IRB Infrastructure toll growth and O&M order book underpin FY28 earnings
IRB Infrastructure Developers Ltd.
Buy
-
₹19.36
₹25
-
Investment View and Valuation
Motilal Oswal Financial Services retains its Buy rating on IRB Infrastructure and its sum-of-the-parts-based target price of Rs 25, compared with a CMP of Rs 20. The broker believes the company’s steady 1QFY27 operating performance is supported by rising toll collections and sustained contributions from BOT assets and InvIT-related assets.
Earnings growth is expected to increasingly come from O&M and toll revenue rather than core EPC construction, as EPC order inflows remain subdued.
1QFY27 Financial Performance
| Metric | 1QFY27 | Year-on-year change | Comparison with estimate |
|---|---|---|---|
| Revenue | Rs 21.3 billion | Up about 2% | 5% above estimate |
| EBITDA | Rs 11.5 billion | Up about 21% | Broadly in line |
| EBITDA margin | 53.9% | — | Against 55% forecast |
| Adjusted profit after tax | Rs 3.0 billion | Up 51% | 10% above estimate |
Revenue included fair-value gains on InvIT-related assets, as well as dividend and interest income from those assets. IRB declared an interim dividend of Rs 0.05 per share.
Segment Performance
| Segment | Revenue | Revenue growth | EBITDA | EBITDA margin |
|---|---|---|---|---|
| Construction | Rs 9.6 billion | Down 21% | — | 14.6%, versus 20.6% a year earlier |
| BOT | Rs 7.3 billion | Up 13.5% | Rs 6.7 billion | 90.7%, with EBITDA up 23.4% |
| InvIT-related assets | — | — | Rs 4.1 billion | 94% |
Construction performance weakened because of pressure from the subdued order book. In contrast, strong BOT profitability and gains from InvIT-related assets supported consolidated margins.
Order Book and Execution Outlook
The order book stood at Rs 441 billion excluding GST as of June 2026. It comprised Rs 424 billion of O&M contracts and Rs 17 billion of EPC contracts. The executable O&M and EPC order book over the next two years is about Rs 43 billion.
Management aims to build a sustainable O&M order book that can provide stable revenue visibility for 10–12 years. It expects O&M execution to increase to 50% of the order book from about 25–30% currently. Management expects EPC margins, including O&M, of 18–20% and BOT margins of about 90%.
Project Awards and Capital Recycling
Road project awarding was muted in 1QFY27, although management expects an improvement in 2HFY27. IRB Infrastructure is prioritising toll-operate-transfer projects and selective BOT projects rather than HAM and EPC opportunities. Competition in BOT and HAM projects remains intense.
The FY27 toll tariff revision was about 2.5–3.0%, reflecting lower inflation and rounding mechanisms. The company also signed a binding term sheet to transfer two BOT highway assets, SY and CG, from its private InvIT to its public InvIT at an enterprise value of Rs 46.05 billion. The transaction supports the company’s capital-recycling strategy.
Management Targets and Broker Estimates
- Road assets under management of about Rs 1,400 billion over the next three years, compared with about Rs 800 billion currently.
- Cash return on equity above 14% over five years, compared with about 8% currently.
- A net debt-free balance sheet by FY30.
Motilal Oswal forecasts revenue CAGR of 19% over FY26–28 with stable EBITDA margins. The broker retained its FY27E and FY28E revenue and EBITDA estimates, while raising FY27E adjusted PAT by 3% to Rs 12.2 billion. FY28E adjusted PAT remains at Rs 19.4 billion.
Key Risks to the Investment Thesis
- Continued muted EPC inflows.
- Further pressure on construction margins.
- Modest toll tariff growth.
- Intense competition in BOT and HAM project bidding.
Disclaimer: This is a summary of a research report published by the broker/research house identified above. The views, recommendations, target prices and estimates are those of the respective broker and do not represent DSIJ investment advice. The summary may be AI-assisted, hence please refer to the original report for complete details, disclosures and risks.
