Mumbai based IRB was incorporated in 1998 by Mr. Virendra D. Mhaiskar, who has more than two decades of experience in the infrastructure sector. Besides, he is well-supported by experienced professionals having more than a decade of experience in their respective fields. The company is one of the leading players in the domestic infrastructure sector which is engaged in EPC and O&M business for roads & highways, airports and real estate segments. IRB has an established track record of more than two decades in executing EPC contracts and has constructed more than 12,500 lane kilometres of road since its inception. As of June 2022, IRB has portfolio of two fully owned BOT, one TOT and four hybrid annuity mode (HAM) projects. Of the seven projects, one projects each in BOT, TOT and HAM are operational, two HAM projects are under construction and the balance one project each in BOT and HAM are awaiting appointed date. The sponsor has 51% holding and balance 49% percent is held by GIC affliates in Singapore. The company has in-house Engineering Procurement, Construction (EPC) and Operation & Maintenance (O&M) activities primarily handled by its subsidiary, Modern Road Makers Pvt. Limited, (MRMPL). IRB has low dependency on external subcontracting for order execution which helps the company to maintain healthy operating margin in its construction business. Acuité believes that IRB’s established position in the Infrastructure industry and its project execution capabilities across various platforms namely EPC, BOT and HAM will support its business risk profile over to near to medium term.

Healthy order book position reflecting healthy revenue visibility over the medium term
IRB is engaged in the execution of EPC contracts and BOT road projects for over two decades. The company have an order book of Rs.16051 Cr. as on March 31, 2022 which includes O&M for BOT road projects worth Rs. 5591 Cr. and EPC for BOT projects worth Rs. 10459 Cr. The current order book includes couple of recently bagged projects i.e. two BOT projects namely Palsit – Dankuni, Ganga Expressway and three HAM projects together worth of Rs.10000 Cr. The book to turnover (FY2022) ratio stood at 2.74x, thus giving a healthy revenue visibility in the near to medium term. Further, the company also plans to bid for new projects in medium term which will further improve the order book position of the company. IRB’s revenue improved to Rs. 5852 Cr. in FY2022 against Rs. 5352 in FY2021.This is primarily on account of rebound post the disruptions caused by spread of Covid 19. However, the revenue has still not reached its pre- Covid levels. Out of the total revenue Rs. 3930 Cr. came from contracting and the toll revenues stood at Rs. 1749. The same stood at Rs. 3724 Cr. and Rs. 1469 Cr. respectively in FY2021 and Rs. 5108 Cr. and Rs. 1705 Cr. in FY2020. The tolling revenue has shown a sharper recovery compared to contracting. The companies operating profitability remained stable with operating margin of 44.80 percent in FY2022 against 48.04 percent in the previous year.

Acuité believes the pace of construction is likely to improve given the start of work on its recently received orders and improvement in toll revenues expected in FY2022 onwards.

Improvement in financial risk profile
IRBIDL’s financial risk profile has shown an improvement primarily on account of successful of fund raising exercise. The company raised equity of Rs. 5347 Cr. through an preferential issue to Cintra INR Investments BV (part of Ferrovial group) and Bricklayers Investments Pte (part of GIC). Cintra and Bricklayers has acquired 24.9 and 16.94 percent respectively. The current promoter and promoter group remain in control and the largest shareholders. However, overall promoter’s stake has diluted to 34.20 percent in December 2021 from 58.46 percent in September 2021. The company used the additional funds to reduce high-cost debt to the tune of ~Rs. 3000 Cr. and the rest of the funds will be used as capital for current and future orders. Given the above-mentioned changes in IRB’s capital structure its gearing has improved to 1.27 times as on March 31, 2022 against 2.69 times as on March 31, 2021. Coverage indicators have also shown an improvement with interest coverage improving to 1.65 times in FY2022 against 1.50 times in FY2021 and Debt service coverage ratio improving to 1.23 times in FY2022 against 1.02 times in the previous year. Debt to EBITDA however remains high at 5.10 times in FY2022 against 7.32 times in FY2021.

Going forward the IRBIDL’s debt is expected to increase over the medium term as debt funds for its ongoing projects which are currently at initial stages are disbursed. However, it has expected to have a limited impact on its capital structure given its adequate capital. Further, it has equity commitment from GIC for two of its projects from GIC thus reducing equity commitments required from IRBIDL.

Although Acuite believes IRB’s ability to generate adequate operating profitability commensurate with its debt will continue to remain a key rating sensitivity.

 

Cash flows susceptible to traffic volumes; revenues linked to tender floated by Government
IRB is exposed to risks such as delays in receipt of approvals in the infrastructure segment, which may impact operational cash flows. The timely flow of orders and their execution are critical to the maintenance of steady revenue growth. IRB is also required to support the projects until the projects reach optimal utilization. The cash flows of a toll-based project are dependent on traffic volumes which in turn are largely influenced by the level of economic activity in and around the area of operation. In the event of a project’s cash flows being insufficient to meet its debt servicing commitments/maintenance commitments, the support would be required to be extended from IRB. Additionally, lower than expected traffic volumes due to prolonged slowdown in the economic activities may also impact cash flows, causing cash flow mismatches. In such cases, support may be required to be extended to the SPVs. IRB has a presence in construction industry and faces intense competition from the presence of several mid to large sized players in the said industry. The risk becomes more pronounced as tendering is based on minimum amount of bidding on contracts and susceptibility to inherent cyclicality in the sector. The recent relaxation of qualification norms by the Central Government for undertaking road projects is further expected to intensify the competitive scenario in the industry.

However, Acuité believes that IRB is well positioned on account of its established brand position and experience of its promoters spanning over three decades.