IRB Infra’s Future Growth Depends on Winning New Highway Projects

IRB Infrastructure Developers Ltd has struggled recently, underperforming compared to the Nifty 500 index over the past six months. This decline is partly due to a stake sale by its promoters and Cintra, a subsidiary of the Spanish company Ferrovial, as well as a lack of new projects.

Despite these challenges, IRB’s stock has soared by 94% over the past year, thanks in part to winning two toll-operate-transfer (TOT) contracts last year, which began toll collection in April. However, due to its high valuation of 2.6 times the FY24 book value, Incred Research Services has rated the stock as ‘reduce.’

In FY25, toll collections have primarily come from new projects, with IRB and IRB Infrastructure Trust reporting a 20% year-on-year increase in toll collections for August. For the first five months of FY25 (April-August), toll growth reached 30%, but excluding new projects, it was only 2%, according to an Antique Stock Broking report from September 30.

Incred predicts IRB’s consolidated sales will grow only slightly—by 2.8%—due to lower revenue from construction, which has been affected by heavy rainfall. EBITDA growth is expected to be flat, following a 10% increase in Q1. Despite this, IRB’s strong EBITDA margin of around 45% has kept its consolidated net debt-to-equity ratio at about 0.9x as of June.

Focusing on NHAI Projects

IRB is hopeful that toll collections will rise during the festive season. The company’s future stock performance will depend heavily on winning large projects from the National Highways Authority of India (NHAI), which has projects worth ₹45,000 crore lined up for bidding in the coming months. IRB aims to grow its project portfolio but must avoid stretching itself too thin in this capital-intensive sector.

So far in FY25, there have been few highway construction project awards due to general elections, but this is expected to change in the latter half of the year. Over the next 18 to 24 months, BOT projects worth ₹2 trillion and TOT projects worth ₹1 trillion are anticipated to be awarded.

IRB has a strong focus on TOT projects, holding a 38% market share, thanks to the limited competition. Its BOT market share is at 10%.

Currently, IRB operates more than 12,500 lane kilometers (lkm) of road assets, with another 3,000 lkm under construction. These assets include those owned by IRB Infrastructure Trust, which holds 51% equity, while GIC (Singapore’s sovereign wealth fund) and Cintra hold the rest.

As of Q1 FY25, IRB’s order book for the engineering, procurement, and construction (EPC) segment was about ₹4,800 crore, resulting in a low order-book-to-sales ratio of 0.9 times based on the last 12 months of segment revenue. Investors will be closely monitoring upcoming project awards to see if order inflows exceed expectations.