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GMR Infrastructure Ltd.
F3Q11 Results
Quick Comment – Revenue growth driven by Airport
division: GMR posted net revenue of Rs13.5bn, up
27.4% YoY driven by the airport division, which was up
42% YoY in top-line terms, helped by a pick up in
passenger and cargo traffic across its airports. GMR has
also started to consolidate its stake in Homeland Energy
as it has become a subsidiary of the company (vs.
associate earlier). With Rs75bn (~60% of total cost) of
T3-at DIAL being capitalized as of December 2010,
interest and depreciation costs depressed PBT to a loss
of Rs1.4bn (vs. profit of Rs455mn in F3Q10).
Management believes equity funding in place for
next two years: With three road projects and three
power plants due to be commissioned in the next two
years, the company has Rs22bn of equity requirement
over the timeframe, which management expects to
potentially bridge from the Intergen sale and internal
accruals. However, this does not take into account the
projects due to be commissioned later (during F3Q11,
GMR declared financial closure on Male airport and a
1,370 MW power plant in Chhattisgarh – equity
requirement of around Rs22bn over the next four years)
or new projects.
AERA order not applicable to Delhi, Mumbai
Airports: GMR clarified that the AERA order regulating
the revenues on a “single till” (i.e., clubbing aero and
non-aero revenues to determine returns to the
developer) basis does not apply to Delhi and Mumbai
airports. For these two facilities, the OMDA (Operation
Management Development Agreement) prescribes that
the aero charges shall be as determined as per the
provisions of respective State Support Agreements).
GMR has appealed to the tribunal against the
applicability of the order for the Hyderabad airport.
Retain our UW stance: While we find GRM’s long-term
story compelling with a strong management in place, we
believe the market is ignoring risks (including political
and execution risks and the risk of falling returns in the
group) and is thus valuing the stock too highly. As well,
with the company still having to fund most of its projects
under development, we believe future growth will come
only at the cost of dilution of current shareholders.
We present below key takeaways from the conference call as
well as updates of GMR’s projects:
1. Increase in UDF at Hyderabad airport: Since
November 1, 2010, based on an approval from the
Airports Economic Regulatory Authority (AERA), GMR
has been collecting higher UDF charges. Current UDF is
Rs430/domestic passenger (up from Rs375) and
Rs1,700/international passenger (up from Rs1,000).
AERA has approved the UDF increase on an ad hoc
basis and will review final number in May-June 2011.
Based on this increase GMR expects GHIAL to turn PAT
positive in F2012e itself.
2. Delhi airport: GMR commenced commercial operations
at T3 from November 11, 2010. Up until F3Q11; GMR
had capitalized only 60% of the total project cost of
Rs127bn. It expects to capitalize the entire project cost in
F4Q11. This will result in depreciation cost of ~Rs1.08bn
and interest costs of ~Rs1.35bn only on account of DIAL.
3. Stake sale in Intergen by F2011 – Proceeds to fund
equity commitment of current projects or de-lever
parent balance sheet: GMR sold its 50% stake in
Intergen in F3Q11 for US$1.23bn and expects to
conclude the deal by Mar 2011. After paying down the
debt and the costs associated with the sale, GMR
expects a cash inflow US$200mn. GMR expects to use
the proceeds to fund its equity commitment for projects
that are currently under development. Alternatively,
GMR has a net debt of Rs10bn at the Parent balance
sheet level – and could consider winding down this debt.
4. Road projects: Of the three toll roads, GMR almost
broke even at its Jadcherla project in F3Q11 (losses of
Rs7mn), and expects to breakeven on the Ulundurpet
project by F1Q13, while Ambala-Chandigarh is still a
loss-making project. However, the losses in the Ambala
Chandigarh project stem from revenue leakages due to
the presence of an alternative state road available (which
is in violation of the state support agreement).
5. Power: With the company selling 30% of its power
generated in the quarter at merchant rates (the
barge-mounted plant), the weakness in the market did
have some impact on the results. However, management
stressed that the market was recovering – with power
rates on a particular day in the last month even rising to
Rs10/unit (vs. the Rs3.66 the company managed in
F3Q11).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GMR Infrastructure Ltd.
