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GVK Acquires Additional Stake in Mumbai Airport
As per media reports (Source: ET) GVK has bought a 13.5% stake in Mumbai
Airport from Bidvest for US$280mn. This would value Mumbai Airport at
US$2.07bn vs. the implied value of US$2.3bn used in our current GVK SOTP.
We believe this is positive for GVK because: 1) It acquires a controlling stake –
with its total stake going up to 50.5%, and 2) it has been acquired at a ~9%
discount to our value for Mumbai Airport. We believe the acquisition will be debt
funded. The transaction is subject to regulatory approvals.
We await further details from management.
GVK Power and Infrastructure (GVKP.BO; Rs26.75; 2M)
GVK Power and Infrastructure
Valuation
We value GVKPIL using a sum-of-the-parts (SOTP) approach, with each part
valued on DCF as most projects generate predictable cash flow streams. As each
individual project is highly geared and gearing changes rapidly as debt is paid, we
use an FCFE approach. Given the nature of the concession agreement and cash
flows of the airport and associated real estate, comparison with global airports on
valuation multiples may be misleading and hence we prefer a DCF approach. We
do not value assets under development and not financially closed. We assume
cost of equity of 14% for assets under development and 12% for operational
projects. We value the operational assets at around Rs39 and the assets under
development at Rs6.
Risks
We rate GVK shares Medium Risk given that the gas supply risk no longer exists;
and the gas projects have commenced operations. Key risks that could prevent
the shares from reaching our target price include: delays in stake sale to privateequity
investors, a worsening macro environment, a tighter credit market, the
complexities of slum rehabilitation, regulatory risks (including lack of a dedicated
airport regulator), competition, traffic risk, real estate prices, interest rates, risk of
financial closure and project execution delays.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GVK Acquires Additional Stake in Mumbai Airport
As per media reports (Source: ET) GVK has bought a 13.5% stake in Mumbai
Airport from Bidvest for US$280mn. This would value Mumbai Airport at
US$2.07bn vs. the implied value of US$2.3bn used in our current GVK SOTP.
We believe this is positive for GVK because: 1) It acquires a controlling stake –
with its total stake going up to 50.5%, and 2) it has been acquired at a ~9%
discount to our value for Mumbai Airport. We believe the acquisition will be debt
funded. The transaction is subject to regulatory approvals.
We await further details from management.
GVK Power and Infrastructure (GVKP.BO; Rs26.75; 2M)
GVK Power and Infrastructure
Valuation
We value GVKPIL using a sum-of-the-parts (SOTP) approach, with each part
valued on DCF as most projects generate predictable cash flow streams. As each
individual project is highly geared and gearing changes rapidly as debt is paid, we
use an FCFE approach. Given the nature of the concession agreement and cash
flows of the airport and associated real estate, comparison with global airports on
valuation multiples may be misleading and hence we prefer a DCF approach. We
do not value assets under development and not financially closed. We assume
cost of equity of 14% for assets under development and 12% for operational
projects. We value the operational assets at around Rs39 and the assets under
development at Rs6.
Risks
We rate GVK shares Medium Risk given that the gas supply risk no longer exists;
and the gas projects have commenced operations. Key risks that could prevent
the shares from reaching our target price include: delays in stake sale to privateequity
investors, a worsening macro environment, a tighter credit market, the
complexities of slum rehabilitation, regulatory risks (including lack of a dedicated
airport regulator), competition, traffic risk, real estate prices, interest rates, risk of
financial closure and project execution delays.
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