Cintra deal, expanding order book triggers for IRB Infrastructure

The news that Cintra, a subsidiary of Spain-based infrastructure company Ferrovial, will buy a stake in IRB’s Investment Trust (IRBIT) has boosted its stock. Cintra will buy a 24 per cent stake from GIC affiliates in IRBIT.

It will also pick up a 24 per cent stake in MMK Toll Road Pvt Ltd (MMK), which is the investment manager of IRBIT, a publicly listed Infrastructure Investment Trust (InvIT).

IRB Infrastructure Developers (IRB) owns 51 per cent of the units, with the remaining 49 per cent held by various GIC Affiliates.

Cintra will be acquiring 24 per cent stake in IRBIT from GIC at a total deal size of Rs 6,590 crore, including Rs 860 crore of equity commitments for projects under development, or under financial closure. The IRBIT portfolio consists of 15 road projects, covering 10,567 lane-kms.

The rise in share price is driven by hopes of a collaboration that will enhance future business prospects. The transaction doesn’t result in funds coming to the InvIT.

The collaboration between IRB (domestic construction), GIC (a financial investor, which retains 25 per cent stake in IRBIT), and Cintra (strategic overseas investor) should enhance project planning and selection.

Cintra and GIC have agreed to a call/put option deal to transfer Cintra's proportionate share of the residual stake (4.7 per cent) held by a GIC affiliate in Ganga Expressway after two years, following the completion of the concession period.

Additionally, Cintra and a GIC affiliate have agreed upon a deal involving Meerut Badaun Expressway Limited (MBEL), where Cintra can exercise a put option over 4.7 per cent of both non-convertible debentures (NCDs) and equity shares of MBEL, (currently held by a GIC affiliate).

IRB continues to hold 51 per cent in MBEL and IRBIT. 

IRB will benefit from a growing order book, which stood at Rs 36,200 crore (December’23). It has a large pipeline of project tenders to be awarded by NHAI. It could register 12 per cent revenue annually over FY24-FY26 with improved margins.

IRB has secured orders worth Rs 16,000 crore in FY24 till date. The priority is build operate transfer (BOT) toll projects, followed by toll operating transfer or TOT projects, and hybrid annuity model (HAM) projects.

In the order book, the engineering procurement and construction (EPC) segment is Rs 6,900 crore, which gives revenue visibility for the next two-to-three years. The operation and maintenance (O&M) order book is nearly Rs 29,200 crore.

IRB’s access to two InvIT platforms (IRB InvIT Fund and IRBIT) helps fast monetisation.

The NHAI pipeline is of Rs 2 trillion of BoT projects and another 46 ToT projects (many awaiting awards).

The Ministry of Road Transport and Highways has amended the model concession agreement for BOT and TOT modes. Key amendments include central government support to concessionaires to complete projects, longer tolling periods in case of a competing project, and compensation to be paid in cases of force majeure.

This makes BOT more attractive.

The NHAI has identified 15 BOT projects worth Rs 44,400 crore (out of Rs 2 trillion), to be awarded soon. IRB would be a strong contender in these tenders. IRB’s Revenues could grow by around 15 per cent in FY25 over FY24.

The FY24 operating profit margin is likely to be around 46 per cent and this could rise by around 120 bps in FY25 and see further expansion in FY26 to around 48 per cent. FY24 will be flat in terms of net profit but FY25 should see a jump of around 45 per cent Y-o-Y. Analysts are upgrading the stock.