IRB Infrastructure's BOT and InvIT mix drives margins as PPP pipeline expands

Investment View and Valuation

In its July 31, 2026 result update, Anand Rathi Research upgraded IRB Infrastructure to BUY and raised its SOTP-based target price to Rs 29. The constructive view is based on improving earnings quality from a richer mix of high-margin BOT and InvIT income, disciplined asset recycling, debt reduction and a sizeable PPP road opportunity pipeline.

The Rs 29 target price is based on a sum-of-the-parts valuation, including the EPC business at 15 times FY28E EPS, DCF valuation of two ToT assets and IRB Infra Trust, market value for IRB InvIT, 1.5 times price-to-book for two HAM assets, and adjusted values for airport, real estate and arbitration awards, less net debt.

Q1 FY27 Financial Performance

IRB Infrastructure reported Q1 FY27 revenue from operations of Rs 21,373 million, up 1.8 per cent year on year and 10.9 per cent quarter on quarter. Revenue excluding other income of about Rs 21.4 billion was approximately 11 per cent ahead of Anand Rathi's estimate, driven by stronger BOT and InvIT contributions.

The EBITDA margin excluding other income expanded by about 860 basis points year on year. Reported PAT growth was aided by lower finance costs following refinancing and continuing deleveraging.

Revenue Mix and Margin Expansion

The principal structural driver is the shift in revenue mix toward BOT and InvIT businesses. Together, they accounted for 58 per cent of Q1 FY27 revenue, compared with 43 per cent in Q1 FY26, while construction's contribution declined to 42 per cent from 57 per cent.

Consolidated EBITDA margin including other income increased to 56.9 per cent from 47.5 per cent. Anand Rathi expects construction revenue to remain broadly stable at Rs 42-43 billion annually, while rising BOT and InvIT income supports sustained margin expansion and better earnings quality. Its estimates project consolidated EBITDA margin to rise from 52.1 per cent in FY26 to 54.8 per cent in FY28E.

Toll Collections and Order Book

Toll collections and the order book support the growth case. Total toll collection reached Rs 24,440 million in June 2026, up 46 per cent year on year. Average collection was Rs 270 million per day, compared with Rs 214 million a year earlier.

IRB's order backlog stood at about Rs 441 billion as of June 30, 2026. This included an O&M opportunity backlog of about Rs 424 billion and core-project EPC orders of about Rs 17 billion. About Rs 26 billion of the O&M order book is expected to be executed over the following 12 months.

PPP Road Pipeline and B.E.S.T. Model

Anand Rathi sees IRB as well positioned for the accelerating PPP road cycle through its Bid-Execute-Stabilise-Transfer, or B.E.S.T., model.

• NHAI has identified 17 assets spanning 1,693 km for InvIT or ToT monetisation in FY27, with FY26 toll collection of about Rs 18.2 billion.
• ToT Bundles 20-22 cover 376 km.
• BOT projects worth about Rs 454 billion were under bidding across NHAI, MoRTH and the Uttar Pradesh government.

Capital Recycling and Balance Sheet

Capital recycling and refinancing are central to the balance-sheet thesis. IRB signed definitive agreements to monetise two BOT assets for an enterprise value of about Rs 47.3 billion. The transactions are expected to unlock about Rs 27 billion of equity for redeployment into new BOT and ToT opportunities worth about Rs 80 billion.

Net debt declined to Rs 107 billion in Q1 FY27 from Rs 118 billion a year earlier, reducing net debt-to-equity to 0.51 times from 0.58 times. Refinancing about Rs 147 billion of debt lowered borrowing costs by 65-160 basis points and is expected to save about Rs 2.1 billion annually in interest. The company aims to become net debt free at the standalone level by 2030.

Key Risks

Anand Rathi identifies significant delays in inflows and weaker traffic growth as the key risks to its outlook.