IRB Infrastructure Ltd… 32% 24 Months INITIATING COVERAGE IRB INFRASTRUCTURE - Road to Prosperity

I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H Current Price Target Price Rs.193.90 Rs 255.46 Potential Upside Time Frame IRB Infrastructure Ltd… 32% 24 Months INITIATING COVERAGE IRB INFRASTRUCTURE - Road to Prosperity

IRB Infrastructure Developers Ltd. continues to play a bigger role Industry Infrastructure on the increasing demand from the recent infrastructure thrust to develop Roads, National Highways, Bridges and Tunnels in India. Mr. M H KALE It is one of the top most leaders in the BOT based project in the Chief Financial Officer Road development Programme. IRB order book remain to be IRB INFRASTRUCTURE LTD healthy with Rs 5660crs (as on June2009) which is bifurcated (O) 91-22-6640 4220 between EPC - Rs 30,93Crs (EPC in ongoing BOT Projects Stock metrics 2866Crs + Funded Projects 2,27Crs) with an average execution Bloomberg code IRB IN period of 24-30 months & O&M – Rs 2,567Crs with an execution Reuters code IRBI.BO period of 10-12 years. The Company enjoys the margin of ~ 16% BSE Group A in the construction order book compare to 10-11% of industry BSE Code 532947 standard which is mainly due to on account of the lower subcontracting cost & larger equipment base. We remain positive NSE Code IRB INFRA on the fundamentals of the company going forward. At the CMP, Face Value Rs 10 the stock trades at a EV/EBITDA multiple of 17.74x, 8.74x & ISIN NO INE882101014 6.50x its FY09, FY10E & FY11E earnings. Valuation

Market Data We expect the revenue & net profit to grow at the CAGR of 62%

& 68% for the period from FY09 to FY11E. We have done the Market Cap (Rs Cr) 6616.76 SOTP Valuation for IRB INFRA. DCF Valuation of BOT projects 52WeekHigh/Low 226.90/65.00 aggregates to Rs 163.98/shares while the EPC contributes nearly at Sensex 15551.19 Rs 60.94/share. NAV of the 1250acres of land contributes the land Nifty 4625 value at Rs 5.94/share, Wind Mills at Rs 3.18, & Cash with holding company at 21.42. The SOTP of the complete valuation of the IRB Average volume 585179 Infra comes at Rs 255.46/ share with an upside of 32%. We initiate coverage on IRB Infrastructure with a BUY rating with huge order Shareholding Pattern : book backup.

7.09% 10.86% 73.86% 8.19% Year Ended March F Y 08 F Y 09 F Y 10E F Y 11E Net Sales (Rs.Crs) 732.68 991.88 2001.113128.72 growth (%) 139.67 35.38 101.75 56.35 EBIDTA (Rs.Crs) 463.94 467.00 1001.55 1442.29 growth (%) 151.05 0.66 114.46 44.01

FIIs MF & Insurance PBT (Rs.Crs) 166.58 214.96 466.36 682.15 Promoters Public growth (%) 273.91 29.05 116.95 46.27 Net Profit (Rs.Crs) 113.96 175.86 383.05 560.91 Research Analyst Ashish Pandey growth (%) 404.23 54.33 117.81 46.43 [email protected] EBIDTA Margins (%) 63.32 47.08 50.05 46.10 022-40751515 Net Profit Margins (%) 15.55 17.73 19.14 17.93 Denil Savla EPS 3.43 5.29 11.5316.88 [email protected] ROE (%) 7.03 10.17 18.74 22.11 022-40751515 EV/EBIDTA (x) 16.63 17.74 8.74 6.50 PE 54.54 35.34 16.23 11.08 rd September 3 2009 Source:- IGSL Research 1 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

TABLE OF CONTENT

Table of Contents Page no. Investment Thesis …… 3 Company Back ground ...... 5 Business Segments…... 8 Industry Outlook • Indian Road Industry…… 10 • BOT Projects …... 11 • NHDP Programme …... 12 • Public Private Partnership …… 15 • Infrastructure Sector ……. 16 Peer Group in BOT Segments 18 PAN India Presence …… 20 Order Book Composition ……. 21 Recent Awarded Projects ……. 22 Concerns …… 24 Financial Charts ……. 25 Quarter Analysis …… 29 Target Price Derivation ……. 30 Profit & Loss A/C Analysis …… 31 Balance Sheet Analysis …… 32 Cash Flow Statement …… 33 Ratio Analysis …… 34

2 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H Investment Thesis

Positive growth of the road infrastructure in India helps IRB Infra utmost: - India has the world's second largest road Road freight industry growing at network after the United States of America (USA), aggregating the robust pace of 9.9% CAGR nearly around 3.34mn kilometers (km). As Planning Commission of boost IRB infra to be most India, has predicted the road freight industry would be growing at prominent road player…… the robust pace of 9.9% CAGR from 2007-08 to 2011-12. Indian Government has launched the ambitious National Highway Development Programme (NHDP) involving a total investment of US$ 54.1 billion up to 2012. In 2008 -09, NHAI has infused US$ 4 billion in the NHDP. The Eleventh Five Year Plan envisages a total investment of approximately Rs.3,14,152Crs (US$ 78.5 billion @ 40$) over the period of 5 years starting from 2007-2008. Many road projects with public-private partnerships (PPP) are also on the anvil.

Performance driven record of IRB Infra in infrastructure development & Construction based BOT projects in the Roads & Highways: - IBR Infra has a decade of strong IRB Infra developing nearly experience in the infrastructure & construction business. The 1200km of roads & highways…. Company is involved in the construction and then maintenance of nearly 1200 km of roads & highways in India which gives IRB Infra a strong presence across its peers in bidding the new & large BOT projects which enables it to capitalize opportunities available in the upcoming growing sector in India.

Rising demand of Infrastructure development helps IRB

Infra Road to prosperity: - IRB Infrastructure is a strong beneficiary of increased infrastructure spending commitment from the government of India. Investments in road infrastructure is seen IRB Infra claims ~ 7.6% market at Rs 3,142bn (Rs 3,14,152Crs) during the 11th Five year plan and share in Golden Quadrilateral…… Rs 8,831bn (Rs 883100Crs) during the 12th Five year plan. Presently the company claims ~7.6% market share in the Golden Quadrilateral project and is one of the largest BOT developers in the country.

Improved economic conditions leading to increased Improving economic condition commercial and passenger traffic: - As the economic helps higher traffic flow leads the activity in the country has been improved which will lead to recover IRB …… the commercial vehicles and passenger car traffic resulting in higher traffic flow in IRB’s key road projects. We estimate the company to be benefited from the improved economic situation.

3 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H Best player among its peers in the road developers business: - IRB Infra is one of the largest BOT developers & earlier entrant in the Public Private Partnership program having 16 road BOT projects. The company has maintained its leadership Key player among its competitor position in this segment through interest in high traffic corridors with highest order book in the like the Mumbai-Pune expressway. Additionally the company has forayed into India’s first BOT urban infrastructure project through Road projects …… Integrated Road Development project in the city of Kolhapur.

Healthy Order Book: - IBR Infra order book remains to be healthy ~Rs 5660crs which is bifurcated between EPC in ongoing Projects 2,866Crs, Funded Projects 227Crs with an average execution period of 24-30 months & O&M –Rs. 2,567Crs with an execution period of 10-12 years. The order book is set to improve substantially once the financial closure of new projects will be Strong Order Book helps IRB to achieved. The Company enjoys margin of ~ 16% in the make presence in road based construction order book compare to 10-11% of industry standard, development projects …… which is mainly due to the account of the lower subcontracting cost & larger equipment base. This will thus help IRB Infra to improve its order inflow as well as create strong revenue visibility in coming years.

Integrated in-house E&C helps IRB Infra of having

strongest execution capability: - IRB boasts for an in house execution capability for its engineering procurement &

construction works for its BOT assets as well as the funded projects. The operation and maintenance of the operational assets is also carried out through this subsidiary. We believe that carrying out the E&C operations in-house gives the company an ability to Strong in house E&C, which helps monitor the projects more closely and also keep the quality in IRB to execute projects on its check. The division is also executing some funded projects which strong capability …… include the EPC contract for highway section between Nagpur and Hyderabad package 59 and 61 awarded by NHAI and the BRTS project in Ahmedabad.

