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Multi-year tariff proposal, a small positive vs risk of low long-term returns
We see the recent introduction of a multi-year tariff for airport operators, as
proposed by the Indian airport regulator, AERA, as a marginal positive.
However, we remain concerned on the January 2011 order as it proposes
to reduce aero charges in case developers benefit from gains in real estate.
For private developers such as GMR (unrated) and GVK, this raises the risk
that the market value of real estate assets for their development work at
Hyderabad and Bangalore, respectively, could be set off against the aero
returns, resulting in virtually zero returns for minority equity holders. While
we await the response of appellate tribunal and courts if required, we have
cut the value of the real estate development at Bangalore airport for GVK in
our SOTP value. At our revised SOTP value of INR 39/sh (down from INR
43/sh), we reiterate Buy.
But for brown-field airport development in Mumbai, real estate development
is a trigger
According to officials of MMRDA, the regulatory and planning body for approval
of development in Mumbai, the commercial development of c20 mn
sq ft around Mumbai Airport did not see much objection from various stakeholders
especially on layout, proposals for commercial development, etc.
The bulk of the objections centered on the slum rehabilitation etc., which is
for an area reserved for “taxi", airplane parking and not commercial development.
Subject to how the management manages this transition, there is
now a significant probability that real estate development at the Mumbai
airport could begin.
But risk on earnings continue from delay in regulatory approval
Post the reduced gas supplies from Reliance KG- Basin, the PLF of GVK's
power plants has already come down to 68% in the month of February, with
no imminent pick-up expected in gas, according to officials of GVK. While
a delay in permissions to sell merchant power by 1 year could lower FY12E
earnings by c28%, if gas supplies remain at the current rate, net earnings
for FY12E could fall by c47%. In a worst-case scenario, the regulatory assets
become negative for Bangalore airport for GVK (and Hyderabad airport for
GMR), which could result in the full value of Bangalore airport of INR 4/sh
being pared from GVK's SOTP
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Multi-year tariff proposal, a small positive vs risk of low long-term returns
We see the recent introduction of a multi-year tariff for airport operators, as
proposed by the Indian airport regulator, AERA, as a marginal positive.
However, we remain concerned on the January 2011 order as it proposes
to reduce aero charges in case developers benefit from gains in real estate.
For private developers such as GMR (unrated) and GVK, this raises the risk
that the market value of real estate assets for their development work at
Hyderabad and Bangalore, respectively, could be set off against the aero
returns, resulting in virtually zero returns for minority equity holders. While
we await the response of appellate tribunal and courts if required, we have
cut the value of the real estate development at Bangalore airport for GVK in
our SOTP value. At our revised SOTP value of INR 39/sh (down from INR
43/sh), we reiterate Buy.
But for brown-field airport development in Mumbai, real estate development
is a trigger
According to officials of MMRDA, the regulatory and planning body for approval
of development in Mumbai, the commercial development of c20 mn
sq ft around Mumbai Airport did not see much objection from various stakeholders
especially on layout, proposals for commercial development, etc.
The bulk of the objections centered on the slum rehabilitation etc., which is
for an area reserved for “taxi", airplane parking and not commercial development.
Subject to how the management manages this transition, there is
now a significant probability that real estate development at the Mumbai
airport could begin.
But risk on earnings continue from delay in regulatory approval
Post the reduced gas supplies from Reliance KG- Basin, the PLF of GVK's
power plants has already come down to 68% in the month of February, with
no imminent pick-up expected in gas, according to officials of GVK. While
a delay in permissions to sell merchant power by 1 year could lower FY12E
earnings by c28%, if gas supplies remain at the current rate, net earnings
for FY12E could fall by c47%. In a worst-case scenario, the regulatory assets
become negative for Bangalore airport for GVK (and Hyderabad airport for
GMR), which could result in the full value of Bangalore airport of INR 4/sh
being pared from GVK's SOTP
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