Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GMR Infrastructure -Getting its act together
Upgrading to BUY; stock correction looks overdone
Power-related risks (fuel and prices) seem adequately priced in
Airports regulatory risk remains an overhang
TP of INR47; airports: INR22, power: INR22, highways: INR3
Upgrading to BUY, from Hold
We believe GMR offers a favourable riskreward
to long-term investors at current
price levels. Execution has been
essentially on track and the stock price
has underperformed the Sensex 7% YTD.
Our estimates factor in lower capacity
utilisation at power plants, impact of the
regulatory order on airports, and delays in
monetisation of real estate. We believe
the correction is overdone, and we
upgrade GMR to BUY, from Hold.
Worst-case scenario unlikely
We derive 94% of our target price of GMR
from two major segments – airports and
power. Key risk in the airport segment is regulatory. The Airport
Economic Regulatory Authority (AERA) is yet to finalise a revenue model
for GMR’s Delhi airport project (DIAL). Our worst-case value for DIAL
suggests limited downside to our current valuations. In the power
segment, fuel supply and merchant prices are two key risks. Factoring in
a lower PLF (70% for all power plants), we see downside of INR11/share
to our power valuation. We value the stock at INR35/share in our worstcase
scenario.
What is in the price and what to look for?
In FY11, GMR witnessed a decline in PLF at its gas plants (due to gas
shortage), lower merchant rates and an adverse order from the AERA for
GHIAL. On the positive side, the company sold its stake in Intergen
(limiting its loss to USD172m), won the Male airport project, and raised
private equity in the power and airport holding companies. Going forward,
we would look for the AERA’s order on DIAL and resumption of gas
supply to bring PLF to optimal levels.
Change in TP and estimates
We have modified our assumptions for power plants to reflect the revised
assumptions on PLF, capex phasing and merchant tariffs. We have
included the Male airport in our estimates (see Exhibit 3).
Valuation
We arrive at our TP of INR47 (INR67 previously) based on a SoTP
valuation of GMR’s various assets. Airport assets contribute INR22,
energy assets contribute INR22 and highway assets contribute INR3. All
assets are valued using DCF with a 13.5% cost of equity for the life of the
asset. Risks to our TP include: 1) regulatory risk at DIAL and the
corresponding real-estate assets, 2) fuel supply risks at various energy
assets, 3) traffic risk at highway assets, and 4) higher interest costs.
The Risk Experts
• Our starting point for this page is a recognition of the
macro factors that can have a significant impact on stockprice
performance, sometimes independently of bottom-up
factors.
• With our Risk Expert page, we identify the key macro risks
that can impact stock performance.
• This analysis enhances the fundamental work laid out in
the rest of this report, giving investors yet another resource
to use in their decision-making process.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GMR Infrastructure -Getting its act together
Upgrading to BUY; stock correction looks overdone
Power-related risks (fuel and prices) seem adequately priced in
Airports regulatory risk remains an overhang
TP of INR47; airports: INR22, power: INR22, highways: INR3
Upgrading to BUY, from Hold
We believe GMR offers a favourable riskreward
to long-term investors at current
price levels. Execution has been
essentially on track and the stock price
has underperformed the Sensex 7% YTD.
Our estimates factor in lower capacity
utilisation at power plants, impact of the
regulatory order on airports, and delays in
monetisation of real estate. We believe
the correction is overdone, and we
upgrade GMR to BUY, from Hold.
Worst-case scenario unlikely
We derive 94% of our target price of GMR
from two major segments – airports and
power. Key risk in the airport segment is regulatory. The Airport
Economic Regulatory Authority (AERA) is yet to finalise a revenue model
for GMR’s Delhi airport project (DIAL). Our worst-case value for DIAL
suggests limited downside to our current valuations. In the power
segment, fuel supply and merchant prices are two key risks. Factoring in
a lower PLF (70% for all power plants), we see downside of INR11/share
to our power valuation. We value the stock at INR35/share in our worstcase
scenario.
What is in the price and what to look for?
In FY11, GMR witnessed a decline in PLF at its gas plants (due to gas
shortage), lower merchant rates and an adverse order from the AERA for
GHIAL. On the positive side, the company sold its stake in Intergen
(limiting its loss to USD172m), won the Male airport project, and raised
private equity in the power and airport holding companies. Going forward,
we would look for the AERA’s order on DIAL and resumption of gas
supply to bring PLF to optimal levels.
Change in TP and estimates
We have modified our assumptions for power plants to reflect the revised
assumptions on PLF, capex phasing and merchant tariffs. We have
included the Male airport in our estimates (see Exhibit 3).
Valuation
We arrive at our TP of INR47 (INR67 previously) based on a SoTP
valuation of GMR’s various assets. Airport assets contribute INR22,
energy assets contribute INR22 and highway assets contribute INR3. All
assets are valued using DCF with a 13.5% cost of equity for the life of the
asset. Risks to our TP include: 1) regulatory risk at DIAL and the
corresponding real-estate assets, 2) fuel supply risks at various energy
assets, 3) traffic risk at highway assets, and 4) higher interest costs.
The Risk Experts
• Our starting point for this page is a recognition of the
macro factors that can have a significant impact on stockprice
performance, sometimes independently of bottom-up
factors.
• With our Risk Expert page, we identify the key macro risks
that can impact stock performance.
• This analysis enhances the fundamental work laid out in
the rest of this report, giving investors yet another resource
to use in their decision-making process.
No comments:
Post a Comment