Moving toward PAN INDIA presence:- IRB was recently awarded BOT projects located in states of Rajasthan, Punjab and Goa. This is the first time that the company Focus beyond Maharashtra & has moved out of its otherwise stronghold of Maharashtra and Gujarat. We view this as a positive development and look at this as Gujarat recently awarded projects at an enabler to the company for developing long-term capabilities for other parts of the country …… executing projects in various states of the country.

4 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

Company Background

IRB Infrastructure Developers Ltd. is a Mumbai based Infrastructure development & Construction Company over the two decade of experience in building Roads & Highways both as Contractor & Operator set up by Mr. Virendra D. Mhaiskar. IRB is a pioneer in the road BOT business and is one the largest road BOT operators in the country with 16 BOT (Build Operate & Transfer) projects under its belt. IRB holds a market share of Company Profile in details…… 7.56% on the Golden Quadrilateral. IRB Infrastructure Developers Ltd. (IRB) is a holding company for the infrastructure assets of the IRB group.

The Company undertakes development of various infrastructure

projects in the road sector through several Special Purpose

Vehicles. IRB's work spans from building of roads, highways, bridges, and tunnels, recently the company diversified its business into real estate development sector also. Most of the work in both our infrastructure development business and construction business is won on a competitive bidding basis. The infrastructure development business involves construction, development and operation of infrastructure development projects. They are an established infrastructure company in the roads sector in India and have large portfolio of completed and operational BOT projects in the Indian road infrastructure sector. Their construction business complements their infrastructure development business and involves engineering, procurement and construction work for construction projects on a contractual basis, including in the roads sector.

The company over the past two decades has maintained its focus on road BOT projects and has been involved in developing 1400 kms of highways & roads. It generates a toll of ~Rs.17mn/ day (Incl. Surat Dahisar from Feb 19th 2009) which is estimated increase to ~Rs.25-30mn/day by Q2FY10. The company is having

very strong expertise in tolling operation & construction business

The company has a strong revenue visibility for its BOT project as

it operates 10 cash generating projects with an average concession

period for ~ 10years.

The Company has recently diversified its business into the real estate development sector. The proposed township project is the first real estate development project undertaken by the company & it is in preliminary stage of planning and development. They are in the process of acquiring land in Mauje Taje and Mauje Pimploli Taluka in Pune district in the State of Maharashtra in India on which they propose to develop an integrated township. Also IRB intends to acquire approximately 250 acres of additional land for the proposed township project.

5 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

Subsidiaries

Subsidiaries of IBRD Holding of IRB Infra Profile/ Business of Subsidary Developers Ltd. Infrastructure Development & Construction Business BOT projects (Thane Bhiwandi bypass Ideal Road Builders Pvt. Ltd. 100% BOT & Kaman Paygaon BOT). Bhiwandi (IRBPL) Wada BOT & Khambhatki Ghat concession period over.

Modern Road Makers Pvt. Ltd 100% Engineering & Construction Arm.

Aryan Toll Road Pvt. Ltd. 100% Pune - Solapur BOT (29.81 km – NH9)

ATR Infrastructure Pvt. Ltd 100% Pune - Nashik BOT (29.81 km – NH 50)

Mhaiskar Infrastructure Pvt. 100 (74% held by IRBD & 26% Mumbai - Pune BOT (206 km – MPEW & Ltd. by IRBPL) NH4)

Thane Ghodbunder Toll Road 100 (74% held by IRBD & 26% Thane Ghodbunder Toll Road BOT (14.9 Pvt. Ltd.. by IRBPL) km)

IDAA Infrastructure Pvt. Ltd. 100 (53.29% held by IRBD, Bharuch - Surat BOT (65 km – NH8) 10.81% by ATRPL, 23.75% held by ATR Infra & 12.05% held by IRBPL)

NKT Road & Toll Pvt. Ltd. 100 (53.33% held by IRBD & Ahmednagar - Karmala - Tembhurni 46.67% by IRBPL) Road (60 km)

IRB Infrastructure Pvt. Ltd. 100 (80.15% held by IRBD & Bridge over Patalganga River – 19.85% held by IRBPL) Kharpada BOT (1.4 km)

MMK Toll Road Pvt. Ltd. 100 (100% held by IRBPL) Mohol - Kurul - Kamati - Mandrup Road (33 km – SH 149)

IRB Surat Dahisar Tollway 90 (10% held by Deutsche Bank) Surat - Dahisar Road – 239 km NH-8 Pvt. Ltd

IRB Kolhapur Integrated Road 100 (80% IRB, 10% MRMPL & Integrated Road Development in the city Development Company 10% ATR Infra) of Kolhapur Real Estate Business Aryan Infrastructure Investments Pvt. Ltd 66 Land Bank Adjoining the MPEW - Aryan Hospitality Pvt. Ltd 100 Source: Company 6 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H Professional Management

The company is professionally managed and Mr. Virendra D Mhaiskar, the Managing Director, looks after day-to-day management.

Name Designation Experience

Mr. Virendra D. Chairperson & Over 18 years Mhaiskar Managing director Managements having there strong expertise, skills & experience are Dattatraya P Director 47 years require effectively to manage & Mhaiskar direct the company towards the future growth story going Deepali V Director Around 9 years ahead…… Mhaiskar

Suresh G Kelkar Director 40 years Bhalchandra K Director Over 42 years Khare

Govind G Desai Director Over 20 years Chandrashekhar Director 32 years S Kaptan

Mehul N Patel Company 9 years Secretary Sivaramkrishnan Director Over 20 years S Iyer

Mr Kale CFO More than 30 years

Anil D Yadav Dy CFO Over 5 years Source: Company

7 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H Business Overview

IRB Infrastructure developers Ltd.(IRBD) is a holding company for the infrastructure assets of the IRB group. The Company, earlier was known as DVJ Leasing and Finance Private Limited, was incorporated as a Private Limited Company in 1998 and was formed to fund the capital requirements of the infrastructure and construction sector ventures of the IRB Group. The company business comprises of two segments namely Construction & Development of Roads & Highways (Roads BOT’s) and recent foray into Real Estate development business to develop the integrated township of approx 1250 acres in Pune District, Maharashtra.

IRB’s road business is conducted in two verticals viz. 1) Engineering & Construction Revenue generating business of 2) Toll Collection & Maintenance. IRB INFRA i.e. Engineering & In the road BOT business, IRB currently has 12 projects, out of Construction of Roads highways which 10 are commissioned, 2 are under implementation. IRB, & tunnel & Real Estate …. through its E&C business arm viz. – Modern Road Makers Private Limited (MRM), has gathered significant experience (approx 1200 kms.) in constructing road projects.

With its 66% subsidiary viz. Aryan Infrastructure Investments Private Limited, IRB plans to foray into the real estate sector by developing a township near Pune.

Roads BOT’s: - The Company currently has 12 BOT’s Projects housed in 11 SPV nearly 800Kms across Gujarat & Maharashtra, Mumbai Based Contractor having out of which 10 BOT’s projects are operational, where the 12 strong BOT roads based construction certificate has been issued and the project under SPV projects in its portfolios…. has started earning revenues from the toll collection. Other is under Construction or O&M of construction and two at financial closure stage. One of the ~1,400kms of highways & roads country’s earliest BOT projects, Thane Bhiwandi Bypass was across the country implemented by one of the subsidiaries of IRB in 1997. Currently the total length of around 800kms is under IRB’s fold as a BOT operator, for a concession period of 10-12 years, this being the largest BOT portfolio in the country which has been executed by the IRB Group.

Engineering & Construction (E&C):- All construction work undertaken by the IRB Group for BOT projects and funded construction contracts are executed by its subsidiary, Modern Road Makers Pvt. Ltd. (MRMPL). Since its inception, the entity has been involved in construction or O&M of ~1,400kms of highways & roads across the country.

