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GMR Infrastructure Ltd Overweight
GMRI.BO, GMRI IN
Inadequate airport user charges erode bottom line
GMR reported a loss of Rs667M (mainly due to DIAL’s capital costs), slightly
better than our Rs743M loss estimate. Revenue growth of 51% (Rs18.6B) was
strong as expected: 1) Consolidation of Male airport (Rev Rs2.5B, OPM 9.3% in a
non-seasonal quarter), 2) Improved gas availability for power, and 3) EPC
revenue growth on execution of road projects which should continue into next
year. EBITDA was 7% ahead of expectations (Rs4.98B, +32% YoY): better
power PLFs on use of RLNG, Hyderabad airport’s operating leverage, timing
benefit in booking DIAL’s consultancy costs.
Interest expenses higher than expected. Interest expenses, at Rs3.7B (+56%
yoy and +26% qoq) were higher than estimated. This was driven by interest
expenses on Rs5.3B of short-term loans of DIAL resulting in a loss of Rs924M
for the airport. Interest rate resets in other segments was also a contributor, in
our view. EBITDA and interest expenses for DIAL have been neck to neck,
resulting in a precarious situation to meet payments. Management is seeking
clarity in aero charges from the regulator before taking steps to reduce debt.
Management guidance on asset turnaround. Amongst the airports,
Hyderabad and Male are already generating operating cash, while management
expects Sabiha to turn around in the next 3-4 quarters as traffic growth
continues. Delhi is the only sore spot and clarity on profitability should emerge
once regulatory clarity does. Road segment loss was well below 1QFY11;
according to management, a turnaround is due by year end.
Balance sheet. As of Mar-11, GMR’s D/E stands at 1.9x, slightly up from
1.82x in the previous quarter. With few expansion plans on the horizon, we
expect leverage to be relatively in check. It appears that equity requirements for
upcoming projects are well provided for, given recent PE infusions and
operating cash flows from projects.
We expect potential regulatory clarity to act as a stock catalyst and
maintain our OW. The stock has continued to underperform as: (1) airport
tariff policy still lacks clarity and casts a shadow over real estate monetization,
(2) ADF collection barred at Delhi by Courts, resulting in cash flow constraints
and inability to service debt: management believes this issue will be resolved in
the next two weeks, (3) fuel availability impacts power projects. These issues
have overshadowed GMRI’s strong execution (e.g., timely project
commissioning, high rank for Delhi airport on service quality), exit from
Intergen (thus reducing debt), cash flow turnaround of Hyderabad airport.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GMR Infrastructure Ltd Overweight
GMRI.BO, GMRI IN
Inadequate airport user charges erode bottom line
GMR reported a loss of Rs667M (mainly due to DIAL’s capital costs), slightly
better than our Rs743M loss estimate. Revenue growth of 51% (Rs18.6B) was
strong as expected: 1) Consolidation of Male airport (Rev Rs2.5B, OPM 9.3% in a
non-seasonal quarter), 2) Improved gas availability for power, and 3) EPC
revenue growth on execution of road projects which should continue into next
year. EBITDA was 7% ahead of expectations (Rs4.98B, +32% YoY): better
power PLFs on use of RLNG, Hyderabad airport’s operating leverage, timing
benefit in booking DIAL’s consultancy costs.
Interest expenses higher than expected. Interest expenses, at Rs3.7B (+56%
yoy and +26% qoq) were higher than estimated. This was driven by interest
expenses on Rs5.3B of short-term loans of DIAL resulting in a loss of Rs924M
for the airport. Interest rate resets in other segments was also a contributor, in
our view. EBITDA and interest expenses for DIAL have been neck to neck,
resulting in a precarious situation to meet payments. Management is seeking
clarity in aero charges from the regulator before taking steps to reduce debt.
Management guidance on asset turnaround. Amongst the airports,
Hyderabad and Male are already generating operating cash, while management
expects Sabiha to turn around in the next 3-4 quarters as traffic growth
continues. Delhi is the only sore spot and clarity on profitability should emerge
once regulatory clarity does. Road segment loss was well below 1QFY11;
according to management, a turnaround is due by year end.
Balance sheet. As of Mar-11, GMR’s D/E stands at 1.9x, slightly up from
1.82x in the previous quarter. With few expansion plans on the horizon, we
expect leverage to be relatively in check. It appears that equity requirements for
upcoming projects are well provided for, given recent PE infusions and
operating cash flows from projects.
We expect potential regulatory clarity to act as a stock catalyst and
maintain our OW. The stock has continued to underperform as: (1) airport
tariff policy still lacks clarity and casts a shadow over real estate monetization,
(2) ADF collection barred at Delhi by Courts, resulting in cash flow constraints
and inability to service debt: management believes this issue will be resolved in
the next two weeks, (3) fuel availability impacts power projects. These issues
have overshadowed GMRI’s strong execution (e.g., timely project
commissioning, high rank for Delhi airport on service quality), exit from
Intergen (thus reducing debt), cash flow turnaround of Hyderabad airport.
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