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UBS Investment Research
GMR Infrastructure
To sell 30% stake in Island Power at 30%
p remium
Event: to sell 30% stake in 800MW Island Power project to Petronas
GMR will sell a 30% stake in Island Power to Petronas of Malaysia. The company
had earlier indicated that it is looking at divesting its stake partially in this project
(please refer to our note ‘Island Power: Company expects high project
profitability’ dated 9 September 2011). It will not look for further partners in this
project as of now. Our sum-of-the-parts (SOTP) valuation currently does not
include any value for this S$1.2bn project.
Impact: to realise part of the project value upfront
This stake sale lends confidence to the overall project profitability (GMR had
earlier stated that it expects equity IRRs of about 18% from this project), in our
view (this is GMR’s only power project outside India). It enables the company to
realise some value upfront (GMR could realise about S$50m from the stake sale)—
the project is likely to be commissioned in Q413. The net equity investment from
GMR (parent) in this project is now likely to be about S$32m.
Action: expects 555km Kishangarh-Ahmedabad project cost to be Rs72bn
GMR has been formally awarded the project and it expects a total cost of Rs72bn
(NHAI estimate was Rs54bn). The company stated that it has studied the traffic
patterns on this corridor for about two years and expects growth to be robust given
the project covers 39% of the Delhi-Mumbai Golden Quadrilateral.
Valuation: Buy rating with SOTP-based price target of Rs38
We have a Buy rating and the risk-reward profile is favourable, in our view.
Island Power project
Project description: Island Power is a 2x 400MW combined cycle project
(GMR Energy Singapore Ltd.) at Jurong Island in Singapore, with a total project
cost of S$1.2bn. This project is not a part of GMR Energy currently (the power
vertical of GMR that has Private Equity investors). This is the only power
project of GMR outside India. Please refer to our note ‘Island Power: Company
expects high project profitability’ dated 9 September 2011 for further details.
Stake sale: GMR has agreed to sell a 30% stake in the project to Petronas of
Malaysia. This will be the first power project of Petronas outside Malaysia.
GMR’s CFO stated in an interview that this marks the beginning of a
relationship with Petronas and there could potentially be other strategic alliances
in the future. Although the exact deal value has not been disclosed, the stake sale
is at about a 30% premium.
Funding: Term loan of S$670m has been tied-up on a non-recourse basis.
About 75% of the total equity of S$505bn would be through subordinated
shareholder’s loan. The remaining S$127bn is to be contributed by GMR (GMR
has sold 30% of this at a 30% premium).
Kishangarh-Udaipur-Ahmedabad project
Project description: GMR has received the Letter of Award for this project and
the concession agreement would be signed soon. This is a 555km NHDP Phase
V project—expansion of four lanes to six lanes (Please refer to our note ‘News
reports suggest road project win’ dated 1 August 2011 for details). GMR has
indicated that the project cost will be about Rs72bn (NHAI had estimated a
project cost of about Rs54bn; NHAI estimates are typically lower).
Traffic growth: GMR believes the corridor has high potential for commercial
and tourist traffic as it covers 39% of the Golden Quadrilateral between Delhi
and Mumbai and goes along the Delhi-Mumbai Industrial Corridor. It has
undertaken a detailed study of traffic patterns on this corridor for about two
years—by an internal team as well as external parties. GMR had bid a negative
grant of Rs6.36bn (increases 5% p.a., to be paid for the concession period of 26
years) and the GVK consortium was the second lowest bidder (bid of Rs5.16bn).
Management expectation on traffic, toll revenues, completion timelines and
project IRRs hold the key for ascertaining the valuation of the project—the
details are currently not available.
Valuation
Our SOTP valuation is given below (individual assets valued on DCF). We have
not included: 1) Island Power; 2) power transmission projects (400KV 386
circuit kms in Rajasthan); 3) the Kakinada SEZ; and 4) the hydro-power projects,
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
To sell 30% stake in Island Power at 30%
p remium
Event: to sell 30% stake in 800MW Island Power project to Petronas
GMR will sell a 30% stake in Island Power to Petronas of Malaysia. The company
had earlier indicated that it is looking at divesting its stake partially in this project
(please refer to our note ‘Island Power: Company expects high project
profitability’ dated 9 September 2011). It will not look for further partners in this
project as of now. Our sum-of-the-parts (SOTP) valuation currently does not
include any value for this S$1.2bn project.
Impact: to realise part of the project value upfront
This stake sale lends confidence to the overall project profitability (GMR had
earlier stated that it expects equity IRRs of about 18% from this project), in our
view (this is GMR’s only power project outside India). It enables the company to
realise some value upfront (GMR could realise about S$50m from the stake sale)—
the project is likely to be commissioned in Q413. The net equity investment from
GMR (parent) in this project is now likely to be about S$32m.
Action: expects 555km Kishangarh-Ahmedabad project cost to be Rs72bn
GMR has been formally awarded the project and it expects a total cost of Rs72bn
(NHAI estimate was Rs54bn). The company stated that it has studied the traffic
patterns on this corridor for about two years and expects growth to be robust given
the project covers 39% of the Delhi-Mumbai Golden Quadrilateral.
Valuation: Buy rating with SOTP-based price target of Rs38
We have a Buy rating and the risk-reward profile is favourable, in our view.
Island Power project
Project description: Island Power is a 2x 400MW combined cycle project
(GMR Energy Singapore Ltd.) at Jurong Island in Singapore, with a total project
cost of S$1.2bn. This project is not a part of GMR Energy currently (the power
vertical of GMR that has Private Equity investors). This is the only power
project of GMR outside India. Please refer to our note ‘Island Power: Company
expects high project profitability’ dated 9 September 2011 for further details.
Stake sale: GMR has agreed to sell a 30% stake in the project to Petronas of
Malaysia. This will be the first power project of Petronas outside Malaysia.
GMR’s CFO stated in an interview that this marks the beginning of a
relationship with Petronas and there could potentially be other strategic alliances
in the future. Although the exact deal value has not been disclosed, the stake sale
is at about a 30% premium.
Funding: Term loan of S$670m has been tied-up on a non-recourse basis.
About 75% of the total equity of S$505bn would be through subordinated
shareholder’s loan. The remaining S$127bn is to be contributed by GMR (GMR
has sold 30% of this at a 30% premium).
Kishangarh-Udaipur-Ahmedabad project
Project description: GMR has received the Letter of Award for this project and
the concession agreement would be signed soon. This is a 555km NHDP Phase
V project—expansion of four lanes to six lanes (Please refer to our note ‘News
reports suggest road project win’ dated 1 August 2011 for details). GMR has
indicated that the project cost will be about Rs72bn (NHAI had estimated a
project cost of about Rs54bn; NHAI estimates are typically lower).
Traffic growth: GMR believes the corridor has high potential for commercial
and tourist traffic as it covers 39% of the Golden Quadrilateral between Delhi
and Mumbai and goes along the Delhi-Mumbai Industrial Corridor. It has
undertaken a detailed study of traffic patterns on this corridor for about two
years—by an internal team as well as external parties. GMR had bid a negative
grant of Rs6.36bn (increases 5% p.a., to be paid for the concession period of 26
years) and the GVK consortium was the second lowest bidder (bid of Rs5.16bn).
Management expectation on traffic, toll revenues, completion timelines and
project IRRs hold the key for ascertaining the valuation of the project—the
details are currently not available.
Valuation
Our SOTP valuation is given below (individual assets valued on DCF). We have
not included: 1) Island Power; 2) power transmission projects (400KV 386
circuit kms in Rajasthan); 3) the Kakinada SEZ; and 4) the hydro-power projects,
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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