IRB Infrastructure Developers Ltd

NSE:IRB

Earnings Call Analysis

IRB Infrastructure Reports Strong Q3 Growth

During Q3, IRB Infrastructure secured two major projects with upfront considerations totaling INR 6,111 crores. The company anticipates financial closure of these projects by year-end. Furthermore, IRB received an arbitration award for INR 1,720 crores due to project delays, enhancing its cash position. A 10% interim dividend was declared, marking a cumulative INR 120 crores dividends for FY 2023-24. The trust refinanced SPV debt, leading to savings of about INR 400 crores over four years. Toll collection witnessed a surge of 16-34% across various corridors due to tariff revisions and increased traffic, bolstering revenue growth. Total order book stands at INR 36,000 crores, providing robust visibility for upcoming revenues. Financials reflect a 32% revenue increase to INR 2,077 crores, with a profit after tax (PAT) growth of 33% to INR 187 crores for Q3.

Introduction to IRB Infrastructure Developer's Earnings Call

During the recent earnings call, IRB Infrastructure Developers recapped significant developments for the quarter ending December 2023. New project wins such as TOT-12 and TOT-13 were showcased, both promising revenue streams over 20-year concession periods, with financial closure expected by the fiscal year's end. Additionally, they mentioned a favorable arbitration award for the Yedeshi-Aurangabad SPV, granting cash compensation and an extension of the concession period. A distribution from their Private InvIT was also declared, reinforcing the cash flow positive status of operations despite a seeming negative PAT due to fair valuation losses.

Financial Performance Highlight

The company witnessed a robust financial performance in the third quarter with consolidated income jumping by 32% to INR 2,077 crores. Toll revenues and construction revenues also saw substantial uplifts by 15% and 42%, respectively. Margin improvements were reflected in a 22% increase in EBITDA, although interest and depreciation expenses rose as well. Pre-tax profits improved by 35% with a notable 33% hike in profit after tax, signaling strong operational success and an impressive bottom line.

Cost of Funding and Budget Takeaways

The cost of funding domestically stands around the 10% mark. The budget announcement suggested a lower than anticipated government borrowing, which may relieve the bond market. However, pricing outcomes would influence potential considerations toward foreign exchange markets for fundraising needs.

Project Pipeline and Competition Analysis

An analysis of the anticipated INR 2 trillion project pipeline, spreading over 1.5 to 2 years, proposes a sustainable rollout rate. Although BOT (Build-Operate-Transfer) projects are heavy lifts, the requirement for significant equity keeps the space restricted to capable bidders. The market has seen consolidation, which might slightly expand the pool of players in the BOT segment, but it will not flood with bidders due to equity funding requirements. This conservative growth in competition is expected to prevent overcrowding in BOT bids.

Potential Impacts from Automation and Policy

The implementation of FASTags and the forthcoming removal of traditional toll booths could lead to greater efficiency, reduced stoppage times, decreased manpower requirements, and a more comfortable travel experience, likely benefiting the company by making road travel more appealing and potentially driving higher toll collection efficiency.

Earnings Call Transcript 2024-Q3

[Operator]

Good evening, ladies and gentlemen. Welcome to the IRB Infrastructure Developers Conference Call for discussing the financial results for the quarter ended December 31, 2023, along with recent developments. We have with us on the call today, senior management team from IRB Infrastructure Developers Limited. [Operator Instructions] Please, note that the duration of the call will be 45 minutes and any queries left unanswered after the call can be subsequently mailed to the management for adequate response and resolution. Please note that this conference is being recorded.

I now request Mr. Yadav to give you an overview of the significant developments during the quarter. Thank you, and over to you, sir.

[Anil Yadav, executive]

Thank you. Good evening, everyone. I welcome all the investors and analysts to our earnings call for Q3 of financial year 2023-'24. Hope you all have been able to go through our detailed numbers as well as presentation, which were released yesterday. I will briefly cover the key highlights for the quarter.