8 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

Sr. No Projects Lengths in Kms No of Toll Collection Locations 1) Mumbai Pune Corridor a) Mumbai –Pune Expressway 95 4

b) Mumbai - Pune (NH4) 111 4 2) Pune - Solapur 26 2 3) Pune - Nashik 30 2 4) Thane Bhiwandi Bypass 25 2 5) Thane Ghodbhunder Road 15 1 6) Ahmednagar -Karmala – Tembhurni Road 60 1 7) Mohol – Kurul – Mandrup Road 33 1 8) Bridge over Patalganga River 1 1 9) Kaman - Paygaon Road 22 1 10) Bharuch – Surat 65 1 11) Surat – Dahisar 239 4 12) Kolhapur – IRDP( Under Construction) 50 9 TOTAL 772 33 Source: Company

Operations and Maintenance (O&M):- IRB is the largest BOT

operator in India today. IRB’s daily toll collection is nearly Rs20

million which is expected to rise to Rs30-35 million after two more Toll collection is nearly Rs20 projects become operational by June 2009. The only company million which is expected to rise managing operation & maintenance of over 5kms of tunnels. IRB’s to Rs30-35 million in coming toll revenues have significantly increased from April 2008 due to period …… 18% hike in the toll rates of the Mumbai-Pune Expressway and NH4 in terms of the concession agreement. This asset contributes nearly 36% to IRB’s consolidated revenue.

Real Estate Development: - IRB plans to foray in the real estate arena by developing an integrated township development of Foray into the real Estates approx. 1400 acres in Pune District, Maharashtra. The proposed Business………. township is expected to yield a total saleable area of ~30.6mn sq.ft. & would be developed over a period of 8-10 years. The Company has the land bank of 1250 acres currently & proposed acquisition of new land reserve of 150 acres is in a process, which would get more than 6 months to acquire.

Green Energy:-A wholly owned subsidiary of the IRB viz. Modern Foray into the Green Energy Road Makers Pt ltd. (MRM) has forayed into the Green Energy Business………. sector in association with Suzlon Energy Ltd. MRM has installed 16 wind Mills of 1.25 MW each in Jaisalmer, Rajasthan. 9 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H Industry Outlook

Indian Road Industry

Development of infrastructure would not only ameliorate the supply side bottlenecks to growth, but also provide the requisite demand side stimulus to growth. The rapid construction of World's 2nd largest road network, highways facilitates human and material movement across the aggregating 3.34mn kilometer & country. Apart from improving connectivity, the development of industry will grow by CAGR of secondary and tertiary roads can open up hitherto unconnected regions to trade and investment and step up access to goods, 9.9% in XIth Five Year Plan…… services and employment opportunities.

The country’s road network consists of national highways, state highways, major district roads, other district roads and village roads. India has the world's second largest road network, aggregating over 3.34mn kilometers (km). According to the Planning Commission, the road freight industry will be growing at a compound annual growth rate (CAGR) of 9.9 per cent from 2007- 08 to 2007-12. A target of 1,231 billion tonnes km (BTK) has been put on road freight volumes for 2011-12.

Growth Potential of Indian Road According to Economic Survey, the share of road transport in the GDP is over 4.6% in 2007(as against 3.8% in 2000), accounting for over two-thirds of the total transport contribution to the GDP. Road transport has emerged as a dominant segment in India’s Ambitious NHDP Programme transportation sector, growing at an annual average rate of 9.5% involving a total investment of during 2000-01 & 2005-06 as against 6.5% growth rate of GDP. US$ 78.5 billion upto 2012…… The Indian government has launched the ambitious National Highway Development Programme (NHDP) involving a total investment of US$78.5 billion up to 2012. In 2008-09 itself, the NHAI has infused US$4 billion in the NHDP. It has also started the Bharat Nirman Programme that aims to cover every village having a population of over 1,000 or over 500 in hilly and tribal areas, with all-weather roads.

For the Roads and Bridges sector, the Eleventh Five Year Plan envisages a total investment of approximately US$78.5 billion over the five-year period starting from 2007-08. Of this the shares of the Centre, State & Public are expected to be 34.2%, 31.8% & 34% respectively.

As part of a larger plan to improve the country's infrastructure, the government has given the nod to 10 road projects which will be built in public-private partnership at an estimated cost of US$2.48 billion. The projects are aimed at four-laning of national highways in eight states.

10 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H Size of the Industry

Indian largest road network Indian road network is around 3.34mn km, which is the second around 3.3mn km, which is the largest in the world. Nearly about 65% of freight and 80% of the passenger traffic is carried out by road whereas National Highways second largest in the world, which constitute only about 2% of the road network but carry about 40% carries 65% of freight and 80% of of the total road traffic. Number of vehicles has been growing at an the passenger traffic, carried out average pace of 10.16% per annum over the last five years. by road whereas National Highways constitute only about Indian Road Network Length in KM % in KM 2% of the road network but carry Expressway 200 0.01 about 40% of the total road traffic National Highways 66,590 2.01

State Highway 1,31,899 3.99

Major District Roads 4,67,763 14.17

Rural & other Road 26,50,000 80.30 Total Length 33,00,000 (Approx) 100% Source: NHAI

BOT Projects

Build-Operate-Transfer (“BOT”) Under this type of PPP contract, the Government grants to a contractor a concession to finance, build, operate and maintain a facility for the concession period. During the concession period, the operator collects user fees and applies these to cover the costs of construction, debt servicing and operations. At the end of the concession period, the facility is transferred back to the public authority. BOT projects can be annuity-based or toll-based, as defined below

BOT annuity-based projects: Under this form, the concessionaire is responsible for constructing and maintaining the project facility. The GOI, usually through the NHAI in the case of highway projects, pays the concessionaire a semi-annual payment, or annuity. The concession contract is awarded to the bidder, which, among other criteria, quotes the lowest annuity amount. Under this approach, the amount of Annuity Based BOT Projects are income collected by the concessionaire is not directly related to the based on concession or semi – usage level of the project. In the context of highway projects, the annual payment...... amount of income is not by direct reference to the number of vehicles using the highway. Instead, the risk that traffic, and consequently user fees, may be lower than expected is borne by the NHAI alone. However, the NHAI retains the right to charge users a toll at any stage of the project and it also retains all rights to property development, advertising at the project site and other revenue-generating activities.

11 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

Toll Based BOT Projects to BOT toll-based projects: promote private sector In order to reduce the dependence on its own funds and to involvement …… promote private sector involvement in developing projects, the NHAI has awarded some highway projects on a toll basis. In this case, the concessionaire is responsible for constructing and maintaining the project as well as being allowed to collect revenues through tolls during the concession period. After the expiry of the concession period, the project is transferred back to the NHAI.

Engineering Procurement Construction/Lump-Sum Turnkey “EPC/Turnkey”) Contracts Contract project based on In this form of contract, contractors are required to quote a fixed engineering, design, specification sum for the execution of an entire project including design, & Execution engineering and execution in accordance with drawings, designs and specifications submitted by the contractor and approved by the customer. The contractor bears the risk of incorrect estimation of the amount of work, materials or time required for the job. Escalation clauses might exist in some cases to cover, at least partially, cost overruns.

Operations and Maintenance (“O&M”) Contracts

Typically an operations and maintenance contract is issued for operating and maintaining facilities. This could be in sectors such as water, highways, buildings & power. The contract specifies routine maintenance activities to be undertaken at a predetermined frequency as well as breakdown maintenance during the contract period. While the contractor is paid for the routine maintenance based on the quoted rates, which are largely a function of manpower, consumables and maintenance equipment to be deployed at the site, any breakdown maintenance is paid for on a cost plus basis

NHDP Program – A Biggest Opportunity

The largest highway project ever undertaken in the country is being implemented by the National Highways Authority of India (NHAI).

India is having one of the second largest road networks in the world after Unites States of America but however the usability of the road in India is not so far properly utilized by the Government of India (GOI) yet till. The Indian Road Networks comprises of Expressway, National Highways Rural & Other roads.

12 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

Indian Road Network

14%

2% 80%

0.1%

Expressways National Highways State Highways Majors District Roads Rural & other Roads

Source: NHAI

Huge Investment Opportunity in Roads remain on Development of NHDP the Top Priority programme help Investment Opportunity for IRB across the The National Highways (NH), with a total length of 66,590 km, Road development remain on the serves as the arterial network across the country. As of now, nearly Top Priority …….. 33,097 Kms of NHDP has been approved by the Union Cabinet. Phase-I and II of the NHDP envisaged 4/6laning of about 14,279 kilometers of National Highways at a total estimated cost of Rs. 65,000Crs (at 2004 prices). These two phases consists of the ongoing programme of four-laning the 5846 km long Golden Quadrilateral (GQ) connecting Delhi, Mumbai, Chennai and Kolkata is nearing completion. The ongoing four-laning of the 7,142 km North-South East-West (NSEW) corridor is to be completed by December 2009.

