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GMR Infrastructure
Closer to stress case valuations
Event
We met with GMR senior management to get further clarity on regulatory
uncertainties in the airport sector and the fuel security issue in power vertical.
We conducted a stress test by building higher cross-subsidy and delay in land
monetisation at Delhi airport and lower PLFs at power plants. Our stress test
indicates limited downside of 20% from current levels.
Impact
Imported coal to sort fuel security issue: The company expects production
ramp-up in the overseas coal blocks, which should account for any shortfall
from local sources. GMR expects to trade coal in the interim period until its
power projects are commissioned.
AERA regulations expected soon could be a game changer: Management
is confident about getting approval for additional ADF (airport development
fees) in the very near term. GMR has received in-principle approval from the
Supreme Court and the airport regulator (AERA). If approved, ADF would total
Rs33bn (25% of Delhi airport’s project cost). The company also expects
clarity on the tariff regulation for Delhi airport soon.
Equity funding tied up for next 12–18 months: The company has raised
US$815m over FY11 through dilution in the holding company and subsidiary
companies. It does not expect large funding requirements for incremental
projects such as the mega US$1.5bn road project. GMR indicated that it
would be interested in projects that have operational cashflow (such as NH
road widening, expansion of operational airports like Male airport).
Earnings and target price revision
No change.
Price catalyst
12-month price target: Rs44.00 based on a Sum of Parts methodology.
Catalyst: Delay in fixation of airport charges and lack of fuel security
Action and recommendation
Risk-reward favourable, regulatory issues need to be addressed: At the
current price of Rs27, the market seems to be building in the worst for the
company – high delay in monetisation and tariff regulation for Delhi airport,
and lower PLFs for power plants.
Stress test indicates downside limited: We stress test the company’s
valuation by building in a delay in Delhi airport land monetisation, tariff
regulation coming in Delhi airport from FY14 instead of FY13 with 50% nonaero
revenues cross-subsidy (instead of 30% expected), and lower PLFs of
60% for all power plants. Our stress case valuation of Rs22/sh indicates a
limited downside of 20% from current levels.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GMR Infrastructure
Closer to stress case valuations
Event
We met with GMR senior management to get further clarity on regulatory
uncertainties in the airport sector and the fuel security issue in power vertical.
We conducted a stress test by building higher cross-subsidy and delay in land
monetisation at Delhi airport and lower PLFs at power plants. Our stress test
indicates limited downside of 20% from current levels.
Impact
Imported coal to sort fuel security issue: The company expects production
ramp-up in the overseas coal blocks, which should account for any shortfall
from local sources. GMR expects to trade coal in the interim period until its
power projects are commissioned.
AERA regulations expected soon could be a game changer: Management
is confident about getting approval for additional ADF (airport development
fees) in the very near term. GMR has received in-principle approval from the
Supreme Court and the airport regulator (AERA). If approved, ADF would total
Rs33bn (25% of Delhi airport’s project cost). The company also expects
clarity on the tariff regulation for Delhi airport soon.
Equity funding tied up for next 12–18 months: The company has raised
US$815m over FY11 through dilution in the holding company and subsidiary
companies. It does not expect large funding requirements for incremental
projects such as the mega US$1.5bn road project. GMR indicated that it
would be interested in projects that have operational cashflow (such as NH
road widening, expansion of operational airports like Male airport).
Earnings and target price revision
No change.
Price catalyst
12-month price target: Rs44.00 based on a Sum of Parts methodology.
Catalyst: Delay in fixation of airport charges and lack of fuel security
Action and recommendation
Risk-reward favourable, regulatory issues need to be addressed: At the
current price of Rs27, the market seems to be building in the worst for the
company – high delay in monetisation and tariff regulation for Delhi airport,
and lower PLFs for power plants.
Stress test indicates downside limited: We stress test the company’s
valuation by building in a delay in Delhi airport land monetisation, tariff
regulation coming in Delhi airport from FY14 instead of FY13 with 50% nonaero
revenues cross-subsidy (instead of 30% expected), and lower PLFs of
60% for all power plants. Our stress case valuation of Rs22/sh indicates a
limited downside of 20% from current levels.
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