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GVK Power & Infrastructure Ltd. — Inorganic growth continues; Reiterate Buy
Price Objective Change
Event: GVK increases ownership in Mumbai airport
GVK’s proposed acquisition of 13.5% stake in Mumbai airport for USD287mn
should dilute its earnings by 4-5% during FY12E-13E but drive increase in our PO
to Rs50 on higher stake. The stake was acquired from the consortium partner –
Bid Services Division Mauritius (BSDM), a unit of South African Airports. This
would make Mumbai airport – a subsidiary of GVK with majority ownership at
50.5%. Maintain Buy on Mumbai realty monetization, doubling power capacity by
FY13E, gas/FC tie-up for 1.6GW and commencement of ST sale from FY12E.
Acquisition at value premium to DCF
GVK, through its airport holding subsidiary – GVK Airport Holdings Pvt. Ltd., has
acquired the 13.5% stake at a total transaction value of USD287mn via a 3 year
Letter of credit. This includes the financing cost for 3 years estimated at
USD57mn @ interest rate of 7.5%. This implies the value of 13.5% stake at about
USD230mn or total airport value (including realty) at USD1.7bn (Rs76.5bn) –
24% higher than our current DCF value. The acquisition is subjected to regulatory
approvals (including RBI) and is expected to be completed in 1QFY12.
Earnings dilutive, key is realty monetization and PE funding
While GVK would benefit from higher share of profit from MIAL, the higher
financing charges would lead dilution in earnings by 4-5% during FY12-13E. The
key catalyst would be roll-out of the Mumbai realty monetization expected to
commence from 2QFY12E (assumed 2.25 mn sf monetization during FY12-13E).
Also the private equity transaction in airport vertical would be a critical milestone
to repay the acquisition debt taken for the Mumbai airport and Bangalore airport.
Buy with PO Rs50; Execution, delay in realty are key risk
We have revised SoTP value is Rs50/sh. Our SoTP is based on a combination of
DCF, exit P/BV and 10% conglomerate dis. (power Rs18/sh, airport Rs22/sh).
Downside risks: significant delays in execution, aggressive competitive bid in
power, delay in commencement of ST sale of power and lower merchant
realization, slower realty monetization at discount to base case (Rs10,000/sf).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GVK Power & Infrastructure Ltd. — Inorganic growth continues; Reiterate Buy
Price Objective Change
Event: GVK increases ownership in Mumbai airport
GVK’s proposed acquisition of 13.5% stake in Mumbai airport for USD287mn
should dilute its earnings by 4-5% during FY12E-13E but drive increase in our PO
to Rs50 on higher stake. The stake was acquired from the consortium partner –
Bid Services Division Mauritius (BSDM), a unit of South African Airports. This
would make Mumbai airport – a subsidiary of GVK with majority ownership at
50.5%. Maintain Buy on Mumbai realty monetization, doubling power capacity by
FY13E, gas/FC tie-up for 1.6GW and commencement of ST sale from FY12E.
Acquisition at value premium to DCF
GVK, through its airport holding subsidiary – GVK Airport Holdings Pvt. Ltd., has
acquired the 13.5% stake at a total transaction value of USD287mn via a 3 year
Letter of credit. This includes the financing cost for 3 years estimated at
USD57mn @ interest rate of 7.5%. This implies the value of 13.5% stake at about
USD230mn or total airport value (including realty) at USD1.7bn (Rs76.5bn) –
24% higher than our current DCF value. The acquisition is subjected to regulatory
approvals (including RBI) and is expected to be completed in 1QFY12.
Earnings dilutive, key is realty monetization and PE funding
While GVK would benefit from higher share of profit from MIAL, the higher
financing charges would lead dilution in earnings by 4-5% during FY12-13E. The
key catalyst would be roll-out of the Mumbai realty monetization expected to
commence from 2QFY12E (assumed 2.25 mn sf monetization during FY12-13E).
Also the private equity transaction in airport vertical would be a critical milestone
to repay the acquisition debt taken for the Mumbai airport and Bangalore airport.
Buy with PO Rs50; Execution, delay in realty are key risk
We have revised SoTP value is Rs50/sh. Our SoTP is based on a combination of
DCF, exit P/BV and 10% conglomerate dis. (power Rs18/sh, airport Rs22/sh).
Downside risks: significant delays in execution, aggressive competitive bid in
power, delay in commencement of ST sale of power and lower merchant
realization, slower realty monetization at discount to base case (Rs10,000/sf).
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