During the XIth five year plan, Government has targeted completion of the GQ and NS-EW corridors; four-laning of 12,109km under NHDP Phase III at the cost of 80,626Crs. In addition to the above mentioned approved projects, there is a proposal for two-laning of 20,000km of National Highways under NHDP Phase IV. The government has also approved six-laning of Golden Quadrilateral of 6500km selected stretches under NHDP Phase V at the overall cost at 41,210Crs and development of 1,000km of expressways under NHDP Phase VI at the cost of Rs 16,680Cr. Construction of ring roads, grade separated intersection, flyovers, elevated highways, ROB’s, underpasses and service roads at a cost of Rs. 16,680Crs under NHDP Phase-VII.

13 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

The implementation of NHDP had been faced with a number of constraints that include delays in land acquisition and removal of structures, shifting of utilities, law and order problem in some States and poor performance of some contractors. Regardless of these constraints, the impact on the economy due to completion of about 96 per cent of the GQ is already visible. All the above- NHAI Target Achieved mentioned projects would be financed through various sources of Balance for NHDP Total Completed Under Target For award of civil Component Length 4 lane Implementation Completion works Golden 5,846 5,721(96%) 125 - March 2007 Quadrilateral NS- EW 7,142 3,436 2,915 791 December 2009 Port 380 206 168 6 December 2009 Connectivity Other NH’s 962 781 161 20 December 2009 NHDP 12,109 787 1,878 9,444 December 2009 Phase III NHDP 6500 106 928 5,470 December 2012 Phase V NHDP 700 0 19 681 December 2015 Phase VII Total 33,639 11,037 6,194 16,412 Source: - Ministry of Road Transport & Highways funds like cess, loan assistance from the World Bank and ADB,

borrowings by NHAI, estimated surplus amount available from the

user’s fee as well as the share of private sector. Various sources of The funds required for the funding to finance these projects have been finalized and the development of the National financing plan implementation by the year 2015 has been approved. Highways would be fulfilling by The requirement of funds during the 11th Plan (2007-2012) for World Bank & ADB… implementation of NHDP has been worked out. The total amount required during this period is about Rs. 1,73,501Crs.

NHDP Programme helps in rising demand for future Infrastructure development:- The Committee on Infrastructure headed by the Honorable Prime Minister has proposed a massive National Highways Development Programme as follows:-

14 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

Name of the Projects Likely Cost ( Rs. Crs) Completion of the GQ & EW- NS Corridor 52434 4- Laning of 11,113 km under NHDP Phase III. 72454 2- Laning with paved shoulders of 20,000 km of National Highways 27800 under NHDP IV 6- Laning of selected stretched of National Highways under NHPD 41210 Phase V Development of 1000 km of expressway under NHDP Phase – VI 16680 Construction of rings roads, Flyovers & by passes on selected under 16680 NHDP Phase - VII TOTAL 227,258

Source NHAI

Sr No Funding Source Amount (Rs Crs) 1 Cess 36,589 2 External Assistance 4,459 3 Borrowings by NHAI 41,615 4 Surplus from the user free 3,108 5 Share of Private Sector 87,735 Total 1,73,501 Source NHAI

Concession Period getting Longer, - Focus based on Public Private Partnership vehicle which making forthcoming BOT Projects order pipeline looks melodiously.

Public Private Partnership is a key The Government of India (GOI) has amended the Nation vehicle for the forthcoming BOT Highways Act, 1956. Since the 1997 the GOI has allowed the projects in recent years from private players to construct & develop all the new road projects GOI… approved which are based on Public Private Partnership Model in Jan–Feb 2009 which have concession period (time for construction

& collection of the toll revenue) of 20-30 years projects.

Since then the public private partnership has come a long way & currently evolved as a prominent player’s vehicle for the implementation of projects with new NHDP program. At the time, we believe that the order pipeline in the road sector looks quite impressive level. It has been decided that all the sub projects in NHDP Phase III to Phase VII would be taken up on the basis of PPP on BOT mode.

15 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

Project - Road Stretch Length Programme Project Cost State Concession (INR bn) Period 4 - laning 188 NHDP III 17.5 Andhra Pradesh 30 Cuddapah Kurnool 4 - laning 58 NHDP II 6.9 Kerala 20 Walayar – Vadakkancherry 4 - laning 64 NHDP III 6 Andhra Pradesh 25 Cuddapah Kurnool 6 – laning 30 NHDP II 6.4 Kerala 20 Vadakkancherry – Thrissur 6 – laning 179 NHDP V 25 U.P./ Haryana 26 Delhi – Agra 6 – laning 315 NHDP V 36 Rajasthan 29 Kisangarh – Udaipur 6 – laning 67 NHDP V 11 Orissa 27 Chandikol– Bhubaneshwar 6 – laning 198 NHDP V 28 Andhra Pradesh 30 Vijay Wada – Rajamundri 6 – laning 192 NHDP V 30 U.P. 30 Varanasi – Aurangabad 6 – laning 184 NHDP V 24 Andhra Pradesh 30 Nellore – Chilkaluripet 6 – laning 148 NHDP V 17 Tamil Nadu 30 Krishnagiri – Walahajpet 6 – laning 80 NHDP V 7 Karnataka 30 Belgaum – Dharwad 6– laning 45 NHDP V 5 Madhya Pradesh 30 Indore – Dewas Total 1748 220 Source NHAI

Outlook of Infrastructure sector:-

With a sweet & wash out victory of the UPA alliance in the recent government election, the importance towards the promised reforms & huge focus towards the development of the India Infrastructure in the near term comes back in limelight of the possible growth. The XIth & XIIth Five years plan will bring Robust Growth of the Indian India’s growth story in coming periods, which is focused on the Infrastructure in the near term infrastructure and its allied activities. As the focus on the recent XIth & XIIth five year plan would pay a significant role in building basis… India along with ranks of the other world economies in coming periods. The Infrastructure sector in India are expected to draws funds of about US$ 345bn during the XIth Five year plan, which offers huge investment opportunities. The strategy for the 11th Plan entails strengthening and consolidating the infrastructure-related initiatives, such as Bharat Nirman for building rural infrastructure, 16 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H sectoral initiatives, such as the RGGVY, APDRP, Accelerated Irrigation Benefit Programme (AIBP), NHDP, National Maritime Development Programme (NMDP) and the JNNURM.

The strategy for the Eleventh Plan also encourages private sector

participation directly as well as through various forms of PPP’s

where desirable and feasible. The share of the private sector in

infrastructure investment will have to rise substantially from about

20% anticipated in the Tenth Plan to around 30% in the Eleventh

Plan.

Project Name Location Length Concession Project Cost Concession (KM) Period (Rs Crs Ends ) NKT Maharashtra 60.0 15 368.0 December -16 Pune - Nashik Maharashtra 30.0 18 73.7 September -21 Pune - Solapur Maharashtra 26.0 16 63.0 March -19 Thane - Ghodbunder Maharashtra 15.0 15 108.1 December -20 Kharpada Bridge Maharashtra 15.0 16 32.0 August -15 MPEW & NH 4 Maharashtra 206.0 15 & 13 383.6 August -15 Thane - Bhiwandi Maharashtra 23.0 19.5 104.0 May -17 Kaman - Paygaon Maharashtra 22.0 15 14.4 December -13 Bharauch - Surat Gujarat 65.0 15 1409.1 January -22 Mohol – Kurul - Mandrup Maharashtra 33.0 16 18.0 May -18 Surat – Dahisar Gujarat 239.0 12 2835.0 January -21 IRDP Kolhapur City Maharashtra 50.0 30 430.0 September -30 Goa/ Karnataka Goa 65.1 30 800.0 NA Talegoan – Amravati Maharashtra 66.7 22 800.0 NA Jaipur - Deoli Rajasthan 148.8 25 1,500.0 NA Amritsar – Pathankot Punjab 102.4 20 1,200.0 NA

Best Player among its peers in the road developers business:- Top Most Player among its peers & with long & biggest projects in IRB Infra is one the earlier entrants in the Public Private the road development…… Partnership programme by signing a concession agreement for the Thane - Bhiwandi bypass Phase I project in 1995. This ideally position company for any investment, which is targeted primarily towards the road development in India.

