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GVK Power & Infrastructure Ltd.
Hancock acquisition: A mixed
bag, Buy
„Hancock acquisition looks too ambitious, Cut EPS, Buy
GVK group’s acquisition of Hancock assets (mine + infrastructure) would lead to
dilution in GVKPIL’s EPS by 3-17% due to interest for debt and we cut our PO to
Rs29 (Rs30). GVK acquired (a) 3 coal mine (JORC compliant 7.9bnt resource),
(b) 495 kms rail link, (c) 60mpta port and existing management team, from
Hancock group in Australia at USD1.26bn. At EV/t (reserves) at USD0.4/t, it is
lower vs peers as mine is under development (Lanco at EV/t – 0.7, GMR at 0.6 for
operating mine). GVKPIL (listco) own 10% with an option to up it to 49% in 3-6m,
which looks difficult given potential dilution, high leverage. Buy on Mumbai realty
monetization, 2x power capacity by FY13E with fuel cost recoverable and cheap
valuation.
Takeaways from management conference call
(a) Capex of USD15bn is needed over 3-5 years for development [USD10bn for
60mpta coal, USD2.5bn each for rail /port] (b) LoI worth 45 mtpa is signed for
which pricing could be Newcastle index linked (c) Coal output to commence from
FY15E at ~6mtpa, ramped to 60 mtpa by FY22E (d) Cash cost is estimated at
USD55/t (e) In discussion with potential investors to divest upto 49% stake in
these assets (f) Mgmt not so keen to up GVKPIL stake to 49% in resources (g)
aim to cut coal capex by 30-40% through outsourcing etc. (h) qualitywise, coal lies
in lowest quartile in Australia vs peers and in 2nd quartile globally.
A mixed bag for GVKPIL
GVK would benefit from (a) 20 mtpa LT coal supply enough to fuel 7.5GW of
power plants (4.2x FY13E capacity) at 10% disc. to LT imported coal contract in
India (b) option for lead position in rail/port and (c) potential upside on stake sale
in these assets. On the downside, (a) potential liabilities as GVKPIL provided
corporate guarantee for 49% of o/s debt, despite 10% equity (b) pledge shares of
energy/transport subsidiaries, (c) potential dilution as equity of USD0.45-2.3bn
(0.75x-3.9x current mcap linked to 10-49% stake) would require and (d) high
leverage as net D:E could go to 4x in FY14E at 10% stake
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GVK Power & Infrastructure Ltd.
Hancock acquisition: A mixed
bag, Buy
„Hancock acquisition looks too ambitious, Cut EPS, Buy
GVK group’s acquisition of Hancock assets (mine + infrastructure) would lead to
dilution in GVKPIL’s EPS by 3-17% due to interest for debt and we cut our PO to
Rs29 (Rs30). GVK acquired (a) 3 coal mine (JORC compliant 7.9bnt resource),
(b) 495 kms rail link, (c) 60mpta port and existing management team, from
Hancock group in Australia at USD1.26bn. At EV/t (reserves) at USD0.4/t, it is
lower vs peers as mine is under development (Lanco at EV/t – 0.7, GMR at 0.6 for
operating mine). GVKPIL (listco) own 10% with an option to up it to 49% in 3-6m,
which looks difficult given potential dilution, high leverage. Buy on Mumbai realty
monetization, 2x power capacity by FY13E with fuel cost recoverable and cheap
valuation.
Takeaways from management conference call
(a) Capex of USD15bn is needed over 3-5 years for development [USD10bn for
60mpta coal, USD2.5bn each for rail /port] (b) LoI worth 45 mtpa is signed for
which pricing could be Newcastle index linked (c) Coal output to commence from
FY15E at ~6mtpa, ramped to 60 mtpa by FY22E (d) Cash cost is estimated at
USD55/t (e) In discussion with potential investors to divest upto 49% stake in
these assets (f) Mgmt not so keen to up GVKPIL stake to 49% in resources (g)
aim to cut coal capex by 30-40% through outsourcing etc. (h) qualitywise, coal lies
in lowest quartile in Australia vs peers and in 2nd quartile globally.
A mixed bag for GVKPIL
GVK would benefit from (a) 20 mtpa LT coal supply enough to fuel 7.5GW of
power plants (4.2x FY13E capacity) at 10% disc. to LT imported coal contract in
India (b) option for lead position in rail/port and (c) potential upside on stake sale
in these assets. On the downside, (a) potential liabilities as GVKPIL provided
corporate guarantee for 49% of o/s debt, despite 10% equity (b) pledge shares of
energy/transport subsidiaries, (c) potential dilution as equity of USD0.45-2.3bn
(0.75x-3.9x current mcap linked to 10-49% stake) would require and (d) high
leverage as net D:E could go to 4x in FY14E at 10% stake
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