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Highlights of Q2FY11 results
Consolidated Q2FY11 results
• GIPL reported 11%yoy fall in revenues to Rs789mn due to lower revenues from Mumbai Offshore Container Terminal
(MOCT) port project. As per terms of MOCT concession, GIPL operates container terminal berth (BPS) in Mumbai
Port, which was closed for part of the quarter following collision of ships in Mumbai harbour in August 2010. Also,
TAMP has reduced the container tariffs by, affecting realisations per TEU on yoy basis.
• Expenses have fallen on yoy basis, due to absence of major maintenance expense incurred for AEL & REL in FY10.
Consequently, in spite of fall in revenues, EBITDA grew 32%yoy to Rs447mn.
• Other income fell to Rs9mn from Rs19mn in Q2FY10, as surplus cash has reduced to Rs279mn (from Rs800mn at end
Q1FY11) due to investment into GIPL’s various subsidiaries towards share of equity contribution in SPVs.
• Net Interest costs increased 23%yoy to Rs 156mn due to commissioning of MNEL, and inclusion of VSP’s interest cost
post increase in stake to 73.7% since October 2009. The interest expense is net of interest income on early completion
bonus in AEL and REL. During the quarter, the Supreme Court of India directed NHAI to pay the early completion
bonus (Rs110mn in REL and Rs50mn in AEL) to GIPL along with interest on the bonus from date of start of operations
(Sept 2004 for REL, and Oct 2004 for AEL). We have treated the interest income as part of regular operations of the
company.
• Depreciation and amortization expenses rose sharply by 93.6%yoy to Rs212mn. The major maintenance expense
incurred (~Rs900mn) for AEL and REL in FY10 has been capitalized and is to be amortised over the next five years (till the next occurrence of major maintenance expenses). Hence amortization expenses by have increased on yoy basis by
~Rs45mn. Depreciation charges have also increased due to commissioning of MNEL in Q1FY11.
• Consequently, PBT fell 27.3%yoy to Rs88mn, only marginally lower than estimated Rs90mn.
• GIPL’s implied tax rate for 2QFY11 appears high at 58%, which is the result of intercompany revenues (~Rs90mn
during the quarter) being knocked-off during consolidation, while reported tax is as per actuals.
• Pre-adjustment for share of minorities and associates, PAT fell 54.6%yoy to Rs37mn, vs estimate Rs54mn.
• Post adjustment of minorities’ share of Rs5mn, GIPL’s reported PAT fell 60%yoy to Rs31mn, vs estimate Rs40mn.
• Post adjustment for extraordinary expenses (prior period items), reported PAT fell 63%yoy to Rs30mn.
Operational assets details
• Vizag Seaport Ltd (VSP) handled 1.69mt of cargo in Q2FY11, resulting in revenues of Rs310mn and PAT of Rs50mn
• MNEL’s average PCUs per day for the quarter was 26,000, due to extended monsoon leading to lower traffic. During
the quarter, MNEL collected toll Rs136mn on the 64km stretch on which the tolling has started. For the capitalized
cost of Rs5bn corresponding to 64km stretch, MNEL accounted for Rs32mn in depreciation, and Rs40mn in operating
expenses. Due to high fixed costs, MENL reported loss of Rs28mn. However, cash profit for the quarter was ~Rs10mn.
• GIPL is nearing completion of stabilization tests at the first 12MW biomass power plant in Punjab and expects to
commission the same shortly.
Project Updates/ Other highlights
• GIPL has achieved financial closure for Patna-Muzzafarpur annuity road project. The total project cost of Rs9.4bn will
be funded by debt tie- up Rs8.46bn (gearing of 9x) and balance by equity.
• On 17th September 2010, the Supreme Court of India has directed NHAI to pay GIPL the early completion bonus for
AEL and REL along with interest on the bonus from date of start of operations. GIPL had completed REL in Sept 2004
(7 months ahead of schedule) and has claimed Rs110mn as early completion bonus. Similarly the company had
completed AEL in Oct 2004 (4 months ahead of schedule) and had claimed Rs50mn as early completion bonus. GIPL
is expected to receive the bonus amount shortly. However post the order of Supreme Court, the company has
accounted for the interest on the early completion bonus in 2QFY11.
• MNEL’s balance 34km stretch is nearly completed with the balance pending work including acquisition of land for a
minor stretch (NHAI’s responsibility) and construction of railway overbridge (pending approval from the Railways),
GIPL has requested NHAI to allow commencement of toll collection for the entire stretch by delinking the pending
portions from the project. GIPL has also requested for an extension of the concession period to compensate for delays
in various approvals leading to delay in commissioning.
• In the Sikkim hydel power project, GIPL the financial closure expected to be completed by end-FY11. The company
has started mobilizing equipment on the site on temporary land leased for colony, workshop and stores. All the predevelopment
activities are completed including land acquisition, environmental clearance and approval of DPR.
• GIPL, which is currently debt-free on standalone basis, has received an A+ rating for raising debt up to Rs1bn. The
company plans to divest part of its stake in operational road or port projects in FY11, in order to raise funds for its
equity commitments in various projects under development.
Valuations & View
Although MENL is witnessing slower ramp up in traffic growth post commissioning, the same is expected to reach
higher levels on commissioning of balance 34km stretch (Mumbai end of the road with relatively higher traffic).
However, lower revenue estimates for MNEL during FY11, and delayed start of Punjab Biomass unit-1 commissioning
are offset by interest income received on early completion for AEL and REL. Consequently, our estimates for FY11 and
FY12 remain unchanged. GIPL’s balance road projects, which had suffered from delays in land acquisition by NHAI as
well as natural calamities, are now back on track and expected to be commissioned over the next 12-18 months. Driven by
revenues from road projects, consolidated revenues are estimated to grow by 35% CAGR over FY10-12. Although GIPL
would need ~Rs4.5bn towards equity infusion requirement for projects under development, we expect the same to be met
through several options available (debt at parent level, dilution or sale of stake in operational assets) for funding the
same. We believe Gammon’s diversified portfolio of assets and its financial structuring capabilities will enable long term
value creation potential for shareholders. We maintain Outperformer rating on the stock coverage on the stock with a fair
value estimate of Rs30/share.
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