17 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H The Company with the focused bidder in the road sector alone was able to make its presence in the NHDP contractor and is now the largest players in the segment in terms of kilometers under contract. The company is not at all in the bidding process of the annuity based projects and is a pure toll based player wherein the Projects per company upside to returns resides with the company. Company Number of Projects Length (km) Annuity BOT IRB Infra 16 1117 - 16 LNT 14 1000 NA NA GMT 8 603 4 4 Gammon Infra 7 257 4 3 Nagarjuna Const 5 250 2 3 IVRCL Infra 3 149 - 3 HCC 4 131 1 2 Patel Eng 2 109 2 - Source NHAI, IGSL Research

In-house Construction Strength:- The EPC activities for IRB developers funded construction projects as well as for BOT projects are all completed within the IRB Group. Similarly, operation and maintenance activities (O&M) related to its BOT projects, including toll collection, are also executed within the IRB Group.

IRB has a strong in-house construction arm, which takes care of the complete activities starting from Engineering, procurement & construction. IRB has 20 years of experience in Toll Business, which includes the agency toll collections & approx. 13 years of experience since the time the first BOT project (Thane - Bhiwandi) was awarded to the company. The company has strong locational Strong in house builds O&M, advantage in serving the fast growing and strong economic centers which help company to maintain of India viz, Maharashtra & Gujarat. IRB owns a large fleet of its margin in forthcoming sophisticated construction equipment and this enables it to be less period… dependent on third parties and to efficiently manage its equipment assets. This form of backward integration provides IRB with a competitive advantage over other infrastructure development and construction companies that generally need to outsource portions of their operations to external contractors.

18 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

19 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

Moving Towards the PAN INDIA presence:- As IRB Infra was presently handling the projects only based on the selected states i.e. Gujarat & Maharashtra has now moved towards the other region bagging nearly 4 new projects which makes the total of 16 BOT projects for the company. The projects belong to the states like Order Book Posit ion (A s on June 2009) Punjab, Rajasthan & Karnataka etc. We consider this as a positive development for the company for developing long term capabilities for 51% 4% executing projects in various states of the country.

Order book Composition Rs in Crs

BOT Projects in O&M Phase 2,567

Funded Projects 228

45% EPC in ongoing Projects 2,866

Total 5,660 Funded Project

BOT Projects In O&M Phase Source Company EPC in ongoing BOT Projects

20 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

Name of the Client RFP Stage RFQ Stage NHAI Projects – Phase III 812.20 6055.63

NHAI Projects – Phase V 8742.96 1896.0 NHAI Projects – on OMT Basis 92.0 646.0 GSRDC Projects - 1352.36

Gov. Of Rajasthan Projects - 500.0 Maharashtra PWD Projects 1219.4 189.5

Total 10,866.56 10,639.49

Source Company

Healthy Order backlog involving large projects like Surat- Dahisar & Kolhapur City IRB has a strong order book of Rs 5700Crs. This include 3300Crs of order from the EPC segment which has to be executed over the next 3years & order worth Rs 2400Crs from O&M with an execution period Upcoming opportunities for IRB of 10-12years. Infra…… Surat - Dahisar: - Surat-Dahisar project involves the six laning of the existing four-lane Surat - Dahisar section of NH 8 for a total length of 240 kms. IRB has entered into an agreement with Deutsche Bank as a financial partner, which has an equity stake of 10% in this project. The total cost of this project is estimated at Rs. 23bn (revised construction cost), which would be funded through a mix of internal IRB Surat Dahisar Tollway Pvt. accruals & borrowings (70:30 Debt-Equity). The original construction Ltd. cost was Rs. 28.4bn, which has been revised downwards due to decrease in the prices of bitumen & steel. The concession period is for Six laning of the existing four-lane Surat - 12 years including the construction period of 30 months (from Feb Dahisar section of NH 8 for a total length of 2009). The project involves the construction of 25 flyovers over 240 kms. The project involves the construction various junctions. However, the company would have to pay the of 25 flyovers over various junctions. effective share of 38% to NHAI of the toll revenue for the initial year

of the concession period with an increase of 1% revenue share in each succeeding year during the course of the concession period. The toll collections have already started from February 2009 onwards.

Kolhapur City :- In March 2008, the Maharashtra State Road Development Corporation (MSRDC) awarded the maintenance & IRB Kolhapur IRDP Ltd. operating contract to IRB to develop & maintain all major roads in Kolhapur city. It is for the first time in the history of India’s road Maharashtra State Road Development sector that a single operator has been appointed such project. The Corporation (MSRDC) awarded the project will cover the up gradation of all major roads in Kolhapur into maintenance & operating contract to IRB to four-lane with all related infrastructure like footpaths. The total length develop & maintain all major roads in of the road under up gradation is 49.5 km. After up gradation, IRB Kolhapur city would own & operate these roads for 30 years. The total cost of the up gradation project is estimated at Rs 4bn (including negative

21 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H grant of Rs. 0.27bn to MSRDC), which is expected to be financed through a mix of debt (70%) & equity (30%). O&M cost over 30 years is around Rs. 650Crs. MSRDSC’s traffic data shows that around 45,000 vehicles enter and exit city through nine entry/exit points in a single day. The company expects to recover its investments through toll collection rights at the peripheral entry points of the city’s municipal limits (9 entry points). In addition to the concession period, IRB has been allotted commercial plot admeasuring 30,000 square meters by the municipal corporation. The lease period for this land is 99 years. Thus, this is the only BOT project wherein the company has got land development right. The construction activity has commenced from January 2009 & will take 2-2.5 years to be completed.

The strong order book provides visibility to the future revenue and earnings of the company. This fiscal, IRB Infra expects to receive new projects worth Rs. 40-50bn. This would further strengthen the current order backlog. The break up of the current order book is given below Recently Awarded Projects OF as follows: IRB Infra…… Other Recently Awarded Projects:-

Four-laning of the 65-km long Goa-Karnataka Highway project: Recently, IRB Infra has been National Highway- 4a Goa- awarded the four-laning of the 65-km long National Highway- 4a Goa- Karnataka border starting from Karnataka border starting from Panjim. The contract has been awarded Panjim on a 30-year design-build-operate and transfer basis to IRB Infra, which will implement it through a special purpose vehicle. NHAI will be chipping in with Rs 186Crs by way of viability gap funding for this Rs. 800Crs project. The project is expected to be completed by 2011.

Highway project in Punjab: IRB Infra has emerged as the lowest

bidder to four-lane a 102-km stretch of the Pathankot- Amritsar

section of National Highway-15, on a BOT basis. The project is on Four-lane a 102-km stretch of the Grant basis with concession period of 20 years and estimated cost of Pathankot- Amritsar section of the project is Rs. 1200Crs. The Company has sought a grant of Rs. National Highway-15, on a BOT 126Crs for the project from NHAI. The construction period is 910 basis days.

Highway project in Rajasthan: IRB Infra has emerged as the lowest Bidder for the highway project to be built between Jaipur to Deoli section of NH12 (a 146 km stretch) in Rajasthan under NHDP Phase III on BOT Basis. The project is on Grant basis with concession Jaipur to Deoli section of NH12 (a period of 25 years & estimated cost of the project is Rs. 1500Crs. IRB 146 km stretch) in Rajasthan under Infra has sought a grant of Rs. 306Crs for the Project from NHAI. NHDP Phase III on BOT Basis

22 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

Highway project in Maharashtra: IRB Infra has emerged as the Four lanning of Talegaon - Amravati lowest Bidder for the highway project, which involves four lanning of section of NH 6 (167-km stretch) Talegaon - Amravati section of NH 6 (167-km stretch) under NHDP under NHDP Phase III on BOT Phase III on BOT Basis. The project is on Grant basis with concession Basis period of 22 years & estimated cost of the project is Rs 800Crs. IRB Infra has sought a grant of Rs 216Crs for the Project from NHAI.

