KRC BUY - IRB INFRA

 

Market Update	KRC Investment Ideas
MARKET OVER VIEW   Sensex closed at 17,230.18 down 204.76 points, after touching a high of 17,367.13 and a low of 17,136.26. Nifty closed at 5,104.95 down 52.75 points, after touching a high of 5,160.05 and a low of 5,072.40.   Nifty May Futures ended 2.95 points discount at 5,102.00 to the spot Nifty of 5,104.95. Total turnover in NSE's derivatives segment was Rs. 378.76 billion as against Rs. 378.76 billion on Monday.     Market Dynamics         Indices Close % Change Market cap 1 Week 1 Month 1Year In Rs. Cr. Sensex 17,230.18 2.85 4.54 20.46 2,379,765 Nifty 5,104.95 2.93 4.63 21.55 2,982,791 BSE 100 9,138.39 3.25 4.55 24.96 3,794,246 BSE 500 6,847.19 3.12 4.45 23.82 5,378,754 BSE MidCap 7,106.06 2.15 3.94 16.69 816,877 BSE Small Cap 8,658.61 3.11 1.49 19.92 252,283                   FII & Mutual Fund Activity (In Rs.Cr.)         Date FII MF 20/05/2008 57.00 - 16/05/2008 729.90 227.80 15/05/2008 258.10 309.90 14/05/2008 186.30 133.10 13/05/2008 (125.40) (305.40)                            Currency v/s Re.(20/05/2008) INR / USD INR / GBP INR / EUR INR / JPY 100 42.67 (+0.07%) 83.41 (+0.49%) 66.39 (+0.59%) 41.05 (+0.76%)           Commodity – In US$ (20/05/2008) Crude Oil Aluminum Copper Lead Zinc Gold 123.57 3040 (+30) 8439 (+143) 2342 (+66) 2365 (+47) 902	IRB Infrastructure Developers Ltd (BSE CODE: 532947) CMP 6 Months Target Recommendation Rs. 208 Rs. 260 Buy IRB is an infrastructure development and construction company in India with extensive experience in the roads and highways sector. IRB has a strong track record in terms of projects delivery and in few instances has even enjoyed the benefits of early toiling due to early completion of projects. IRB also has an advantage of support of experienced promoters and skilled engineering staff. It has recently diversified into the real estate development sector in order to complement its infrastructure development business. Due to its early entrance in the Built Operate and Transfer (BOT), toll road business, IRB operates a large number of BOT projects which contributes to robust cash flow and a healthy bottom-line. IRB has toiling rights and O&M contract for the entire Mumbai-Pune stretch for 15 years. IRB Infrastructure Developers Ltd. was incorporated to fund the capital requirements of the IRB Group initiatives in the infrastructure sector. The company undertakes development of various infrastructure projects in the road sector through several Special Purpose Vehicles. (Businesses of holding co. and its subsidiaries will be implemented under superintendence, direction and control of the board of holding company, with the objective of maximizing value for all stakeholders.) IRB is having an extensive experience in the roads and railway sector. The company is currently involved in 12 BOT projects in the roads and highway sectors. We have recently diversified our business into the real estate development sector. Our proposed township project is the first real estate development project undertaken by us and is in its preliminary stages of planning and development. We are in the process of acquiring land in Mauje Taje and Mauje Pimploli Taluka in Pune district in the State of Maharashtra in India on which we propose to develop an integrated township. We intend to develop residential and commercial projects and have engaged Stup Design Forum in association with Stup Consultants Private Limited in connection with the development of the proposed township project. Currently, our Land Reserves consist of approximately 925 acres of land Mauje Taje and Mauje Pimploli Taluka in Pune district, and we intend to acquire an additional approximately 475 acres of land for our proposed township project. In connection with our proposed township project, we will be required to obtain various permits, licences and other regulatory approvals and there can be no assurance that these will be obtained on a timely basis or at all. Our Land Reserves consist of agricultural lands and we are yet to obtain the relevant certificates from the relevant regulatory authorities for the conversion of such agricultural land for purposes of our township project. IRB is having an in-house construction, toll collection and management capabilities. The engineering, procurement and construction (EPC) activities from IRB's funded construction projects as well as the BOT projects are all completed within the IRB group. In the same manner the operation and maintenance activities related to the BOT projects including toll collection are also executed within the IRB group. This enables the company to reduce its dependence on third party sub-contractors and thus exercise greater control over the quality and timely execution of the construction and maintenance work. The company own's a large fleet of construction equipment which enables the company to be less dependent on third parties for implementing various projects. This allows the company to enjoy a competitive advantage over other companies in the similar business segment who outsource their operations to external contractors.   IRB intend to move up the value chain by pursuing funded construction contracts particularly EPC contracts. This will thus enable the company to bid on larger projects, including international projects which would further improve the operating margins of the company.  Working on such higher value projects enables it to reduce operating costs & expenses and realise potentially higher margins.   Government's spending on the road infrastructure sector will be a key component of India's goal of sustained annual GDP growth. IRB's expertise and experience in the development, operation and management of road infrastructure projects along with having an established brand name will enable the company to bid & win large projects and participate in the fast growing infrastructure sector. Thus by targeting to specific project segment the company intends to be active in Western Indian states of Maharashtra and Gujarat along with pursuing suitable opportunity in other parts of India. The construction business of the company complements the Infrastructure business and involves engineering, procurement and construction work for construction projects on a contracted basis. Most of the work of the construction and infrastructure development business is won on a competitive bidding basis. The clients include Government entities that award projects specific contracts to bidders based on certain eligibility requirements.   The company has recently forayed into the real estate business and is in the process of acquiring land in Pune district in Maharashtra on which IRB proposes to develop an integrated township. The company intends to develop residential and commercial projects within the proposed township project. Currently the land reserve consists of 925 acres of land in Mauje Taje and Mauje Pimploli Taluka in Pune district.   The Indian infrastructure industry is experiencing phenomenal growth which is visible throughout the country in the form of new highways, roads, ports, railways, airports, power systems, townships, offices, houses and urban/rural infrastructure, including water supply, sewerage, drainage, irrigation and agriculture systems. The revised draft of the Eleventh plan approach paper states that investment in infrastructure would have to rise from the current 4.6% of India's GDP to an estimated 8.0 percent during the Eleventh plan period to meet India's target GDP growth rate of 9.0 percent.   IRB intends to be a market leader in the Infrastructure sector by building upon its core competency of development of road infrastructure projects, diversifying into real estate sector, entering into strategic alliance to undertake large value projects and moving up the value chain to realize better margins. IRB being one of the largest toll road operators in the country has a stable income thus making it a financially strong company.   IRB's current business is concentrated in the states of Maharashtra and Gujarat. Thus the business is significantly dependant on the activities, conditions and central and state government policies in these states. The company also intends to expand in other parts of India.

 

Disclaimer: This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, investors are advised to satisfy themselves before making any investments. Kisan Ratilal Choksey Shares & Sec Pvt Ltd., does not bear any responsibility for the authentication of the information contained in the reports and consequently, is not liable for any decisions taken based on the same. Further, KRC Research Reports only provide information updates and analysis. All opinion for buying and selling are available to investors when they are registered clients of KRC Investment Advisory Services. As a matter of practice, KRC refrains from publishing any individual names with its reports. As per SEBI requirements it is stated that,Kisan Ratilal Choksey Shares & Sec Pvt Ltd., and/or individuals thereof may have positions in securities referred herein and may make purchases or sale thereof while this report is in circulation.

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Regards,

Debayan.