Top Brokerage Recommends Buy This Multibagger Small Cap Infra Stock, Sees Potential Upside Up To 209%

Ventura Securities is bullish on IRB Infrastructure Developers Ltd (IRB), suggesting "buy". The brokerage sees a potential upside of up to 209% from its current level considering the given target price of Rs 729.2 per share. The duration for the potential upside is 30 months, according to the brokerage. IRB is a small-cap infrastructure sector stock having a market cap of Rs 14,282.24 per share.

Stock Outlook & Returns

The current market price (CMP) of the stock is Rs 236.95 per share on NSE. At the time of writing the stock is trading 0.30% up from its previous close of Rs 236.25 per share. Today, it opened at Rs 235.10 per share.

The stock has surged 8.99% in the past 1 week, whereas, in the past 1 month it surged 5.11%. Over the past 1 year, the stock has given an 11.48% positive return. In the past 3 years, the stock has given a multibagger return of 251.75% and in 5 years, it gave 13.75% positive returns to investors.

Its 52-week low level is Rs 178.90 recorded on 20 June 2022, and the 52-week high is Rs 345.85 recorded on 25 October 2021, respectively.

Cruising in top gear…

IRB has historically underperformed broader market as investors feared that the management strategy to mostly undertake BOT projects can lead to stress on the balance sheet. However, the management has strategically deleveraged its balance sheet through InvITs, private InvIT in partnership with marque investor GIC (IRB stake at 51%), capital raise of INR 5,347 cr through preferential allotment to Cintra for 24.9% stake (subsidiary of Ferrovial) and GIC for 16.9% stake and a public InvIT (16% stake with IRB).

This coupled with the fact that NHAI has upped its ante in terms of ordering contracts should now lead to removal of any fear from investor's minds and hence, should lead to re-rating of the stock, given the current lucrative valuation. It is to be noted that IRB is net debt zero at the holding company level. Its EBITDA margins in the construction business are >20% whereas the equity requirement is only 16% pursuant (the 70:30 debt equity) for BOT projects(IRB's share is 51% in equity while 49% is held by GIC, which is also a recurring partner). IRB now has the financial firepower with GIC and access to global best practices in Road BOT business with Cintra and is thus uniquely positioned to capitalize on the government's NIP, NMP, Gati Shakti initiatives. We believe that IRB is at the threshold of accelerated growth given its expanding footprint and improved balance sheet.

Brokerage's comments

Ventura Securities said, "We expect revenue to grow at a CAGR of 14.7% over FY22-25 to INR 9,602.1 cr in FY25. We expect overall blended margins to be tad lower than FY22 levels. Finance cost is expected to fall by 9.8% CAGR as we expect the total debt to decrease from INR 13,822.5 cr in FY22 to INR 13,232.1 cr in FY25. We expect improvement in net debt/equity & net debt/EBITDA from 0.9x & 3.5x in FY22 to 0.4x & 1.3x in FY25. Net earnings are expected to grow at 64.0% CAGR over FY22-25 from INR 361.2 cr in FY22 to INR 1,592.8 cr in FY25. Return ratios namely RoE/RoCE/RoIC are expected to improve by 697/300/680bps over FY22-25 to 9.8%/15.6%/20.5% in FY25."

Buy for a target price of Rs 729.2 per share

"We initiate coverage on IRB with a BUY for a PT of INR 729.2 (SOTP methodology) representing an upside of 239.2% over the next 30 months. Low traffic growth due to a fall in economic activity remains the key risk which is inherent to the road business,," the brokerage said.

 

Disclaimer

The stock has been picked from the brokerage report of Ventura Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.