Venturing into New Segments – Airport Construction IRB Infrastructure Developers has bagged an order from the Maharashtra Industrial Development Corporation (MIDC) to build a MIDC to build an green field airport Greenfield airport at Sindhudurg on design- build- finance- operate at sindhudurg on DBFO basis…… basis. The cost of the single-runway airport would be Rs 1500 mn. The company had to remit a premium of Rs 200 mn to the Government for the project. The construction period allowed for the project is 18 months and the concession period is 95 years. MIDC would hand over nearly 650 acres of land of which, 350 acres would go for airport development and the balance would be available to IRB for commercial use.

Investment into Wind Energy Business – to save tax Modern Road Makers Pvt Ltd (MRM), wholly owned subsidiary of IRB has installed 16 Wind Mills of 1.25MW each in Jaisalmer, Rajasthan and New Investments Strategies in in aggregate, these wind turbines have capacity to generate 20MW WindMills business to save tax…… which is sold to Jodhpur Vidyut Vitran Nigam Ltd. These windmills will enable MRM to take Benefit of accelerated depreciation which will result in savings on Corporate Tax. MRM has started process to register the windmill project with United Nations Framework Convention on Climate change for Clean Development Mechanism (CDM) under Kyoto Protocol.

Backward Integration – to boost operating margins going haead

As a part of integration process, IRB through its subsidiary MRM Pvt Maintain its operating margins by Ltd has also ventured into importing Bitumen, Furnace Oil & Other importing bitumen, furnance oil petroleum products for self consumption & sale to third party. This has releated other products…… helped to tide over the challenges in raw material management and

boost the company Operating Margins going forward.

23 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H Risk & Concerns

Equity Dilution: - As far as the IRB Infra is concerned, the company might have to dilute its equity for funding its awarded projects or to be awarded project by the way of equity dilution/ right issue/ preference issue.

Slowdown in the Economic growth: - There is a significant risk in the traffic growth due to the slowdown of the economy. Also Risk & Concern involve for the the ability to raise the toll revenue beyond detrain point because of the future growth of IRB Infra… government intervention.

Price Escalation: - Any price escalation in the cost of and/or scarcity in availability of key equipments, material cost may affect the IBRD performance.

Projects Delays: - Delays in completion of the current contracts or complying with contract schedules could have a material adverse effect on IRB’s cash flow position, revenues and earnings. IRB’s revenues are derived primarily from contracts awarded on a project-by-project basis. It is very difficult to predict whether & when a new project would be awarded due to lengthy & complex bidding & selection processes. This could result in substantial fluctuations in IRB’s operations and cash flows materially from period to period depending on the timing of contract awards.

Interest Rate Risk: - The interest rate of most of the projects under the execution are linked to the benchmark rates & reset at Periodic interval. Poor Traffic Growth: - Traffic is one of the basic parameters affecting the viability of road projects. The ongoing economic slowdown and a rise in fuel price could adversely affect traffic growth. Toll rates and development of an alternative route also affect traffic. As per the concession agreement, an alternate route can only be developed under certain circumstances such as when the existing road traffic has achieved its designated capacity.

Regulatory Risk: - The government and regulatory authorities are involved in IRB’s all infrastructure projects. Timely acquisition of land by the authorities and various approvals is crucial for the timely completion of the project. The company’s success depends on support from the authorities and the government; and resolving any issues regarding regulatory changes.

24 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H Earnings Outlook & Financial Details

EBITDA margins to remain 70.00 60.45 63.32 constant …. 60.00 49.45 50.05 47.08 46.10 50.00 43.25 The company is focusing on the new 35.55 40.49 projects under the NHDP % 40.00 36.66 30.00 programme which provides them to 19.14 17.73 17.93 maintain its EBITDA margin going 20.00 15.55 7.39 ahead by ~45%. Also main raw 10.00 materials (Bitumen) is been required more for upcoming projects so the 0.00 company entering in fixed price FY 2007 FY 2008 FY 2009 FY 2010E FY 2011E contract therapy for the raw material consumption, which would help in EBITDA Margins EBIT Margins PAT Margins maintaining its EBITDA margins Source IGSL Research going forward….

Sales Trend

Revenue growth trends give a Rs (Crs) 4000.00 glimpse of IRB Infra Future 3128.72 growth ….. 3000.00 2001.11 2000.00 We expect the Company to grow its 991.88 732.69 top-line by CAGR of 72% from 1000.00 305.71

991.88Crs during FY 09 to 3128.72Crs 0.00 by FY11E. Strong sales grow on account of robust order book which FY 07 FY 08 FY 09 FY 10E FY 11E stood at 5700Crs as on June 2009.

Source IGSL Research ROE &ROCE showing a mixed trend

25.00 22.11 20.00 18.74 ROE for FY10 & FY11 is expected 15.00 17.50 to be 18.74% & 22.11%, an 10.17 9.87 15.37 improvement of 10.17% during the 10.00 5.99

FY 09. ROCE is expected to 5.00 8.21 7.03 increase in line with ROE from 4.40 15.37% to 17.50% during FY10 & 0.00 FY 2007 FY 2008 FY 2009 FY 2010E FY 2011E FY11 compared to 8.21% during the FY 09. ROCE (%) ROE (%)

Source IGSL Research

25 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

Mumbai Pune Expressway & NH4 Agreement Period 2004-19 Pune Solapur BOT Project Concession Period 15yrs Agreement Period 2003-19 Total Cost 1301.6 Concession Period 16yrs Total Debt 1184.1 Total Cost 63 Total Equity 105 Total Debt 45 Internal Accruals 15 Total Equity 18 Payable to MSRDC 918 Growth in toll Charges 5% Construction Cost 383.6 Growth in Traffic 6% Operation & Maintenance 754.79 Net Present value 102.05 Growth in toll Charges NPV/Shares 3.07 every 3 year 18% Growth in Traffic 6% Net Present value 1257.19 NPV/Shares 35.83

Surat Dhaisar BOT Project Pune Nashik BOT Project Agreement Period 2010-21 Agreement Period 2003-19 Concession Period 12yrs Concession Period 18yrs Total Cost 2835 Total Cost 73.7 Total Debt 1956 Total Debt 72.7 Total Equity 879 Total Equity 1 Growth in toll Charges 5% Growth in toll Charges 5% Growth in Traffic 6% Growth in Traffic 6% Net Present value 2063 Net Present value 147.57 NPV/Shares 26.62 NPV/Shares 4.44

Surat Barauch BOT Project Agreement Period 2006-22 Thane Bhiwandi Bypass Concession Period 15yrs Agreement Period 1998-17 Total Cost 1409 Concession Period 18yrs Upfront Fee 504 Total Cost 104 Total Debt 1211 Total Debt 70 Total Equity 198 Total Equity 34 Growth in toll Charges 5% Growth in toll Charges 6% Growth in Traffic 6% Growth in Traffic 5% Net Present value 1037.70 Net Present value 260.85 NPV/Shares 31.23 Source IGSL Research NPV/Shares 7.85

26 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

Thane Godhbunder Road Kaman Paygoan BOT Project

Agreement Period 2005-20 Agreement Period 1998-13 Concession Period 15yrs Concession Period 15yrs Total Cost 246.3 Total Cost 14.4 Total Debt 216.6 Total Debt 10 Total Equity 29.7 Total Equity 4.4 Growth in toll Charges Growth in toll Charges 5% (Every 3 years) 18% Growth in Traffic 6% Growth in Traffic 6% Net Present value 15.37 Net Present value 233.94 NPV/Shares 0.46 NPV/Shares 7.04

Kharpada Bridge BOT Project MKKM BOT Project Agreement Period 1997-15 Agreement Period 1998-17 Concession Period 17.7 yrs Concession Period 16yrs Total Cost 32 Total Cost 18 Total Debt 22 Total Debt 11 Total Equity 11 Total Equity 7 Growth in toll Charges 5% Growth in toll Charges 5% Growth in Traffic 4% Growth in Traffic 6% Net Present value 37.26 Net Present value 41.25 NPV/Shares 1.12 NPV/Shares 1.24

