GVK Power and Infra -Outperform with a target price of Rs60 :Macquarie

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GVK Power and Infra
Business as usual
Event
 GVKP declared its 3QFY11 results which were in line with our and the street’s
estimates. Revenues at Rs4.6bn were down 3% YoY while earnings at Rs0.42bn
were down 9% YoY. We believe a delay in value unlocking triggers have led to
the recent fall. We maintain our Outperform with a target price of Rs60.

Impact
 Stable performance across all businesses: All the three businesses of
GVKP had stable performance.
Power plants’ PLF hit marginally by lower gas availability and lower
demand: PLF (plant load factor) of the three gas-fired power plants of
GVKP was lower at 80% due to lower availability of gas from the KG D6
basin due to a technical problem. Lower agricultural demand for
electricity, due to good monsoons, also resulted in lower electricity
generation.
Airports witness substantial traffic and cargo growth: The Mumbai
airport (MIAL) and Bangalore airport (BIAL) had 10.4% and 16.7% YoY growth
in passengers. Cargo was up 13% and 25%, respectively, in the two airports.
Road continues to do well: Revenue growth at 10% YoY was driven
largely by an 8% hike in toll revenues and a 2% increase in traffic.
 Funding in place for existing plants, no more dilution in the near term:
With US$330mn of private equity money, GVKP is well funded for all the
power projects under construction. A further equity raising will be required
only if GVKP bids for coal assets or adds more projects to its portfolio.
 Looking at international growth options: GVKP has started venturing
abroad in its pursuit of growth options. It recently signed an MoU with the
Indonesian government to set up two airports and has also submitted a bid for
a coal assets in Australia. While these growth options may be in the early
stages, GVKP would need to raise equity in its airport and energy holding
companies if these plans fructify.
Earnings and target price revision
 No change.
Price catalyst
 12-month price target: Rs60.00 based on a Sum of Parts methodology.
 Catalyst: clarity on airport regulations and monetisation of MIAL land
Action and recommendation
 Delay in catalysts weighing heavily on the stock, maintain Outperform: The
stock has corrected by 32% over the last two months we believe due to uncertainty
around airport tariff regulations and a delay in value unlocking catalysts like MIAL
land monetisation. However, we believe that at current prices, the stock is available
at an extremely attractive valuation of 0.9x (FY12E P/B) adj for land.