IRB Infrastructure's results for the quarter ended June had no major surprises, except for a marginal impact on the BOT (build-operate-transfer) business on account of lower traffic growth, the performance in both the BOT and construction segments was in line with Street expectations.
"Company's growth in revenue was marginally impacted by the traffic growth of just about three per cent despite seven-7.5 per cent growth in traiff. Had the traffic growth been higher, revenues would have been higher. The company said that this was impacted by early monsoon. This could be possible but I think one needs to watch the traffic growth," said Abhinav Bhandari of Elara Capital.
The company reported a five per cent growth in consolidated revenues to Rs 1,062 crore, helped by the four per cent growth in construction revenues and eight per cent in BOT. Market was expecting about 12 per cent growth to come from the BOT business on expectations of about seven-eight per cent rise in tariff and four-six per cent growth in traffic. Most analysts had lower expectations from the construction business because of the delays, high interest rates and other issues that the industry is grappling with. Compared to March quarter, construction revenues have improved by 13 per cent due to better execution.
The operating margins were stable at 45.6 per cent. However, the benefit of revenue growth did not translate in profit growth. Consolidated net profit for the June quarter declined 5 per cent year-on-year to Rs 135 crore, largely due to higher interest cost (up nine per cent) and tax expense. Analysts are expecting the revenues from the BOT business to grow at slower pace at about 6-8 per cent over the next two to three quarters as against their earlier estimates of about 10-12 per cent. But, the construction business will drive growth as it continues to have strong order book of Rs 7,663 crore, which is about 2.8 time the segment's FY13 revenues.
Post results, the stock has closed with gains of 2 per cent at Rs 70.85. The company has declared a dividend of Rs 2 per share and analysts are expecting it to give about Rs 4-4.5 dividend in FY14, which translates to a yield of 5.6 per cent. Analysts believe that there could be marginal earnings downgrades because of the traffic growth estimates. But, that would not have major impact on the stock as it already trades at lower valuations.
"Results are in line with our expectations. I think, the recent correction in the stock prices has come on account of overall (construction) industry concerns due to high interest rate environment. We believe the company is in good position with the strong operating cash flows and better balance sheet and trading at attractive stock valuations. Hence, even at current prices we recommend to buy the stock," said Amit Srivastava analyst with Nirmal Bang Equities.
