GVK Power and Infrastructure- PE money in power vertical: Positive:: UBS

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UBS Investment Research
GVK Power and Infrastructure
PE money in power vertical: Positive

􀂄 Rs12bn to be invested for ~21% stake; additional ~12% upside to our PT
GVK has signed an agreement with 3i India Infrastructure Fund to lead an
investment of Rs12bn for a 21.1% stake in its Energy vertical. 3i would invest
Rs8bn. This values GVK Energy at ~Rs57bn post money. The capital raising is as
per expectations (please refer our note GVK: Equity raising in airports/power
verticals dated 11 October 2010), but there is a valuation surprise. This transaction
implies a valuation of ~Rs45bn or Rs28/share for GVK’s 78.9% stake in its Energy
vertical. We currently value its Energy business at ~Rs33bn or Rs21/share.


􀂄 Will help fund capex over next three years in the energy vertical
Though the other investors in the transaction have not yet been revealed, we
believe that the entire PE funding has been tied-up. This capital raising, along with
internal accruals, will help fund ~Rs26bn of capex for the next three years.

􀂄 Power is a key growth driver; capacity to double in three years
GVK has an operating capacity of 900MW, under-construction capacity of
870MW (Goindwal Sahib-540, Alaknanda-330; to be operationalized over 2012-
13), expansion projects of 1,600MW (800MW each at Jegurupadu/Gautami; can be
completed by mid-FY14) and under-development (initial stages) projects of
1,060MW (Goriganga-370, Ratle Hydro 690; not part of above transaction). Its
power capacity will double in 2013 and can again become ~2x in 2014 (depending
on commissioning of the expansion projects).

􀂄 Valuation: Preferred diversified developer; Reiterate Buy with PT of Rs55
Power/real estate/airports (core) are 38/30/19% of our valuation.