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GMR Infrastructure (GMRI.BO, Neutral)
Diverse infrastructure asset portfolio – valuations are beginning to look fair but most projects are still
not free cash flow generating, and concerns remain over aggressive bidding and changes in policy
Attractive exposure to high growth areas such as airports (stakes in Hyderabad, Delhi, and Istanbul airports),
power generation (823 MW operational, rising to 3813 MW by 2013), roads (255km annuity and 166km toll
roads), and special economic zones (3,300 acres).
Substantial value of airport assets to come through real estate development (1,750 acres). However, the nearterm
benefits of this may be low and the regulatory overhang on the treatment of real estate remains.
The power assets currently under construction & development (2,990 MW) would also start contributing
value only in FY13. The company’s plant in Andhra Pradesh will continue to struggle for lack of uninterrupted
gas supply.
Ytd, the stock has underperformed the Sensex by 20% but outperformed GVK Power by 19% due to: (1) its
longer gestation projects still needing incremental capital, (2) concerns over higher interest rates and the
company’s leverage, and (3) policy decisions still pending from airport regulator.
Catalyst
Timely execution on projects, especially in the power segment over the next 12 months.
Delay in real estate development at airport assets and inclusion of real estate sales in calculating regulated
airport capex by the airport regulator (AERA).
Valuation
We maintain our Neutral rating on the stock as we believe that value in GMR Infrastructure’s asset base will
have to be balanced with fewer assets being operational at any one time.
We change our FY12/FY13/FY14 EPS estimates by -118%/-25%/14% to reflect higher interest expenses than
earlier forecasted and higher depreciation on the New Delhi Airport Terminal (DIAL).
Based on the above-mentioned factors we lower our 12-month SOTP-based target price to Rs37 (from Rs45)
in addition to rolling forward our target price by 6 months to the average of FY12E-FY13E.
Key risks
Upside: (1) Monetization of real estate, and (2) any favorable airport regulation from AERA and approval of
capital expenditure.
Downside: (1) Prolonged weakness in traffic, (2) delay in power plant commissioning, and (3) an inability to
raise finances when required.
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