IVRCL INFRASTRUCTURES LTD
PRICE: RS.370 RECOMMENDATION: BUY
TARGET PRICE: RS.449 FY11E P/E: 16.5X
Event highlights
q IVRCL is de-merging BOT assets from the core company and amalgamating
with IVR Prime.
q IVR Prime has also approved the draft scheme of amalgamation with effect
from Apr, 2009 subject to court, shareholders and regulatory approvals.
q IVR Prime will issue 59.46mn shares of IVR Prime to IVRCL for BOT assets
at a valuation of Rs 8.3bn. Correspondingly, IVRCL's holding in IVR prime
is likely to go up from 62.35% to 80.46%.
q This restructuring is likely to result in higher networth of the merged
entity, thereby enabling company to bid for larger size projects.
q IVRCL has got a good valuation for its BOT assets and post restructuring,
company would be able to focus purely on execution of projects.
q We continue to maintain our positive bias for IVRCL and continue to
maintain BUY recommendation with a revised price target of Rs 449 on
FY11 estimates. (Rs.415 earlier)
Key highlights of restructuring
IVRCL's BOT assets
n Company is currently executing road BOT, water desalination, sewage water
treatment, tankage and oil and gas related projects through its SPV's. All these
assets will now be transferred to IVR Prime and IVR prime would then become a
focused asset play with interests in roads, water, power transmission, oil & gas,
parking plazas and real estate.
n Out of the road BOT projects, Kumarapalyam tollways has commenced toll collection
while construction on Jalandhar-Amritsar Tollway and Salem
Kumarapalyam tollway project is likely to get over by Jan, 2010. For Baramati to
Phaltan project, financial closure is under progress. Company is also L1 in Sion-
Panvel project of total cost of Rs 15bn.
n Construction and EPC work on Chennai Water desalination project is already
over and plant is being on trial with quality and capacity of water being tested.
n Company has also bid for tankage related projects and is currently L1 in projects
worth Rs 30bn.
Benefits of restructuring
n Higher networth - Restructuring of assets is likely to result in enhanced
networth for IVR Prime and the merged entity along with IVRCL and other players
will be able to bid for even larger sized projects and compete with other
players. IVR Prime will also emerge as a pure asset play to bid for infrastructure
projects in different segments and execution of those projects will be carried
out by IVRCL. Higher networth is also likely to result in enhanced financial flexibility
to the merged entity to raise further funds.
n More stable cash flows for IVR Prime - This will also offer a much stable
stream of revenues for IVR Prime post commissioning of toll collections at all
road BOT projects as compared to the lumpy revenue streams currently seen
from the real estate business.
Summary table
(Rs mn) FY09 FY10E FY11E
Revenues 48,819 63,952 76,743
% change YoY 33.4 31.0 20.0
EBITDA 4,218 6,075 6,907
% change YoY 16.7 44.0 13.7
Other Income 299 150 120
Depreciation 473 630 697
EBIT 4,044 5,596 6,329
% change YoY 21.4 38.4 13.1
Net interest 1,306 1,518 1,798
Profit before tax 2,738 4,077 4,531
% change YoY (4.1) 48.9 11.1
Tax 478 1,386 1,541
as % of PBT 17.5 34.0 34.0
Net income 2,260 2,691 2,991
% change YoY 7.3 19.1 11.1
Shares OS (m) 133.5 133.5 133.5
EPS (reported) (Rs) 16.9 20.2 22.4
P/E (x) 21.9 18.4 16.5
EV/EBITDA (x) 14.4 10.3 9.7
RoE (%) 13.2 13.9 13.6
RoCE (%) 13.7 15.8 15.1
Source: Company, Kotak Securities - Private
Client Research
EVENT UPDATE
Teena Virmani
teena.virmani@kotak.com
+91 22 6621 6302
Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 3
MORNING INSIGHT November 11, 2009
IVRCL Infrastructures & Projects Ltd.
IVR Prime Urban Developers Ltd.
Chennai Desal
First STP
Salem Tollways Ltd.
Kumarapalayan Tollways
Ltd.
Jalandhar & Amritsar
Tollways Ltd.
75%
95%
100%
100%
100%
Paltan-
Baramati
Panvel-Sion
75%
51%
Tankage
100%
Alkor Petro
37.5%
CChheennnnaaii DDeessaall
FFiirrsstt SSTTPP
SSaalleemm TToollllwwaayyss LLttdd..
Kumarapalayan Tollways
Ltd.
Kumarapalayan Tollways
Ltd.
Jalandhar & Amritsar
Tollways Ltd.
Jalandhar & Amritsar
Tollways Ltd.
Paltan-
Baramati
Paltan-
Baramati
PPaannvveell--SSiioonn
TTaannkkaaggee
AAllkkoorr PPeettrroo
n Reduced working capital requirement for IVRCL - IVRCL has given Rs 2.8bn
of loans to IVR Prime through loans and advances. With stable stream of cash
flows from existing as well as upcoming projects for IVR Prime, overall loans and
advances for IVRCL are likely to come down. Along with this, overall equity
commitment for IVRCL will also go down, thereby enhancing cash flows for the
core construction business for the company.
n Near term equity funding requirement for BOT projects from IVR Prime
are likely to be funded through monetization of land bank. IVR Prime has
indicated that company may need around Rs 4.5bn for equity commitment for
projects in L1 stage which can be funded through real estate launches and land
bank proceeds. Along with this, IVR Prime can also securitize the receivables
from the commissioned project and fund the future projects. In the longer run,
we believe that IVR prime may have to raise funds for funding equity requirements
for larger sized projects.
Valuation of assets
n We had valued water BOT project at P/BV of 1.2x while road projects at P/BV of
1.5x and arrived at a valuation of Rs 4.4bn. Post restructuring, these assets will
be transferred to IVR Prime and correspondingly IVR Prime will issue 59.46mn
shares of itself to shareholders of IVRCL. At a price of Rs 139, the valuation of
these assets comes out to be Rs 8.3bn.
n Correspondingly, IVRCL's holding in IVR prime will go up from 62.35% to
80.46%.
Valuation and recommendation for IVRCL
n At current market price of Rs 370, stock is trading at 18.4x and 16.5x P/E and
10.3x and 9.7x EV/EBITDA multiples on FY10 and FY11 estimates.
n Based on increased holding in IVR Prime, our price target for IVRCL stands
changed to Rs 449 as against Rs 415 earlier.
n We continue to remain positive on the company and maintain BUY on the
stock.
Sum of the parts methodology
Valuation - based on FY11 Rs per share Parameter
Core business valuation 336 Based on 15x FY11 estimated earnings
Value for IVR Prime Urban developers 96 Holding company discount of 15%
Value for Hindustan Dorr Oliver stake 17 Holding company discount of 15%
Value per share 449
