Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GVK Power and Infrastructure (GVKP.BO)
Neutral Equity Research
Hancock acquisition - long term benefits – financing remains key
What's changed
GVK group announced the acquisition of Hancock coal mines on Friday for
$1.26bn through a subsidiary. The acquired assets include Alpha, Alpha
west and Kevin’s Corner coal mines with combined resources of 7.9bn
tonnes of coal, and associated rail and port projects. The payment for the
deal will be in three parts of $500mn to be paid immediately, $200mn (1
year after deal close) and $560mn (at financial closure of project), to be
financed through $1bn of debt and $260mn of equity. In addition, the asset
would require infrastructure to be built over the next 3 years requiring
additional capex of US$10 bn. GVK Infra (GVKPIL) has a 10% stake in the
subsidiary with an option to increase it to 49%. They will also have an
option to buy 20mn ton/yr coal through GVK Energy.
Implications
Based on our initial assumptions of similar assets in Australia and
management estimates, we expect the asset to generate about US$50
EBITDA/ton and ROE in the 16-20% range. We expect the project to start
generating free cash flow within 3-4 years of commencement of the first
phase of operation. Hence we see this as operationally positive.
Apart from execution challenges, financing of this large deal is key – GVKPIL
will have to invest Rs6 bn over the next 15 months on its part, putting pressure
on an already leveraged Balance Sheet (1.3X Net Debt/Equity-FY12E).
Valuation
We make no change to our valuation and look forward to the closing of the
transaction (scheduled for the next 2-3 months) and further execution from
the company. We retain Neutral and our 12m SOTP-based TP of Rs 23.
Key risks
Upside: Monetization of Mumbai Airport land; Downside: (1) Regulatory
uncertainty on Airport regulation and (2) Further delay in monetization of
Mumbai Real Estate
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GVK Power and Infrastructure (GVKP.BO)
Neutral Equity Research
Hancock acquisition - long term benefits – financing remains key
What's changed
GVK group announced the acquisition of Hancock coal mines on Friday for
$1.26bn through a subsidiary. The acquired assets include Alpha, Alpha
west and Kevin’s Corner coal mines with combined resources of 7.9bn
tonnes of coal, and associated rail and port projects. The payment for the
deal will be in three parts of $500mn to be paid immediately, $200mn (1
year after deal close) and $560mn (at financial closure of project), to be
financed through $1bn of debt and $260mn of equity. In addition, the asset
would require infrastructure to be built over the next 3 years requiring
additional capex of US$10 bn. GVK Infra (GVKPIL) has a 10% stake in the
subsidiary with an option to increase it to 49%. They will also have an
option to buy 20mn ton/yr coal through GVK Energy.
Implications
Based on our initial assumptions of similar assets in Australia and
management estimates, we expect the asset to generate about US$50
EBITDA/ton and ROE in the 16-20% range. We expect the project to start
generating free cash flow within 3-4 years of commencement of the first
phase of operation. Hence we see this as operationally positive.
Apart from execution challenges, financing of this large deal is key – GVKPIL
will have to invest Rs6 bn over the next 15 months on its part, putting pressure
on an already leveraged Balance Sheet (1.3X Net Debt/Equity-FY12E).
Valuation
We make no change to our valuation and look forward to the closing of the
transaction (scheduled for the next 2-3 months) and further execution from
the company. We retain Neutral and our 12m SOTP-based TP of Rs 23.
Key risks
Upside: Monetization of Mumbai Airport land; Downside: (1) Regulatory
uncertainty on Airport regulation and (2) Further delay in monetization of
Mumbai Real Estate
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
No comments:
Post a Comment