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Ready for take-off
Diversified infra asset play
We are initiating coverage on GVK Power
& Infra (GVK) with a BUY rating and TP of
INR44.00, offering 27% potential upside.
GVK, an infrastructure asset owner, is
one of the few companies that offer
exposure to airport assets in India.
GVK has plans to start monetising
Mumbai airport-related real estate in
FY12. Checks with the slum dwellers’
association indicate the rehabilitation
process is likely to begin end-CY11.
Separately, monetisation of freehold land
(1m sq ft in FY12) which was pending
regulatory clearances, should begin in
2QFY12, providing a positive catalyst for the stock. Mumbai real estate
forms 24% of our TP. Concerns on debt related to Bangalore airport
should subside as GVK is planning to sell some of its stake in its airport
holding company to at least partly repay its related debt. The company
also has the right of first refusal to develop Navi Mumbai airport (an
INR85b-100b opportunity).
The company is relatively better positioned to fund its power related
expansion plans after the private equity deal. The private equity deal
values GVK’s stake at INR28 per share for part of its power portfolio.
Similarly, any resolution on the power dispute (in Andhra Pradesh High
Court) should also provide a sentiment boost to the stock.
Power and highway assets provide a base for stable cash flows which
can be deployed for further expansion. We are estimating 25% revenue
and 44% cash profits CAGR over FY11-14.
Valuation
We value GVK’s stock using SoTP at INR44. Airports contribute INR25
(including INR11 and INR2 from MIAL and BIAL real estate), power
INR10, and highways INR6 to our TP (based on DCF at 13.5% COE).
We value the cash received from the stake sale in power at INR7 and net
the debt raised for BIAL stake purchase (INR4). Assets not included in
our valuation (2.6GW power projects, INR8.5b highway project, SEZ, and
oil & gas investments) could provide upside to our TP. Risks to our TP
include delays in monetising airport-related real estate, lower-thananticipated traffic growth or non-aero revenue, higher-than-expected
interest rates and the unavailability of financing for its projects.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Ready for take-off
- ƒ Diversified infrastructure asset owner, exposure to airports
- ƒ Relatively better positioned to finance expansions
- ƒ 25% revenue and 44% cash profits CAGR during FY11-14
- ƒ Valuation: TP INR44 based on SoTP of DCF of various assets
Diversified infra asset play
We are initiating coverage on GVK Power
& Infra (GVK) with a BUY rating and TP of
INR44.00, offering 27% potential upside.
GVK, an infrastructure asset owner, is
one of the few companies that offer
exposure to airport assets in India.
GVK has plans to start monetising
Mumbai airport-related real estate in
FY12. Checks with the slum dwellers’
association indicate the rehabilitation
process is likely to begin end-CY11.
Separately, monetisation of freehold land
(1m sq ft in FY12) which was pending
regulatory clearances, should begin in
2QFY12, providing a positive catalyst for the stock. Mumbai real estate
forms 24% of our TP. Concerns on debt related to Bangalore airport
should subside as GVK is planning to sell some of its stake in its airport
holding company to at least partly repay its related debt. The company
also has the right of first refusal to develop Navi Mumbai airport (an
INR85b-100b opportunity).
The company is relatively better positioned to fund its power related
expansion plans after the private equity deal. The private equity deal
values GVK’s stake at INR28 per share for part of its power portfolio.
Similarly, any resolution on the power dispute (in Andhra Pradesh High
Court) should also provide a sentiment boost to the stock.
Power and highway assets provide a base for stable cash flows which
can be deployed for further expansion. We are estimating 25% revenue
and 44% cash profits CAGR over FY11-14.
Valuation
We value GVK’s stock using SoTP at INR44. Airports contribute INR25
(including INR11 and INR2 from MIAL and BIAL real estate), power
INR10, and highways INR6 to our TP (based on DCF at 13.5% COE).
We value the cash received from the stake sale in power at INR7 and net
the debt raised for BIAL stake purchase (INR4). Assets not included in
our valuation (2.6GW power projects, INR8.5b highway project, SEZ, and
oil & gas investments) could provide upside to our TP. Risks to our TP
include delays in monetising airport-related real estate, lower-thananticipated traffic growth or non-aero revenue, higher-than-expected
interest rates and the unavailability of financing for its projects.
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