NKT BOT Projects IRDP Kolhapur City BOT Projects

Agreement Period 2001-16 Agreement Period 2009-39 Concession Period 15yrs Concession Period 30yrs Total Cost 36.8 Total Cost 430 Total Debt 21.8 Total Debt 258 Total Equity 15 Total Equity 172 Growth in toll Charges 5% Growth in toll Charges 6% Growth in Traffic 6% Growth in Traffic 5% Net Present value 66.51 Net Present value 798.50 NPV/Shares 2.00 NPV/Shares 9.13 Source IGSL Research

27 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

Goa Karnataka BOT Project Talegoan Amravati BOT Project Agreement Period 2010-40 Agreement Period 2010-35 Concession Period 30yrs Concession Period 22yrs Total Cost 800 Total Cost 800 Govt Grand 186 Govt Grand 216 Total Debt 430 Total Debt 400 Total Equity 190 Total Equity 184 Growth in toll Charges 5% Growth in toll Charges 6%

Growth in Traffic 6% Growth in Traffic 5% Net Present value 368.96 Net Present value 440.14 NPV/Shares 7.67 NPV/Shares 13.25

Pathankot Amritsar BOT Project Jaipur Deoli BOT Project Agreement Period 2010-30 Agreement Period 2010-35 Concession Period 20yrs Concession Period 25yrs Total Cost 1200 Total Cost 1500 Govt Grand 127 Govt Grand 306 Total Debt 751 Total Debt 836 Total Equity 322 Total Equity 358 Growth in toll Charges 6% Growth in toll Charges 6% Growth in Traffic 5% Growth in Traffic 5% Net Present value 348.60 Net Present value 792.04

NPV/Shares 3.53 NPV/Shares 9.49 Source IGSL Research

28 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

Q1 FY10 Quarter Performance Analysis

P & L June June Var March March Var (Rs in Crs) FY 2009 FY 2009 (%) FY 2009 FY 2008 (%) Statements Q1 Q1 Full Year FullYear Net Sales 414.13 230.06 80.01 991.88 732.69 35.38 Total expense 247.95 112.63 120.15 554.48 320.81 72.84 EBITDA 166.18 117.43 41.51467.00 463.94 0.66 EBITDA % 40.13 51.04 -21.39 47.08 63.32 -25.64 Interest 46.72 31.02 50.61137.66 195.75 -29.68 EBDT 119.46 86.41 38.25329.34 268.19 22.80 EBDT % 28.85 37.56 -23.20 33.20 36.60 -9.29 Deprecitation 37.64 25.53 47.43 114.38 101.61 12.57 Other Income 21.5 5.85 267.52 29.6 52.02 -43.10 PBT 103.32 66.73 54.83244.56 218.60 11.88 PBT % 24.95 29.01 -13.98 24.66 29.83 -17.36 Tax 18.18 12.56 44.7537.78 39.98 -5.50 Tax rate 17.60 18.82 -6.52 15.45 18.29 -15.54 PAT 85.14 54.17 57.17206.78 178.62 15.77 PAT % 20.56 23.55 -12.69 20.85 24.38 -14.48 Miniority Interest 3.68 0.00 0.00 1.32 12.64 -89.56 Adj PAT 81.46 54.17 50.38 205.46 165.98 23.79 EPS 2.45 1.63 50.38 6.18 4.99 23.79 Equity 332.3 332.3 -332.3 332.3 - No of Shares 33.23 33.23 - 33.23 33.23 - Face value 10 10 - 10 10 -

¾ IRB has posted a performance driven record in current quarter with a robust top line growth of 80% to Rs 414.13Crs in Q1FY10 as against Rs 230.06Crs in Q1FY09. Company majorly concentrating on project execution & simultaneously building up robust order backlog with Rs 430Crs projects to be awarded where the company emerged as lowest bidders.

¾ EBITDA Margins for the Quarter declined 1090bps to 40.1in Q1 FY10 from 51.0% in Q1FY09. As the company has changed, its revenues mix in favour of construction segment, which earns relatively lower margins (18.4% for the quarter).

¾ PAT Margins for quarter declined by 300bps to 23.6% in Q1FY09. PAT shown a record of 50%growth to Rs 81.5Crs against Rs 54.17Crs largely by other income contribution of Rs 21.5Crs.

29 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

Price target Derivation

We expect the revenue & net profit to grow at the CAGR of 62% & 68% for the period from FY 08A to FY 11E. We have done the SOTP Valuation for IRB INFRA which includes DCF Valuation of BOT projects aggregates to Rs 163.98/shares while the EPC contributes nearly at Rs 60.94/share. NAV of the 1250acres of land contributes the land value at Rs 5.94/share, Wind Mills at Rs 3.18, & Cash with holding company at Rs 21.42. Thus aggregating to Rs 255.46/ share with an upside of 32%. We initiate coverage on IRB Infrastructure with a BUY rating and a price target of 255.46 – indicating an upside of 32%. Given the strong order book position, high execution capability & strong track record, with strong Govt. focus on road infrastructure creating massive opportunity from new projects to add the order book. We believe that with large number of outstanding bids there is an upside to our price target with limited downside.

List of Projects Project Cost (Crs) Ownership(%) NPV/Share Method Thane – Biwandi Bypass 104 100 7.85 FCFE Kaman – Paygaon Road 14.4 100 0.46 FCFE Kharpada BOT 32 100 1.12 FCFE Nagar – Karmala - Tembhurni Project 36.8 100 2.00 FCFE Mohol – Kurul – Kamati - Mandrup Road 18.0 100 1.24 FCFE Pune - Solapur 63.0 100 3.07 FCFE Pune - Nashik 73.7 100 4.44 FCFE Pune – Mumbai (Expressway & NH4) 1301.6 100 35.83 FCFE Thane – Ghodbunder Road 246.3 100 7.04 FCFE Surat - Bharuch 1409.1 100 31.23 FCFE Surat - Dahisar 2500.0 100 26.62 FCFE IRDP Kolhapur City Project 430.0 100 9.13 FCFE Goa - Karnataka 800.0 100 7.67 FCFE Pathankoat - Amritsar 1200.0 100 3.53 FCFE Jaipur - Deoli 1500.0 100 9.49 FCFE Amaravati - Talegaon 800.0 100 13.25 FCFE Total BOT 163.98 EPC 100 60.94 11.84x FY11E Real Estate 100 5.94 NAV Wind Mills 105.7 100 3.18 NAV Cash Value 711.81 21.42 NAV Total 255.46

30 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

Profit & Loss Statement Rs Crs FY07 FY08 FY09 FY10E FY11E Gross Sales 305.71 732.69 991.88 2001.11 3128.72 Excise Duty 0 0 0 0 0 Net Sales 305.71 732.69 991.88 2001.11 3128.72 % Growth 18.95 139.67 35.38 101.75 56.35 Other Income 19.37 52.02 29.6 50 50 Total Income 325.08 784.75 1021.48 2035.92 3169.66 % Growth 59.16 141.40 30.17 99.31 55.69

Total Expenditure Direct Expenses 107.82 258.91 468.24 860.48 1407.92 % Sales 35.27 35.34 47.21 43.00 45.00 Employee Expenses 14.8 34.1 42.48 85.65 156.44 % Sales 4.84 4.65 4.28 4.28 5.0 Office Expenses 17.66 27.80 43.76 88.25 163.01 % Sales 5.78 3.79 4.41 4.41 5.21 Total Other Expenses 210.49 274.7 373.15 412.7 497.44 % Sales 14.19 12.64 11.65 11.32 10.70 TOTAL EXPENDITURE 140.28 320.81 554.48 1034.37 1727.37 % Sales 45.89 43.79 55.90 51.69 55.21 EBITDA 184.80 463.94 467.00 1001.55 1442.29 % Growth 151.05 0.66 114.46 44.01 Depreciation 52.59 101.61 114.38 191.31 295.43 EBIT 132.21 362.33 352.62 810.241146.86 Interest 87.66 195.75 137.66 343.88464.72 PBT 44.55 166.58 214.96 466.36 682.15 % Growth 131.90 273.91 29.05 116.95 46.27 Tax 16.22 36.06 21.70 50.1362.19 Fringe Benefit Tax 0.26 0.7 15.53 31.31 57.19 Deferred Tax -1.73 3.22 0.54 0.54 0.54 Total Tax 14.75 39.98 37.78 81.99 119.92 Reported Profit After Tax 29.80 126.60 177.18 384.37 562.23 % Growth 324.82 39.96 116.94 46.27 Minority Interest 7.2 12.64 1.32 1.32 1.32 Net Profit 22.60 113.96 175.86 383.05 560.91 Source IGSL Research

