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UBS Investment Research
GMR Infrastructure
C oncerns priced in, upgrade rating to Buy
Event: GMR has underperformed the market 54/36% over 12/9m
The key reasons for the stock’s underperformance in our view are: 1) regulatory
uncertainty on tariff determination for airports; 2) lack of announced plans on
Delhi real estate monetisation; 3) lack of confidence on gas/coal availability for
power projects under construction; and 4) lower utilisation of gas-based plants due
to fuel shortage.
Impact: stock pricing-in concerns; fund raising/Intergen exit are positives
We believe concerns are largely priced in, as Rs26/share is the value of operational
projects and Delhi real estate. A number of positive developments have happened
over the last year, including: 1) ~US$950m of capital raising, sufficient for nearterm
funding requirements of project pipeline; 2) booking of all costs pertaining to
Intergen done within Q4 FY11; and 3) good execution progress on power/road
construction projects (all projects financially closed).
Action: upgrade rating to Buy; long-term risk reward favourable
Downsides from current levels are limited, in our view. Rs8/share is the value of
projects to be commissioned over the next 12-18 months. We reduce our EPS
FY12/13 EPS estimates from Rs0.49/1.35 to Rs(0.63)/(0.13), primarily driven by
higher interest/depreciation in the Delhi airport and lower plant load factors in
power. GMR Infrastructure (GMR) would be making cash profits during this
period though, and we believe that near-term earnings are not that relevant given
the long duration of infrastructure projects.
Valuation: lower SOTP-based price target from Rs46.00 to Rs38.00
In our SOTP valuation we: 1) are conservative in our assumptions on power
projects; and 2) do not ascribe value to the core Delhi airport (valuing only its real
estate) and Hyderabad real estate.
Valuation
Our SOTP valuation for GMR appears in Table 6 below (with individual assets
being valued on DCF).
We have not included the following projects in our valuation: 1) Island Power
(US$1bn, 800MW combined cycle power project in Singapore; financial closure
achieved; completion in 2013); 2) power transmission projects (400KV 386
circuit kms in Rajasthan; financial closure to be achieved soon); 3) Kakinada
SEZ (master-planning of the port about to be completed as per news reports); 4)
MRO facility in Hyderabad SEZ; and 5) hydro/solar power projects (early
development stage).
All projects included in our valuation have been financially closed.
GMR Infrastructure
GMR is one of India's leading infrastructure developers, with an asset portfolio
(attributable) of: (1) 765 acres of real estate near Delhi and Hyderabad airports;
(2) about 3,900MW of power capacity (+4,100MW at an early development
stage); (3) three airports with ultimate pax handling of 89m; (4) eight road
projects (more than 520km); (5) three SEZs of more than 3,400 acres; and (6)
stakes in coal mines with mineable reserves of over 150m tons. Additionally,
GMR holds 50% of Intergen, which has global power assets of 6,600MW (and
2,700MW under development).
Statement of Risk
In our view the key risks for GMR with regard to airport projects are: a)
execution delays; b) regulatory risks related to revenue; and c) traffic risks. With
regard to power projects, we believe the key risks are: a) shortages in fuel
supply; and b) collection risks. For road projects: a) traffic; and b) collection are
key risks. All of GMR’s projects face interest rate-related risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
GMR Infrastructure
C oncerns priced in, upgrade rating to Buy
Event: GMR has underperformed the market 54/36% over 12/9m
The key reasons for the stock’s underperformance in our view are: 1) regulatory
uncertainty on tariff determination for airports; 2) lack of announced plans on
Delhi real estate monetisation; 3) lack of confidence on gas/coal availability for
power projects under construction; and 4) lower utilisation of gas-based plants due
to fuel shortage.
Impact: stock pricing-in concerns; fund raising/Intergen exit are positives
We believe concerns are largely priced in, as Rs26/share is the value of operational
projects and Delhi real estate. A number of positive developments have happened
over the last year, including: 1) ~US$950m of capital raising, sufficient for nearterm
funding requirements of project pipeline; 2) booking of all costs pertaining to
Intergen done within Q4 FY11; and 3) good execution progress on power/road
construction projects (all projects financially closed).
Action: upgrade rating to Buy; long-term risk reward favourable
Downsides from current levels are limited, in our view. Rs8/share is the value of
projects to be commissioned over the next 12-18 months. We reduce our EPS
FY12/13 EPS estimates from Rs0.49/1.35 to Rs(0.63)/(0.13), primarily driven by
higher interest/depreciation in the Delhi airport and lower plant load factors in
power. GMR Infrastructure (GMR) would be making cash profits during this
period though, and we believe that near-term earnings are not that relevant given
the long duration of infrastructure projects.
Valuation: lower SOTP-based price target from Rs46.00 to Rs38.00
In our SOTP valuation we: 1) are conservative in our assumptions on power
projects; and 2) do not ascribe value to the core Delhi airport (valuing only its real
estate) and Hyderabad real estate.
Valuation
Our SOTP valuation for GMR appears in Table 6 below (with individual assets
being valued on DCF).
We have not included the following projects in our valuation: 1) Island Power
(US$1bn, 800MW combined cycle power project in Singapore; financial closure
achieved; completion in 2013); 2) power transmission projects (400KV 386
circuit kms in Rajasthan; financial closure to be achieved soon); 3) Kakinada
SEZ (master-planning of the port about to be completed as per news reports); 4)
MRO facility in Hyderabad SEZ; and 5) hydro/solar power projects (early
development stage).
All projects included in our valuation have been financially closed.
GMR Infrastructure
GMR is one of India's leading infrastructure developers, with an asset portfolio
(attributable) of: (1) 765 acres of real estate near Delhi and Hyderabad airports;
(2) about 3,900MW of power capacity (+4,100MW at an early development
stage); (3) three airports with ultimate pax handling of 89m; (4) eight road
projects (more than 520km); (5) three SEZs of more than 3,400 acres; and (6)
stakes in coal mines with mineable reserves of over 150m tons. Additionally,
GMR holds 50% of Intergen, which has global power assets of 6,600MW (and
2,700MW under development).
Statement of Risk
In our view the key risks for GMR with regard to airport projects are: a)
execution delays; b) regulatory risks related to revenue; and c) traffic risks. With
regard to power projects, we believe the key risks are: a) shortages in fuel
supply; and b) collection risks. For road projects: a) traffic; and b) collection are
key risks. All of GMR’s projects face interest rate-related risk.
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