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UBS Investment Research
GMR Infrastructure
Island Power: Company expects high
p roject profitability
Event: GMR expects equity IRRs of ~18% in Island Power project
GMR today organized a presentation on the 800MW Island Power project
(Singapore power company acquired from Intergen). The ~SGD1.2bn project is
likely to be commissioned in Q4CY13. Equity investment from GMR (parent) will
be less than SGD100m. Project financing has been secured and the liability of
GMR (parent) is limited to US$100m. Our SOTP currently does not include any
value for Island Power. This project is not a part of GMR Energy currently.
Impact: Higher returns at GMR parent level due to project structuring
IRR to GMR, the project sponsor, will likely be higher at ~20%, due to funding
structure- ~75% of the equity funding will be through subordinated shareholder’s
loan taken from Indian banks. The interest cost on this loan will be ~SGD20m,
less than the fees that GMR will likely earn from the project company (success fee
and O&M fees- both approved by project lenders).
Action: Likely to dilute ~30% stake in the project
GMR could dilute ~30% stake in the project over the next few months. Fuel supply
agreement has been signed, EPC contract has been awarded and construction has
commenced. This project is likely to have higher efficiencies than other generation
companies in the region due to usage of latest technology and hence better returns.
Valuation: Buy rating with SOTP-based PT of Rs38
We have a Buy rating and long-term risk-reward is favourable in our view.
Profitability: This plant is likely to have higher efficiencies (by 5-6%)
compared to other power generating companies in the region (due to better
technology, it being a new construction) and given that pricing is largely similar
across power producers, it expects higher profitability. At the project level,
equity IRRs are expected to be ~18% and at GMR level it could be ~20% (due
to the funding structure).
Valuation
Our SOTP valuation for GMR is as follows (with individual assets being valued
on DCF). We have not included 1) Island Power, 2) power transmission projects
(400KV 386 circuit kms in Rajasthan; financial closure to be achieved soon) and
3) Kakinada SEZ (master-planning of the port about to be completed as per
news reports) and 4) the hydro-power projects (early development stage) in our
valuation.
GMR Infrastructure
GMR is one of India's leading infrastructure developers, with an asset portfolio
(attributable) of: (1) 765 acres of real estate near Delhi and Hyderabad airports;
(2) about 3,900MW of power capacity (+4,100MW at an early development
stage); (3) three airports with ultimate pax handling of 89m; (4) eight road
projects (more than 520km); (5) three SEZs of more than 3,400 acres; and (6)
stakes in coal mines with mineable reserves of over 150m tons. Additionally,
GMR holds 50% of Intergen, which has global power assets of 6,600MW (and
2,700MW under development).
Statement of Risk
In our view the key risks for GMR with regard to airport projects are: a)
execution delays; b) regulatory risks related to revenue; and c) traffic risks. With
regard to power projects, we believe the key risks are: a) shortages in fuel
supply; and b) collection risks. For road projects: a) traffic; and b) collection are
key risks. All of GMR’s projects face interest rate-related risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
GMR Infrastructure
Island Power: Company expects high
p roject profitability
Event: GMR expects equity IRRs of ~18% in Island Power project
GMR today organized a presentation on the 800MW Island Power project
(Singapore power company acquired from Intergen). The ~SGD1.2bn project is
likely to be commissioned in Q4CY13. Equity investment from GMR (parent) will
be less than SGD100m. Project financing has been secured and the liability of
GMR (parent) is limited to US$100m. Our SOTP currently does not include any
value for Island Power. This project is not a part of GMR Energy currently.
Impact: Higher returns at GMR parent level due to project structuring
IRR to GMR, the project sponsor, will likely be higher at ~20%, due to funding
structure- ~75% of the equity funding will be through subordinated shareholder’s
loan taken from Indian banks. The interest cost on this loan will be ~SGD20m,
less than the fees that GMR will likely earn from the project company (success fee
and O&M fees- both approved by project lenders).
Action: Likely to dilute ~30% stake in the project
GMR could dilute ~30% stake in the project over the next few months. Fuel supply
agreement has been signed, EPC contract has been awarded and construction has
commenced. This project is likely to have higher efficiencies than other generation
companies in the region due to usage of latest technology and hence better returns.
Valuation: Buy rating with SOTP-based PT of Rs38
We have a Buy rating and long-term risk-reward is favourable in our view.
Profitability: This plant is likely to have higher efficiencies (by 5-6%)
compared to other power generating companies in the region (due to better
technology, it being a new construction) and given that pricing is largely similar
across power producers, it expects higher profitability. At the project level,
equity IRRs are expected to be ~18% and at GMR level it could be ~20% (due
to the funding structure).
Valuation
Our SOTP valuation for GMR is as follows (with individual assets being valued
on DCF). We have not included 1) Island Power, 2) power transmission projects
(400KV 386 circuit kms in Rajasthan; financial closure to be achieved soon) and
3) Kakinada SEZ (master-planning of the port about to be completed as per
news reports) and 4) the hydro-power projects (early development stage) in our
valuation.
GMR Infrastructure
GMR is one of India's leading infrastructure developers, with an asset portfolio
(attributable) of: (1) 765 acres of real estate near Delhi and Hyderabad airports;
(2) about 3,900MW of power capacity (+4,100MW at an early development
stage); (3) three airports with ultimate pax handling of 89m; (4) eight road
projects (more than 520km); (5) three SEZs of more than 3,400 acres; and (6)
stakes in coal mines with mineable reserves of over 150m tons. Additionally,
GMR holds 50% of Intergen, which has global power assets of 6,600MW (and
2,700MW under development).
Statement of Risk
In our view the key risks for GMR with regard to airport projects are: a)
execution delays; b) regulatory risks related to revenue; and c) traffic risks. With
regard to power projects, we believe the key risks are: a) shortages in fuel
supply; and b) collection risks. For road projects: a) traffic; and b) collection are
key risks. All of GMR’s projects face interest rate-related risk.
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