During the quarter, IRB Infrastructure has bagged 2 projects, that is TOT-12, tolling, operation, maintenance and transfer for 4-lane, Lalitpur, Sagar, Lakhnadon section in the state of UP and MP for an upfront consideration of INR 4,428 crores to NHAI for revenue during concession period of 20 years. And TOT-13, comprising of Gwalior-Jhansi section on NH-44 and Kota Bypass on NH-76 for an upfront consideration of INR 1,683 crores to NHAI for revenue-linked concession period of 20 years.

We have signed the concession agreement for TOT-12 and 13 and expect to achieve the financial closure by end of this financial year. Yedeshi-Aurangabad SPV has received favorable arbitration award and details for the same. We will receive a cash compensation of around INR 1,720 crores, including interest payable as on date of award. INR 1,680 crores were approved to IRB and balance to SPV and plus interest from the date of award till realization of the amount. And there is extension in the concession period of 689 days, and 651 days will accrue to IRB.

Deep background of the game, YATPL, that is the SPV, has commenced the construction of the project from July 1, 2015, and it was scheduled to be completed within 910 days, that is December 26, 2017. However, due to delay in handing over of the land and for other reasons attributable to NHAI, the project completion on entire length was delayed, and the project was finally completed of September 24, 2020. As a result of above delay, YATPL has incurred time and cost overrun, for which it has claimed from NHAI on March 12, 2021, and the same was disputed by NHAI and had led to arbitration. The arbitration tribunal has now granted award in favor of YATPL.

Now coming to the Samakhiyali Tollway Private Limited, has received appointed date from the competent authority. Accordingly, the SPV has commenced the toll collection and construction on the project. The project will be executed by IRB Infrastructure and EPC and O&M were done by IRB.

The Private InvIT has declared distribution of INR 288 crores, and the same will reflect in the cash flow of IRB to the extent of 51% in the coming quarter. This is the second consecutive distribution from the private trust. While on the books the PAT will be seemingly negative for short while, the operations are cash flow positive, which will continue to support distribution ongoing. The loss in Private InvIT is also on account of the fair valuation loss, which is booked close to INR 50 crores during the quarter.

IRB has also declared 10% as interim dividend. And this is the second interim dividend for financial year 2023 and '24. In aggregate, IRB has paid INR 120 crores as a dividend for financial year '24.

As communicated earlier, IRB Infrastructure Trust has received a sanction of INR 6,390 crores towards refinancing of the SPV debt for 5 project SPV and successfully completed the refinancing of the balance SPV during the quarter. This upstreaming of the project level debt to the InvIT will significantly improve the cash flow for the unitholder given the back-ended amortization, optimize tax treatment and the lower interest rate due to pulling of the cash flow from the completed project at Trust level.

The interest has got reduced from 9.7% to 8.6% and saving of 110 basis points, which will result close to INR 400 crores of saving over the period of 4 years. And amortization for next 5 years, that will reduce from 23.6% to 8.5%, around 15% or INR 6,390 crores, that is close to INR 1,000 crores saving over the period of 5 years.

On toll collection front, for Mumbai-Pune and Ahmedabad-Vadodara, per day toll collection has improved to INR 67.8 million for the quarter ended December 31, 2023, as compared to INR 58.7 million per day for the quarter ended December 2022, a growth of 16%. For Private InvIT on aggregate, per day collection has improved to over INR 81.2 million for the quarter ended December 31, 2023, as compared to INR 60.8 million per day quarter ended December '22, a growth of 34%. Increase in toll collection is on account of tariff revision, increase in traffic and addition of IRB Golconda Expressway Private Limited, that is the Hyderabad ORR project.

The total order book of the company stands at approximately INR 36,000 crores. Within this EPC order book is close to INR 7,000 crores. And next 2 years executable order book, including EPC and O&M that is close to INR 10,000 crores. That's providing good construction revenue visibility for next 2 years.