31 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

Balance Sheet Rs Crs FY07 FY08 FY09 FY10E FY11E SOURCES OF FUNDS Share Capital 247.27 332.36 332.36 332.36 332.36 Reserves Total 130.32 1288.38 1397.72 1711.95 2205.03 Net worth 377.59 1620.75 1730.08 2044.31 2537.39 Total Debt 2517.96 2021.2 2485.87 3126.16 3872.63 Minority Interest 111.78 28.11 59.91 82 125 Differed Tax Liability (Net) 0.6 2.62 18.15 18.15 18.15 Total Liabilities 3007.93 3672.68 4294.01 5270.42 6553.17 APPLICATION OF FUNDS Gross Block 2119.34 2218.85 2460.09 3536.39 4192.89 Less : Accumulated Depreciation 232.56 334.04 443.96 635.27 930.7 Net Block 1886.78 1884.81 2016.13 2901.12 3262.19 Capital Work in Progress 555.23 888.85 1454.53 1000 1650 Investments 41.35 198.49 110.83 125 120.83 Current Assets, Loans & Advances Inventories 9.17 50.21 205.39 414.37 647.87 Sundry Debtors 143.65 11.76 12.98 70.81 95.85 Cash and Bank 370.34 522.15 414.73 591.80 711.81 Loans and Advances 213.45 374.78 399.5 550 600 Total Current Assets 736.61 958.9 1032.6 1626.98 2055.53 Current Liabilities 544.15 1033.36 1027.6 1212.57 1442.96 Provisions 343.45 445.25 666.7 833.78 1000.54 Total Current Liabilities 231.35 259.95 321.03 383.62 536.33 Net Current Assets 505.26 698.95 711.57 1243.35 1519.20 Total Assets 3007.93 3672.68 4294.01 5270.42 6553.17 Source IGSL Research

32 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

CASH FLOW Rs.Crs FY07 FY08 FY09 FY10E FY11E Profit before Tax & Extraordinary Items 44.55 166.58 214.96 466.36 682.15 ADD: Depreciation 52.58 101.61 114.38 163.87 184.73 ADD: Interest (net) 75.32 147.13 115.62 311.78 458.37 ADD: Others -5.63 -3.65 -0.84 -4.08 1.12 Op. Profit before Working Capital Changes 166.82 411.66 444.12 937.93 1326.37 Changes IN WC 103.48 -158.49 -142.08 -402.63 -265.75 Cash Generated from/(used in) Operations 270.30 253.17 302.04 535.30 1060.61 Direct Tax Paid -23.12 -41.21 -40.49 -81.99 -119.92 Cash Flow From Operating Activities 247.18 211.96 261.55 453.32 940.69 Cash Used in Investing Activities -1168.0 -528.3 -606.7 -513.3 -1217.3 Net Cash Used in Financing Activities 931.36 407.54 330.79 -11.27 386.84 (Decrease)/Increase in Share Capital 425 0 0 0 0 (Decrease)/Increase in Working Long Term Borrowings 29.24 703.04 535.68 68.73 50.00 Dividend Paid -6.60 -1.48 -22.26 -66.45 -66.45 Interest Paid -86.04 -194.23 -125.73 -318.38 -424.72 Net Inc/(Dec) in Cash and Cash Equivalent 10.53 91.16 -14.38 -71.28 110.20 Cash & Cash Equivalents at Beginning of the year 9.81 20.34 111.50 97.13 25.85 Cash & Cash Equivalents at End of the year 20.34 111.50 97.13 25.85 136.05 Deposit Account Balance 0.00 411.03 318.00 552.39 575.76 Total Cash & Bank Balance 20.34 522.15 414.73 591.80 711.81 Source IGSL Research

33 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

Ratio Analysis Turnover Ratios FY07 FY08 FY09 FY10E FY11E Net sales to total assets 0.10 0.20 0.23 0.38 0.48 Net sales to Fixed assets 0.16 0.39 0.49 0.69 0.96 Net sales to net working capital 0.61 1.05 1.39 1.61 2.06 Net Working Capital Days 603.25 348.19 261.85 226.79 177.23 Working Capital to Sales -0.05 -0.07 -0.05 -0.06 -0.04 Net sales to inventory 33.34 14.59 4.83 4.83 4.83 Net sales to debtors 2.13 62.30 76.42 28.26 32.64 Inventory Days 35.45 63.67 114.03 96.88 75.58 Debtors Days 92.78 6.16 15.42 15.20 11.18 Creditors Days 124.08 58.58 50.56 30.26 21.85 Liquidity ratios (x) Current ratio 3.18 3.69 3.22 4.24 3.83 Debt Equity ratio 6.67 1.25 1.44 1.53 1.53 Inventory Days 35.45 63.67 114.03 96.88 75.58 Valuation Ratios (x) EPS 0.68 3.43 5.29 11.19 16.38 Dilute EPS 0.68 3.43 5.29 11.19 16.38 Cash EPS 2.26 6.49 8.73 16.94 25.27 PE 275.01 54.54 35.34 16.2311.08 Book Value Per Share 15.27 48.76 52.05 61.17 75.51 P/BV 12.25 3.83 3.59 3.042.45 EV/EBIDTA 36.64 16.63 17.74 8.746.50 EV/SALES 22.15 10.53 8.35 4.373.00 Market Cap/Sales 15.13 8.48 6.27 3.11 1.99 Face Value (Rs) - 10 10 10 10 Return Ratios (%) ROE 5.99 7.03 10.17 18.7422.11 ROCE 4.40 9.87 8.21 15.3717.50 Margins (%) EBIDTA 60.45 63.32 47.08 50.0546.10 EBIT 43.25 49.45 35.55 40.4936.66 PAT 7.39 15.55 17.73 19.1417.93 Growth (%) Sales - 139.6735.38 101.75 56.35 EBIDTA - 151.050.66 114.46 44.01 EBIT - 174.05-2.68 129.77 41.55 PAT - 404.2354.33 117.81 46.43 EPS - 404.2354.33 117.81 46.43 Source IGSL Research

34 I N V E N T U R E . I N S T I T U T I O N A L R E S E A R C H

For any queries please feel free to contact our

Institutional Research Team

Names Designation E-Mail Id. Contact Number Nagji Rita CMD - - SALES Ravinder Kasliwal Head Institutional Sales [email protected] 40751565/66/67/69/70 DEALING Vinit Rita Institutional Dealer [email protected] 40751565/66/67 BACK OFFICE Hardik Shah Back office [email protected] 40751568 RESEARCH Ashish Pandey Research Analyst [email protected] 40751515*582 Manoj Jethva Research Analyst [email protected] 40751515*579 Mitesh Shah Research Analyst [email protected] 40751515*581 Denil Savla Research Analyst [email protected] 40751515*580 Jayashree Gada Research Analyst [email protected] 40751515*580 Sheetal Nirmal Research Analyst [email protected] 40751515*580 Sanjeev Haria Research Analyst [email protected] 40751515 Sibayan Banerjee Technical Analyst [email protected] 022 22723797 Ashok Patel Technical Analyst [email protected] 022 22723797 Madhu Patel Technical Analyst [email protected] 022 22723797

Disclaimer

This Document has been prepared by Inventure Growth & Securities Ltd. The information, analysis and estimates contained herein are based on Inventure’s assessment and have been obtained from sources believed to be reliable. Neither Inventure Growth & Securities Ltd nor any of its employees or associates accepts any liability whatsoever direct or indirect that may arise from the use of information herein and shall not be responsible for its completeness and accuracy. It is not an offer to sell or a solicitation to buy securities. This document is for circulation only

Visit us at www.inventuregrowth.com

Please send your Feed Back to [email protected]

Inventure Growth & Securities Ltd Corporate Office: - Viraj Tower, 2nd Floor, Near Landmark, Western Express Highway, Andheri East, Mumbai - 400 069. Tel.:- +91-22-40751515, Fax: - +91-22-40751535