IRB is one of very few listed pure plays on roads in India and the scarcity premium it has already attracted would likely limit its upside potential. IRB is trading at an average P/E of ~19x FY11E, in line with mid-cap E&C peers but at a 31% premium to its global peers. We might get constructive on the stock at lower levels or better than expected order wins.
NHAI intends to award 12,000km of road contracts in FY11 (~4x the FY10 level). IRB has a portfolio of 16 road assets covering ~1,250km. It has a market share of 7% in GQ projects and ~12% in NHAI FY10 project awards. IRB recently tied up with Reliance Infra to bid for the US$1bn Kishangarh-Udaipur-Ahmedabad highway
On sum-of-the-parts methodology to value IRB: 1) BOT assets are valued at Rs164 on a discounted FCFE basis; 2) The EPC business is valued at Rs84 (11x Dec 2011E P/E), a 25-30% discount to its E&C peers given the captive nature of its order book; 3) Other investments and cash on books are valued at Rs13 (book value); Stock is valued at Rs 278