We are also witnessing change in terms of mode of award from NHAI. As against 5% to 7% BOT award out of the total project awarded by NHAI in past several years, NHAI has now an intent to award significant portion of -- on BOT basis. Identified opportunity on BOT basis is worth close to INR 2 trillion, that is INR 2 lakh crores. We will be bidding for these opportunities apart from the TOT projects. These projects will be executed through Private InvIT. Equity requirement will reduce to 51%. That is close to 15% of the project cost.

Now, I will request Sri Tushar to cover the financial highlights for Q3 FY '24. Over to you, Tushar.

[Tushar Kawedia, executive]

Thank you, sir. I'll take the financial analysis for Q3 FY '24 versus Q3 FY '23. The total consolidated income for Q3 FY '24 has increased to INR 2,077 crores from INR 1,570 crores, an increase of 32%. The consolidated toll revenues of Q3 FY '24 has increased to INR 637 crores from INR 554 crores, an increase by 15%.

The consolidated construction revenue for Q3 FY '24 has increased to INR 1,441 crores from INR 1,017 crores, an increase of 42%. EBITDA for Q3 FY'24 increased to INR 978 crores from INR 801 crores, an increase of 22%. Interest cost has increased to INR 433 crores as against INR 369 crores, up by 18%. Depreciation has increased to INR 251 crores from INR 215 crores, up by 17%.

PBT has increased to INR 294 crores from INR 218 crores, up by 35%. PAT after share of JV, that is INR 51 crores, has increased to INR 187 crores from INR 141 crores, an increase of 33%. Our cash profit has increased to INR 489 crores as against INR 369 crores, an increase of 33%.

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.

[Alok Deora, analyst]

Sir, I just wanted to understand, firstly, on the ordering front, this year has been pretty muted in terms of financial awarding. We have been almost like 1,000 kilometers of projects being awarded as against the targets, which would have been close to 5,000 kilometers or so. So what's the thoughts here because we just have kind of effectively this month where projects could be awarded and there are many contractors who have not really received any awards, so just your inputs on that?

[Virendra Mhaiskar, executive]

So you're very right. As we have been -- I would say that the stand that we have been articulating for last couple of years that the NHAI debt is significantly rising and a change of track was somewhere on the anvil, that seems to be proving right. And as Anil mentioned in his opening statement that almost INR 2 lakh crores worth of BOT projects have now been identified and announced by NHAI that clearly shows that the path going forward is going to be more reaching towards private participation led growth and less of government funding. So yes, this will be a significant departure from their earlier strategy that they have been following for last almost 7, 8 years.

[Anil Yadav, executive]

Alok, just to add, this year in spite of the lower award, we have bagged award worth of INR 16,000 crores as against INR 6,000 crores to INR 7,000 crores kind of run rate in earlier year.

[Alok Deora, analyst]

So, yes, you have been mentioning about this BOT toll coming in a big way. But do you see anything materializing in this year in the next couple of months?

[Virendra Mhaiskar, executive]

Certainly not in the next couple of months because as we all know the elections will play out over the next couple of months. But the toll BOT project identification is already done. They have put it out for bidding. Big documents are out. So I think it will be a good fit that by the time the elections get done the interested bidders will be able to go through these documents and bid on this project. But as soon as the elections are done, I guess this will catch momentum very fast. And from there on, we believe there will be a significant activity in the sector for sure.

[Alok Deora, analyst]

Sure. And secondly -- I mean, congratulations on getting this arbitration award. So what is the next step here, and when can we see the money coming in and whether there could be further appeal and just some clarity on that?

[Virendra Mhaiskar, executive]

Going by the past track record, we have seen that NHAI does go into litigating it further, say, up to Supreme Court. Even the Goa claim that we realized, it took almost 1.5 years to get the money outright, going up to the Supreme Court SLP. But we are hopeful that with the Vivad se Vishwas tak scheme being in existence now, which -- for which the cutoff date the government has revised a couple of times.