F3Q11 Results
Quick Comment – Revenue growth driven by Airport
division: GMR posted net revenue of Rs13.5bn, up
27.4% YoY driven by the airport division, which was up
42% YoY in top-line terms, helped by a pick up in
passenger and cargo traffic across its airports. GMR has
also started to consolidate its stake in Homeland Energy
as it has become a subsidiary of the company (vs.
associate earlier). With Rs75bn (~60% of total cost) of
T3-at DIAL being capitalized as of December 2010,
interest and depreciation costs depressed PBT to a loss
of Rs1.4bn (vs. profit of Rs455mn in F3Q10).
Management believes equity funding in place for
next two years: With three road projects and three
power plants due to be commissioned in the next two
years, the company has Rs22bn of equity requirement
over the timeframe, which management expects to
potentially bridge from the Intergen sale and internal
accruals. However, this does not take into account the
projects due to be commissioned later (during F3Q11,
GMR declared financial closure on Male airport and a
1,370 MW power plant in Chhattisgarh – equity
requirement of around Rs22bn over the next four years)
or new projects.
AERA order not applicable to Delhi, Mumbai
Airports: GMR clarified that the AERA order regulating
the revenues on a “single till” (i.e., clubbing aero and
non-aero revenues to determine returns to the
developer) basis does not apply to Delhi and Mumbai
airports. For these two facilities, the OMDA (Operation
Management Development Agreement) prescribes that
the aero charges shall be as determined as per the
provisions of respective State Support Agreements).
GMR has appealed to the tribunal against the
applicability of the order for the Hyderabad airport.
Retain our UW stance: While we find GRM’s long-term
story compelling with a strong management in place, we
believe the market is ignoring risks (including political
and execution risks and the risk of falling returns in the
group) and is thus valuing the stock too highly. As well,
with the company still having to fund most of its projects
under development, we believe future growth will come
only at the cost of dilution of current shareholders.
We present below key takeaways from the conference call as
well as updates of GMR’s projects:
1. Increase in UDF at Hyderabad airport: Since
November 1, 2010, based on an approval from the
Airports Economic Regulatory Authority (AERA), GMR
has been collecting higher UDF charges. Current UDF is
Rs430/domestic passenger (up from Rs375) and
Rs1,700/international passenger (up from Rs1,000).
AERA has approved the UDF increase on an ad hoc
basis and will review final number in May-June 2011.
Based on this increase GMR expects GHIAL to turn PAT
positive in F2012e itself.
2. Delhi airport: GMR commenced commercial operations
at T3 from November 11, 2010. Up until F3Q11; GMR
had capitalized only 60% of the total project cost of
Rs127bn. It expects to capitalize the entire project cost in
F4Q11. This will result in depreciation cost of ~Rs1.08bn
and interest costs of ~Rs1.35bn only on account of DIAL.
3. Stake sale in Intergen by F2011 – Proceeds to fund
equity commitment of current projects or de-lever
parent balance sheet: GMR sold its 50% stake in
Intergen in F3Q11 for US$1.23bn and expects to
conclude the deal by Mar 2011. After paying down the
debt and the costs associated with the sale, GMR
expects a cash inflow US$200mn. GMR expects to use
the proceeds to fund its equity commitment for projects
that are currently under development. Alternatively,
GMR has a net debt of Rs10bn at the Parent balance
sheet level – and could consider winding down this debt.
4. Road projects: Of the three toll roads, GMR almost
broke even at its Jadcherla project in F3Q11 (losses of
Rs7mn), and expects to breakeven on the Ulundurpet
project by F1Q13, while Ambala-Chandigarh is still a
loss-making project. However, the losses in the Ambala
Chandigarh project stem from revenue leakages due to
the presence of an alternative state road available (which
is in violation of the state support agreement).
5. Power: With the company selling 30% of its power
generated in the quarter at merchant rates (the
barge-mounted plant), the weakness in the market did
have some impact on the results. However, management
stressed that the market was recovering – with power
rates on a particular day in the last month even rising to
Rs10/unit (vs. the Rs3.66 the company managed in
F3Q11).
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