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GMR & GVK: Risks remain high despite significant price correction
News
As per CNBC-TV18, the Supreme Court (SC) of India cancelled the
application of ADF (Airport Development Fees) at Delhi (DIAL- managed by
GMR) and Mumbai (MIAL- managed by GVK) airports reversing the Delhi
high court judgment made earlier, adjudicating that only the airport
regulator (AERA) has the authority to implement such a levy. Share prices
of the two companies each declined 4% following the news.
Analysis
We believe, today’s SC judgment compounds the uncertain environment in
the airport sector for the two operators, and comes as a negative surprise
especially because the existing ADF mechanism was approved by the
Ministry of Civil Aviation (in February 2009) and, hence, considered as a
stable policy. This is in continuation to other existing issues pending
resolution with the airport regulator such as: 1) land value to be adjusted
against project cost (AERA paper on Jan 12, 2011); and 2) approval of the
additional capital expenditure proposed to be recovered by the
concessionaire through additional ADF (AERA paper on April 21, 2011).
GMR’s stock has now declined 19% ytd, while GVK is down 40%, in large
part due to these continuing issues, in our view.
Implications
We see this uncertainty as a continued risk and still do not see the riskreward
in the space as favorable. Both companies also have additional
risks from uncertainty on gas availability and pricing for their gas-based
power plants. We maintain our Neutral rating and 12-m SOTP-based
target prices on both GMR (Rs45) and GVK (Rs36).
Additionally, we see potential funding risks for GVK from its stated
aggressive growth plans in the area of owning foreign assets (such as
Indonesian airports, Australian mines).
Key risks
Upside: Monetization of real estate; clarity on airport regulation from AERA
and approval of capital expenditure; Downside: further delay in
monetization of real estate, inclusion of real estate sales in calculating
regulated airport capex and removal of ADF.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GMR & GVK: Risks remain high despite significant price correction
News
As per CNBC-TV18, the Supreme Court (SC) of India cancelled the
application of ADF (Airport Development Fees) at Delhi (DIAL- managed by
GMR) and Mumbai (MIAL- managed by GVK) airports reversing the Delhi
high court judgment made earlier, adjudicating that only the airport
regulator (AERA) has the authority to implement such a levy. Share prices
of the two companies each declined 4% following the news.
Analysis
We believe, today’s SC judgment compounds the uncertain environment in
the airport sector for the two operators, and comes as a negative surprise
especially because the existing ADF mechanism was approved by the
Ministry of Civil Aviation (in February 2009) and, hence, considered as a
stable policy. This is in continuation to other existing issues pending
resolution with the airport regulator such as: 1) land value to be adjusted
against project cost (AERA paper on Jan 12, 2011); and 2) approval of the
additional capital expenditure proposed to be recovered by the
concessionaire through additional ADF (AERA paper on April 21, 2011).
GMR’s stock has now declined 19% ytd, while GVK is down 40%, in large
part due to these continuing issues, in our view.
Implications
We see this uncertainty as a continued risk and still do not see the riskreward
in the space as favorable. Both companies also have additional
risks from uncertainty on gas availability and pricing for their gas-based
power plants. We maintain our Neutral rating and 12-m SOTP-based
target prices on both GMR (Rs45) and GVK (Rs36).
Additionally, we see potential funding risks for GVK from its stated
aggressive growth plans in the area of owning foreign assets (such as
Indonesian airports, Australian mines).
Key risks
Upside: Monetization of real estate; clarity on airport regulation from AERA
and approval of capital expenditure; Downside: further delay in
monetization of real estate, inclusion of real estate sales in calculating
regulated airport capex and removal of ADF.
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