So on a normalized basis, I would say, yes, this award also is likely to be challenged, and we might see a process of almost the same 1.5 years kind of timelines to get this money realized. But at the same time, if there is any moderation or any review in the scheme or any more clarity on that, then this actually can unfold faster as well. But at the moment, we are assuming in our thought process that we will go through the court process and should be able to realize it another 1.5 kind of a timeline.

[Alok Deora, analyst]

Sir just last question. So a little specific on the number. So this interest cost has kind of been flat on a Q-o-Q basis. So I believe we mentioned about it, it would be coming down. So anything on that?

[Tushar Kawedia, executive]

So, Alok, if you see, we have discussed in the last quarter about some corporate debt being drawn for the purpose of equity infusion for the Hyderabad ORR project, and accordingly, the debt interest has gone a little high for the quarters, which you see, Q3 and Q2. But as we see that the repayments will happen. And today, also, if you see because of the higher MCLR rate, the interests are at the peak. Now, here in onwards, once the interest rate goes down because our interest rates are linked to MCLR, and as soon as these MCLR goes down, we will see the interest rate cost coming down for us as well.

[Alok Deora, analyst]

Got it. So for next couple of quarters, this would be largely the run rate on a quarterly basis with marginal decline?

[Tushar Kawedia, executive]

Yes. That's right.

[Operator]

The next question is from the line of [ Abhiram Iyer ] from Deutsche Bank.

[Unknown Analyst]

Congrats on a good set of results. My question is to do with the upcoming maturity on the offshore USD bond. Is there any refinancing plan that the company has given that it's about basically 6 months left to maturity?

[Virendra Mhaiskar, executive]

Yes, your observation is right, and we are working on it. In fact, we have taken a resolution in the yesterday's Board meeting, which is also disclosed, wherein we have an enabling resolution to deal with this refinancing.

[Unknown Analyst]

Got it. And what is the management plan here? I mean, do you feel the need to come back to the offshore market in order to refinance this? Or are you seeing that onshore cost of funds is more efficient for you at the moment?

[Virendra Mhaiskar, executive]

So today's budget was encouraging from that aspect that the government is going to crowd the bond market less than what we had assumed it to be. So that possibility remains, but we are not averse to relooking at the forex market also for that purpose. And clearly, I think the pricing will be something which will determine the fate of it.

[Unknown Analyst]

Got it. And what's -- in a similar vein, what is your current cost of funding onshore?

[Tushar Kawedia, executive]

Around 10%.

[Operator]

The next question is from the line of Rohit Natarajan from Antique Stockbroking.

[Rohit Natarajan, analyst]

We have read some news article, media article that there is some change in the BOT tolling projects, model concession agreement probably. The Road Secretary, Anurag Jain, who is referring to that, there will be a revised BOT project policy that will be rolled out within a month or so. Is there any color to it as a stakeholder -- I mean, as an industry participant that would -- have you got any picture about what that could be or what were the suggestions if you have made any as an industry representation?

[Virendra Mhaiskar, executive]

So Rohit, your observation is right, there have been interactions between NHAI Road Ministry and the stakeholders in the last couple of months. And they had sought suggestions from the fraternity that what are the pain points which need to be addressed there, even reached out to the lender. And what I gather is some 20, 25 suggestions, amendments have been considered by them very seriously. And post they getting their internal approvals and the capital approvals, we might see a significant positive coming out of this deliberation, which will further enhance and make the BOT proposition a more positive construct to work on.

[Rohit Natarajan, analyst]

Got it, sir. My second point was on -- in terms of -- the second -- this comment came from the secretary -- Road Secretary itself that he was alluding to the point that the time between the bid closing and the bid opening dates has now remarkably compressed, and there will be a faster rollout of projects before the end of March. Would that mean that, I mean, if I see the tendering pipeline, we have some remarkably good BOT projects, almost like INR 200 billion, whose bid closing dates are, I believe, in February first week itself? Is there some possibility that there could be some surprises of BOT rolled projects before the end of March?

