GVK Power and Infra: No surprise in 2QFY11 results::Macquarie

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GVK Power and Infra
No surprise in 2QFY11 results
Event
 GVK Power and Infra reported its 2QFY11 results which were in line with our
estimates. PAT at Rs428m was flat YoY. Mumbai airport land monetisation
and funding for energy vertical remain key triggers for the stock. Maintain our
Outperform rating with a target price of Rs53.
Impact
 Traffic growth in airports continues: Traffic at Mumbai and Bangalore
airports increased 12% YoY. Similarly, cargo volume growth was strong at
19% and 30%, respectively.
 We expect strong earnings growth in airports to continue: Profits of
Mumbai and Bangalore airports have increased 48% and 25%YoY,
respectively, in 1HFY11. We expect the earning growth momentum to
continue in these airports on the back of strong traffic growth.
 Road traffic remains flat due to floods in North India: Floods in Punjab
and Haryana impacted movement of commercial traffic in Jaipur-Kisengarh
road (JKEL). Truck traffic fell by 11%. However, volume growth in passenger
traffic and toll hike of 10% led to a 9% increase in tolls.
 We expect 15% earning growth in FY11 for JKEL: We expect the traffic
growth to pick up in 2HFY11. We are expecting 15% earning growth based on
toll-related hike and volume growth.
 Funding critical for gas-based expansion: To ensure gas allocation for
12th plan projects, substantial progress would have to be done in the
1,600MW gas-based expansion projects. Management has publicly spoken
about potential private equity in energy vertical which would be critical for
expansion projects.
 No clarity yet on merchant sales from JP2 and Gautami power plants:
We have built in settlement with state power regulator for cost overrun
recovery in case of JP 2 and Gautami power plants. Delay in this would have
impact on our FY11 earnings projections to the tune of about 20%. However,
our valuation would not change as we expect the company to fully recover
cost overruns of Rs5.5bn.
Earnings and target price revision
 No change.
Price catalyst
 12-month price target: Rs53.00 based on a Sum of Parts methodology.
 Catalyst: Fund raising in holding companies and Mumbai real estate
monetisation.
Action and recommendation
 Fund raising triggers to play out, maintain Outperform: We believe that
big near-term catalysts like fund raising in energy and airport verticals will play
out soon. Monetisation of Mumbai airport land may be delayed further as
regulatory approvals are awaited. We maintain Outperform with a target price
of Rs53.