amount, the deferred consideration will get reduced. Now coming to the funding of the private InvIT, if there is a delay in terms of rights issue, because rights issue requires timeline filing of the prospectus with the SEBI and other stuff. So meantime, sometime we infuse the money directly to those SPV. And once the rights issue is done, they pay us back. So that may be the reason. But you have -- I think if you have any further questions, we can discuss this offline, and we can provide the further details.

[Operator]

[Operator Instructions]

[Anil Yadav, executive]

I think there is no more questions. We can do the closing remark and conclude the call.

[Operator]

Okay. I would now like to hand over the conference to the management for closing remarks.

[Tushar Kawedia, executive]

Yes. We'd like to thank all of you for being on the call today, and we would like to wish you all a very happy Diwali and a prosperous new year ahead. And we look forward to have you again with us on the next update of the company very soon.

[Operator]

Thank you. Ladies and gentlemen, this concludes your conference for today. We thank you for your participation and for using Researchbytes Conferencing Services. You may now please disconnect your lines now. Thank you, and have a great evening ahead.