[Virendra Mhaiskar, executive]

See I think it will depend. There are some low-hanging fruits because this list has been in the making for a long time. So projects where their DPRs are ready, they are driving that all of the materials that we will be seeking from them is ready. Few of those projects certainly can be tendered out and awarded even before March because now when they have announced the tenders, there won't be any code of conduct applicability on it. But the bidding itself can certainly go through. And the bids can be received and that process can be completed in a couple of months for projects where they are ready in terms of their availability of the data that the stakeholders would ask for. So yes, to answer your question, simplistically, a few projects reaching the culmination is positive.

[Rohit Natarajan, analyst]

Got it. Got it. Sir, to allude to that point of INR 2 trillion project that we have identified, is there any realistic timeframe in which that particular INR 2 trillion can be awarded?

[Virendra Mhaiskar, executive]

So if I look at the INR 2 trillion pipeline, it talked about [indiscernible] kilometers. Now, if we go by the run-rate of NHAI in terms of award, they have been awarded between 4,000 to 5,000 kilometers a year. So it would be safe to assume that the whole pipeline rollout can happen over 1.5, 2 years kind of a timeframe assuming that this is around 40% of their overall pie and the balance 60% might continue to be with EPC and HAM and things like that. So I would like to stick out my neck and say it would be around 2 years timeline over which this pipeline can be completely used out.

[Operator]

The next question is from the line of [ Raunak Kapoor ] from Systematix Shares.

[Unknown Analyst]

I have a question regarding this Yedeshi-Aurangabad. There was a fall in toll revenue of around 13% and even Kishangarh-Guplabpura. Any particular reason for that?

[Virendra Mhaiskar, executive]

Can you be a little loud? I couldn't hear.

[Unknown Analyst]

Yes. I had a question regarding this Yedeshi-Aurangabad. There's a fall in toll revenue of 13% and similar to Kishangarh-Guplabpura. So any particular reason for that?

[Virendra Mhaiskar, executive]

Yes, sure. So Yedeshi-Aurangabad has seen some restrictions on the corridor beyond our project length. Because of which there have been some divergence. And people have gone against those restrictions in court, and we expect some resolution in a month's time, post which we expect the collection to be normalized.

In case of Kishangarh-Guplabpura also, I think...

[Unknown Analyst]

The adjacent corridor is under construction.

[Virendra Mhaiskar, executive]

Yes. So the adjacent corridor being under construction is something which had caused some slight reduction in the CapEx. And even that should come back to normalcy over a couple of months.

[Unknown Analyst]

Okay. And, sir, one more thing was the total claims -- pending claims were INR 3,600 crores overall. So I think we have received INR 17 crores, INR 20 crores, which they -- can you just give a brief on which projects the claims are pending?

[Virendra Mhaiskar, executive]

So I think in the books, the claims were accounted on the basis of the fair valuation, and this is the absolute amount which we have received. And this also included the interest to the date. So then definitely the amount which we have talked about around INR 3,800 crores is not comparable with INR 1,700 crores, including the interest. If the same pattern continues, the amount will be much larger.

[Unknown Analyst]

So any other -- any particular project that's more pending from -- any other projects apart from Yedeshi-Aurangabad?

[Virendra Mhaiskar, executive]

Yes. There are several projects where there was delay. For example, there was Westcoast and in the Solapur-Yedeshi, those projects were also awarded at similar time length. Those also had faced the similar issue. When the claim is also on the same light, we expect resolution for those projects also in the coming future.

[Operator]

[Operator Instructions] The next question is from the line of Faisal Hawa from H.G Hawa and Co.

[Faisal Hawa, analyst]

Sir, how do you see the kind of BOT orders? Will it be -- will it limit down the space to very few players? Like from last almost 5 to 6 years we have been seeing that apart from IRB only 3 or 4 players were able to take BOT projects. But now that most road companies are also very debt free, do you feel that the field will be now much more wider and there will be much more competition even in BOT? And will government kind of take any risk on the toll or people will have to get in sovereign funds to co-partner with them?

