GMR Infrastructure - Initiating Coverage

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GMR Infrastructure Ltd. is a large conglomerate with presence across various business verticals in the infrastructure space like airports, power, road-highways and urban development. The company has excellent track record of execution across different segment and is in a sweet spot with the pick-up in airport passenger traffic and improving visibility for monetization of real estate at premium valuations. It has a strong pipeline of new power projects which will be operational over the period and would unlock value for the parent company. GMR owns and manages 3 airports - Delhi, Hyderabad and Sabiha (Turkey) and recently acquired the Male airport as well. It also has 6 operational and 3 under construction road projects with a project cost of `3000Cr and has 823MW of operating power assets, and an under construction portfolio of 4138MW.

Ø    Time to reap the returns:

       Completion of Delhi airport well ahead of Commonwealth games provides more evidence of GMR's execution capabilities. It is expected that the airport will begin FCF by FY12E and could also make net profit if management executes the plan to pay off debt with further real estate lease outs. Hyderabad airport has begun generating FCF in FY11 and there would be sharp rise in profits by FY12E led by higher capacity utilization.

Ø    Power to provide the next growth leg:

       The Company has 823MW of operating power projects and 4138MW of under construction projects. Recent PE investment of US$3Mn in the power vertical would fund the growth through FY13E.

Ø    50% stake sale in Inter-Gen:

       The Company is going to sell its stake to China based Huaneng Group covering all the investment except the transaction cost. The cash could be used to fund its lined up power projects of 4138MW reducing the consolidated debt position to 2.58x from 2.98x.                                      

      

Valuations:

We expect the company's revenue to grow at 10.2%, 12.5% and 14.8% for FY11E, FY12E & FY13E respectively. Based on the SOTP valuation, we recommend

'Buy' with the target price of `48.10 per share.