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GVK Power & Infrastructure (GVKP)
Infrastructure
Potentially large acquisition, debt and regulatory uncertainties remain. GVK
reported reasonably strong results (up 25%) on back of strong PLF, traffic growth and
high other income (cash from PE). We retain our BUY (TP: Rs35) rating; however,
potentially large debt (on MIAL/BIAL stake acquisition), regulatory uncertainties (MIAL
real estate regulation and BIAL tariff order) and uncertainty about large overseas coal
mine acquisition remains an overhang.
Key developments across sectors (Power, Airports, Roads):
Power: All three power projects saw strong revenue growth on higher PLFs led by a temporary
supply of R-LNG from APGENCO for two months. This supply has been discontinued, which
would likely impact the performance of future quarters. The company has put the Jegurupadu
and Gautami expansion projects on hold pending further clarity on gas supply.
Airports: Both MIAL and BIAL reported strong revenues (up 15-20% yoy) on traffic and cargo
volume growth. However, real estate monetization remains slow at MIAL, lacking full approvals.
Roads: GVK’s Jaipur Expressway reported strong traffic growth (up 7%) as well as tariff
escalations (about 10%) effective July 1st, 2011.
Other developments: (1) progress on Alaknanda and Tokisud coal mines appears to be on
track, (2) financial closure of Deoli-Kota Expressway is complete and (3) GVKP emerged as the
lowest bidder for the Shivpuri-Dewas road project with a potential project cost of about Rs28 bn.
Strong revenues but margins contract sharply; high other income boosts PAT-level growth
GVK reported strong 1QFY12 revenues of Rs6 bn, up 25% yoy though EBITDA margin declined to
22.8%, down 300 bps yoy on higher costs. A sharp increase in other income (to Rs201 mn, versus
only Rs75 mn in 1QFY11) led to net PAT of 589 mn, up 76% yoy from Rs589 mn in 1QFY11.
Key risks: High parent debt on MIAL/BIAL stake buys, regulatory uncertainties, coal mine acquisition
The company may have loans of about Rs20 bn (including incremental 13% in MIAL) at the parent
level related to stake purchases in MIAL/BIAL. Thus, the company is dependant on raising capital to
finance these acquisitions. We also note the potential for further debt burdens for international
coal mine acquisitions. Regulatory uncertainties related to (1) BIAL tariff order and (2) MIAL real
estate valuation methodology as per AERA also remain an overhang on the stock.
Retain BUY; however, potential large debt and regulatory uncertainties constrain a brighter view
We reiterate BUY with a revised TP of Rs35 (from Rs42) on attractive valuations (0.9X FY2012E
P/B). However, potential large debt and regulatory uncertainties remain constraints
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GVK Power & Infrastructure (GVKP)
Infrastructure
Potentially large acquisition, debt and regulatory uncertainties remain. GVK
reported reasonably strong results (up 25%) on back of strong PLF, traffic growth and
high other income (cash from PE). We retain our BUY (TP: Rs35) rating; however,
potentially large debt (on MIAL/BIAL stake acquisition), regulatory uncertainties (MIAL
real estate regulation and BIAL tariff order) and uncertainty about large overseas coal
mine acquisition remains an overhang.
Key developments across sectors (Power, Airports, Roads):
Power: All three power projects saw strong revenue growth on higher PLFs led by a temporary
supply of R-LNG from APGENCO for two months. This supply has been discontinued, which
would likely impact the performance of future quarters. The company has put the Jegurupadu
and Gautami expansion projects on hold pending further clarity on gas supply.
Airports: Both MIAL and BIAL reported strong revenues (up 15-20% yoy) on traffic and cargo
volume growth. However, real estate monetization remains slow at MIAL, lacking full approvals.
Roads: GVK’s Jaipur Expressway reported strong traffic growth (up 7%) as well as tariff
escalations (about 10%) effective July 1st, 2011.
Other developments: (1) progress on Alaknanda and Tokisud coal mines appears to be on
track, (2) financial closure of Deoli-Kota Expressway is complete and (3) GVKP emerged as the
lowest bidder for the Shivpuri-Dewas road project with a potential project cost of about Rs28 bn.
Strong revenues but margins contract sharply; high other income boosts PAT-level growth
GVK reported strong 1QFY12 revenues of Rs6 bn, up 25% yoy though EBITDA margin declined to
22.8%, down 300 bps yoy on higher costs. A sharp increase in other income (to Rs201 mn, versus
only Rs75 mn in 1QFY11) led to net PAT of 589 mn, up 76% yoy from Rs589 mn in 1QFY11.
Key risks: High parent debt on MIAL/BIAL stake buys, regulatory uncertainties, coal mine acquisition
The company may have loans of about Rs20 bn (including incremental 13% in MIAL) at the parent
level related to stake purchases in MIAL/BIAL. Thus, the company is dependant on raising capital to
finance these acquisitions. We also note the potential for further debt burdens for international
coal mine acquisitions. Regulatory uncertainties related to (1) BIAL tariff order and (2) MIAL real
estate valuation methodology as per AERA also remain an overhang on the stock.
Retain BUY; however, potential large debt and regulatory uncertainties constrain a brighter view
We reiterate BUY with a revised TP of Rs35 (from Rs42) on attractive valuations (0.9X FY2012E
P/B). However, potential large debt and regulatory uncertainties remain constraints
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