[Virendra Mhaiskar, executive]

So I think BOT is certainly, I would say, heavy lifts. It's not as easy as doing an EPC job that working capital can sort out everything. The idea of significant equity inclusion of 30%, 35% of the project cost is the limiting factor to my mind. And as you rightly said, the sector has seen significant consolidation over the last few years. And it has clearly separated the players with sound balance sheet and ability to fund this equity against the ones who are more keen on doing the EPC part of the project.

So my sense is that there will be a slight increase in the number of bidders, but we don't foresee too much of a rush into the BOT space. This will remain limited basis, the ability to put in the required equity into the project. And I think that will largely govern the criteria of how many bidders can come into it.

[Faisal Hawa, analyst]

When you say limited, it would be like 3 to 4 players max?

[Virendra Mhaiskar, executive]

I wouldn't say 3 to 4, maybe 6, 7 more. But I don't see a rush of 20, 30 players what we see in EPC repeating in the BOT.

[Faisal Hawa, analyst]

Okay. So only 3 to 4 players will graduate from EPC to BOT?

[Virendra Mhaiskar, executive]

May not be the EPC graduating to BOT. What I see is that it might be a combination of few funds who might want to come up and bid for BOT who have already developed some capabilities on the O&M side.

[Faisal Hawa, analyst]

Got it. And, sir, how far is the NHAI debt a problem? And do you feel that the changes in the Road Ministry are now more structural and cannot be reversed even if one minister is replaced? Or is it still driven by that one personality?

[Virendra Mhaiskar, executive]

I wouldn't comment on any personality. I would just say that it is that we could figure out from the reported numbers, it's close to INR 400,000 crores. So if you look at the budget numbers of INR 2.7 lakh crores, a significant part of that is going towards land acquisitions, servicing the annuities of the earlier projects and paying the interest on the debt. And the balance would then be also required to upkeep and maintain the existing portfolio that NHAI had. And only a limited portion of that would then be available for deployment into new asset creation. And that is what has necessitated NHAI to relook at BOT and invite more private capital to come into it.

[Faisal Hawa, analyst]

And sir, government had announced many green highways and green expressways. So have they followed up on that? And which will be the nodal agency which will do it?

[Virendra Mhaiskar, executive]

I mean I can only comment on projects which have been announced and where the document is available. Beyond that, all the other [indiscernible], it's better put across to Road Ministry.

[Faisal Hawa, analyst]

So they have not followed up much on their public announcement.

[Virendra Mhaiskar, executive]

No, that is the bidding amount.

[Faisal Hawa, analyst]

Any large bids have come out for expressways?

[Virendra Mhaiskar, executive]

So there are -- there is also a detailed presentation of Road Ministry, which is available, in which they have enlisted the entire groups of projects that they are contemplating to bring up on a BOT basis. If you listen to that, you will find all the names of all the individual highways that are coming up on BOT.

[Faisal Hawa, analyst]

And there is talk about these FASTags and as well as the toll booths that will now go out of operation in 2 years from today. So will it further enhance our capabilities or revenues or it will have -- does not have much of an effect?

[Virendra Mhaiskar, executive]

See any automation will always lead to more efficiency. And that is bound to happen because the stoppage time goes down, their manpower requirement goes down, your turnaround time goes up -- goes down. And their journey becomes much, much more comfortable. So certainly people wanting to travel by road will go up as a result of this.

[Operator]

[Operator Instructions] As there are no further questions, I now hand the conference over to Mr. Virendra Mhaiskar for closing comments. Please go ahead.

[Virendra Mhaiskar, executive]

Thank you, everyone, for being with us on this call for the third quarter. Look forward to have you all for the next call -- con call [indiscernible]. And we wish you a good, pleasant outcome today and look forward for more interesting sector updates. Thank you.

[Operator]

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