LIC-Backed Stock Has 142% Potential Upside In 24 Months: Buy This Week?

On Friday, the shares of IRB Infrastructure Developers reached a fresh 52-week-high Rs 39.50 apiece and closed with an upside gap of 3.18% at Rs 38.95. Despite the company's 25% year-to-date gain, Ventura Securities, a brokerage company, believes there is enormous potential for growth in the stock over the next 24 months. With a target price of Rs 94.50, the firm issued the company a buy recommendation, indicating a potential upside of 142.61% from the stock's current market price of Rs 38.95.

Commenting on the stock price of IRB Infrastructure Developers, Ventura Securities said in a note that "Since we initiated coverage on IRB Infrastructure Developers Ltd (IRB) on Oct 14, 2022, the stock has surged 67.4% to reach its record high of INR 36 per share, attributed to enhanced cash flows from ongoing projects and robust cash flows from private InvIT distribution. Given the substantial business developments that have taken place over the past 12 months, we reinitiate coverage on IRB as a buy with the recommended price target of INR 94.5 per share (FY26 P/E of 37.7X). This represents an upside potential of 173.9% from the CMP of INR 34.5 over the next 24 months."

"Our optimism stems from the fact that over the period FY23-26, IRB's revenue/ EBITDA/ net earnings are expected to grow at a CAGR of 13.9%/ 11.5%/ 28.1% to INR 9,456.7 cr/ INR 4,485.7 cr/ INR 1,402.3 cr respectively, while the company's net margins are expected to improve by 476bps to 16.0% by FY26E. Consequently, the company's RoE is expected to increase by 384bps, reaching 9.2%, and RoIC is expected to rise by 142bps, reaching 10.5% by FY26E," the brokerage note stated.

On the future growth outlook of IRB Infrastructure Developers, Ventura Securities said "Going ahead the outlook for the industry is extremely buoyant given that NHAI plans to award INR 854 bn worth of priority category road projects in FY24, with INR 400 bn specifically designated for BOT road projects, where the competitive intensity is lower. IRB's partnership with GIC, in the ratio of 51:49 in the private InvIT provides a strong developmental platform to bid for BOT and TOT projects. This augurs very well for IRB."

For the September quarter, IRB Infrastructure Developers reported a 12.24% rise in total net profit to Rs 95.74 crore. According to a statement from the corporation, its consolidated net profit for the same quarter of the previous year was Rs 85.30 crore. In Q2FY24, the total income climbed to Rs 1,874 crore from Rs 1,438 crore in Q2FY23. According to the corporation, during the first half of the current fiscal year, toll revenue across IRB and Pvt InvIT businesses jumped by 20% YoY to Rs 2,386 crore from Rs 1,984 crore in H1FY23.

EBITDA margins fell by 399bps to 45.5% in Q2FY24, however, IRB's EBITDA climbed at a YoY pace of 19.5% to Rs 795 cr. As of September 30, 2023, the net debt of the firm was INR 16,289 cr, higher than its previous levels of INR 13,129 cr on March 31, 2023, and INR 14209 cr on September 30, 2022. Consequently, during the previous 12 months, net debt to equity and net debt to EBITDA went from 1.1X to 1.2X and 4.6X to 5.3X, respectively. As a result, in Q2FY24, RoE and RoIC fell by 166 bps to 3.7% and 130 bps to 7.3%, respectively.

"In the past 5 years, IRB has successfully monetized road assets through various channels, including public InvIT and private InvIT, and has also partnered with Cintra and GIC, collectively owning a 45% stake in the IRB listed company. With a consolidated net debt-to-equity ratio of 1.2X, IRB is well-positioned to raise funds for new BOT projects without facing any obstacles," said Ventura Securities.

During Q2FY24, the insurance giant LIC held 20,08,79,750 shares or 3.33% stake in the company.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.