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Hold IRB Infrastructure; target of Rs 135 ICICI Direct

IRB Infrastructure’s (IRB) topline grew 38.0% YoY to Rs 1788.5 crore (our estimate: Rs 1604.2 crore) on account of strong growth in construction and toll revenues. Construction revenues grew 54.9% YoY to Rs 1253.3 crore on account of strong execution. Toll revenues have grown 21.7% YoY to Rs 531.6 crore EBITDA margin declined sharply by 611 bps YoY to 42.5% (our estimate: 48.0% mainly due to lower margin in the construction division. The construction division margins (including other income) was at 25.0% vs. 32.5% in Q3FY18 PAT grew 5.5% YoY to Rs 218.9 crore (our estimate: Rs 264.8 crore) on account of a sharp EBITDA margin contraction and higher tax rate.

IRB’s construction revenues are expected to grow robustly on the back of strong order accretion. However, construction revenue growth for FY20E also hinges on receiving appointed date for its Tamil Nadu projects. Also, toll revenues from some of its key projects like Agra-Etawah and other three Rajasthan projects continue to remain weak due to construction activities and diversion of traffic. Hence, we maintain our HOLD rating on the stock with a revised SOTP based target price of Rs 135/share.