IRB Infra hits 11 month low in intra-day trade after CBI files chargesheet against the company

IRB Infrastructure drops over 2.3% today after CBI filed chargesheet against the senior officials of the company and its subsidiary - Aryan Infrastructure Investments Private Ltd. The matter relates to the illegal purchase of government land in Maharashtra. The chargesheet was filed in a special court in Pune under Sections 120 (b), 420, 511 of IPC and sections of the Prevention of Corruption Act. It is alleged that Virendra Mhaiskar, chairman and managing director of IRB Infrastructure and 17 others have attempted to cheat the state by grabbing government land at village Pimpaloli along the Pune-Mumbai expressway for a proposed integrated township project. The case was initiated in 2009 by RTI activist Satish Shetty, who was murdered in January 2010.  The stock hit an intra-day low of Rs 194.7, which is 11 month low. The stock recovered some ground during the day and closed at Rs 205.2, which is -2.3% below the previous day's close.

IRB Infrastructure commenced operations in 1998 and it is engaged in construction, project management and engineering. It executes build-operate-transfer (BOT) road and highway projects. Its portfolio comprises of 22 BOT projects, out of which 14 are operational and 8 projects are under implementation. Its major clients are government agencies, such as NHAI and State Road Development Authorities, which engage in the development of the country's highways. The company has a strong order book of Rs 9959 crores at the end of FY17.

In the last five years, company's net-worth and BOT assets registered an annualised (CAGR) growth of 13% and 22% respectively. In FY17, on a consolidated basis, its sales revenue grew by 14% compared to FY16. 40% of the revenue comes from toll collections whereas 60% comes from construction. The operating profit and net profit grew by 13.8% and 11.9% respectively between FY16 and FY17. The company has shown efficiency in utilization of capital as both ROCE and ROE improved between FY16 and FY17. ROE improved from 13% in FY16 to 14% in FY17, whereas, ROCE improved from 10% in FY16 to 11% in FY17.

Looking at the consolidated quarterly results for Sep 2017, the company witnessed decline in sales revenue and operating profit compared to Sep'16 quarter. The sales revenue fell by -13% whereas the operating profit went down by -3.2%. The fall in revenues are due to transfer of investments in six subsidiary companies to IRB InvIT Fund. Substantial jump in other income (335.6%) and reduction in interest costs (-30.6%) and depreciation costs (-44.6%) helped IRB Infrastructure post healthy bottom-line growth of 65.1%. Its net profit margin improved substantially from 11.02% in Sep'16 to 20.9% in Sep'17.

The stock trades at current PE of 18.02 times which is lower than the average PE (equally weighted) of BSE Infrastructure Index of 22.2 times. In the last one year, the stock has significantly underperformed the market. It gained 12.2% between 6 Dec 2016 and 6 Dec 2017. The BSE Infrastructure Index and BSE Sensex gained 24.6% and 23.5% respectively during the same period.