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GVK Power (GVPWF, Buy)
Bear case: What can go wrong?
Postponement of the monetization (leasing) of the real estate (130 acres) at
the Mumbai airport by a year to FY14E onwards, as it faces regulatory
challenges and at 25% lower realization.
Fall in airport revenues on lower non-aero income by 25%.
Fall in revenues from roads on lower traffic / WPI inflation (100bps fall).
Power plant operating at lower efficiency vs norms and PLF falls by 500 bps
in FY13/14E. All power plants are 100% regulated implying, fixed RoE (14-
15.5%) with fuel cost / interest fluctuation recoverable in tariffs.
Write-off Rs2.5bn incurred on 1.6GW brownfield expansion projects, which
are currently suspended owing to uncertainty on gas supplies.
Interest rate rise by 50bps and rupee depreciate to 52 /USD for FY12/13E.
Consequently, we estimate earnings decline of 47% in FY13E to Rs973mn in
our bear case scenario.
Base case: Regulatory play on infrastructure
Realty monetization (18% of SoTP) to commence in FY13E (vs 2HFY12E
earlier), post the regulatory approval at realization of Rs10,000/sq ft.
Costs overrun at Mumbai airport (by 25%) and Alaknanda hydro project (by
44%) is assumed to be approved by regulator and hence recoverable in tariff.
Power volume surges by 1.6x from FY13E to FY14E as 870MW power plants
become operational over 4QFY13-1QFY14E. Revised earnings to Rs1.85bn
in FY13E (3% cut). Lower PO to Rs23 (earlier Rs25).
Risk-reward: Balanced, lack near-term catalyst
In our bear case, we expect the stock to trade at Rs9/share (P/BV of 0.3x
FY13E). In our base case, we expect stock to trade at Rs23/share (P/BV of
0.8xFY13E).
Overall, the risk-reward appears balanced, but the stock lacks near-term
catalysts, potential equity dilution risk and strain on cash flow in interim
period owing to cost overruns. Potential private equity infusion at
airport/transport/energy vertical would be a deleveraging catalyst.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GVK Power (GVPWF, Buy)
Bear case: What can go wrong?
Postponement of the monetization (leasing) of the real estate (130 acres) at
the Mumbai airport by a year to FY14E onwards, as it faces regulatory
challenges and at 25% lower realization.
Fall in airport revenues on lower non-aero income by 25%.
Fall in revenues from roads on lower traffic / WPI inflation (100bps fall).
Power plant operating at lower efficiency vs norms and PLF falls by 500 bps
in FY13/14E. All power plants are 100% regulated implying, fixed RoE (14-
15.5%) with fuel cost / interest fluctuation recoverable in tariffs.
Write-off Rs2.5bn incurred on 1.6GW brownfield expansion projects, which
are currently suspended owing to uncertainty on gas supplies.
Interest rate rise by 50bps and rupee depreciate to 52 /USD for FY12/13E.
Consequently, we estimate earnings decline of 47% in FY13E to Rs973mn in
our bear case scenario.
Base case: Regulatory play on infrastructure
Realty monetization (18% of SoTP) to commence in FY13E (vs 2HFY12E
earlier), post the regulatory approval at realization of Rs10,000/sq ft.
Costs overrun at Mumbai airport (by 25%) and Alaknanda hydro project (by
44%) is assumed to be approved by regulator and hence recoverable in tariff.
Power volume surges by 1.6x from FY13E to FY14E as 870MW power plants
become operational over 4QFY13-1QFY14E. Revised earnings to Rs1.85bn
in FY13E (3% cut). Lower PO to Rs23 (earlier Rs25).
Risk-reward: Balanced, lack near-term catalyst
In our bear case, we expect the stock to trade at Rs9/share (P/BV of 0.3x
FY13E). In our base case, we expect stock to trade at Rs23/share (P/BV of
0.8xFY13E).
Overall, the risk-reward appears balanced, but the stock lacks near-term
catalysts, potential equity dilution risk and strain on cash flow in interim
period owing to cost overruns. Potential private equity infusion at
airport/transport/energy vertical would be a deleveraging catalyst.
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