After a 60% rally from its 52-week low, Kotak sees more upside in this stock

Domestic brokerage Kotak Institutional Equities remains positive on the capital goods sector and retained its buy call on IRB Infrastructure Developers.

Traffic levels across key stretches of IRB are holding up quite well, the brokerage said. The EPC arm is better placed than peers on a strong order book despite weak inflows so far from the NHAI, it said.

"We expect consolidated debt to come down from current levels on debt repayment and new projects being taken under private InVIT," it added further.

The stock has jumped sharply, rising about 62% in the last six months, recovering from its 52-week lows of Rs 179.05, which it touched in June this year.

IRB Infra, which has rallied about 20 per cent in the last month, was hovering in the range of Rs 285-290 on Monday, after recouping the early cuts.

Kotak Institutional Equities revised its estimates to bake in improved toll collection across projects and has a fair value of Rs 340 on the stock, which was Rs 310 earlier. The new target suggests an upside of another 20% in the stock.

"We revise EBITDA estimates by 4%/8% for FY2024/25E to bake in improved toll revenues. We also incorporate improved valuation of private InVIT projects in SoTP against the valuation at which GIC had taken the stake in FY2020," it said.

The civil construction company and its InvIT subsidiary IRB Infrastructure Trust, have collectively reported a 39% increase in toll collection in November 2022 on a year-on-year basis, across all projects.

In an exchange filing earlier this month, the company reported the toll collection at Rs 365.95 crore in November 2022 against Rs.262.81 crore in November 2021. On a month-on-month comparison, the collection increased by 6%.

However, Ventura Securities, in its report on October 30, 2022, had a target price of Rs 729.2 on the stocks for the next 30 months, that is by April 2025, suggesting an upside of more than 150% from current levels.

Low traffic growth due to a fall in economic activity remains the key risk that is inherent to the road business, said Ventura in its coverage report.

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