Target: ₹729.20

CMP: ₹239.15

IRB Infrastructure Developers Ltd (IRB) has historically underperformed broader market as investors feared that the management strategy to mostly undertake BOT projects can lead to stress on the balance sheet.

However, the management has strategically deleveraged its balance sheet through InvITs, private InvIT in partnership with marque investor GIC (IRB stake at 51 per cent), capital raise of ₹5,347 crore through preferential allotment to Cintra for 24.9 per cent stake (subsidiary of Ferrovial) and GIC for 16.9 per cent stake and a public InvIT (16 per cent stake with IRB).

This coupled with the fact that NHAI has upped its ante in terms of ordering contracts should now lead to removal of any fear from investor’s minds and hence, should lead o re-rating of the stock, given the current lucrative valuation. It is to be noted that IRB is net debt zero at the holding company level.

We initiate coverage on IRB with a Buy for a price target of ₹729.2 (SOTP methodology) representing an upside of 239.2 per cent over the next 30 months. Low traffic growth due to a fall in economic activity remains the key risk which is inherent to the road business.