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GVK Power & Infrastructure Q3FY12 result, not comparable on a YoY basis due to consolidation of MIAL, disappointed on operational as well as net profit front. On the operational front power division recorded lower PLF’s due to reduced gas supply from RIL while the pax traffic growth in airports moderated to sub-8% levels. Higher fixed costs & forex losses affected operating profits for both the divisions. The net profit was lower on account of interest cost on debt used for funding the 13% stake acquisition in MIAL. The company booked an additional interest cost of ` 0.5bln in Q3FY12. Improvement in global sentiment, decline in risk aversion has supported the recent buoyancy in capital markets and has seen the stock price almost doubling from its recent lows. We believe the current price factors in a lot of positives, the most important being raising of capital in the airports division and consequent de-leveraging of the balance sheet supporting future cash flow and profitability. However, the run-up in stock price is not expected to be supported by any improvement on the operational front given that the gas production from RIL is expected to further decline and the COD of under construction power plants has been delayed by at least a year. Escalation in project costs and the funding of the same of an already stretched balance sheet has cast shadow on the airports division. Significant project cost escalations, possibility of further delay in execution due to shortfall in finance, lack of clarity on regulations and delay in real estate monetization undermine the company’s ability to complete the projects within the stated timelines. In addition, the contingent risk of Hancock acquisition still remains. We roll over our target price to FY13 & continue to maintain Sell with a price target of ` 13. A significant reduction in the final cost escalation est., real estate monetization and equity infusion in airports vertical pose upside risks.
Debt funding of MIAL stake acquisition hits bottomline …
GVK increased its stake in MIAL by acquiring 13.5% stake from Bidvest. The transaction cost ` 11.5bln was entirely funded through debt. A part of the debt of ` 6.5bln was raised through securitization of Jaipur-Kishangarh expressway at an interest of 12.98% while the rest ` 5bln was raised as a corporate loan at 13.9% taking the total acquisition debt to ` 24bln for consolidation of its stake in BIAL & MIAL. This translated into an interest outgo of ` 820mln and a net loss for the company.
Valuation: price factoring in lot of positives, risks remain
We believe the current market price factors in a lot of positives for the company while the risks still remain. Significant cost escalations, further delay due to shortfall in financing the escalation, regulatory approvals and the contingent risk of Hancock acquisition pose significant risk. We roll over our target price to FY13 and continue to maintain Sell with a price target of ` 13.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GVK Power & Infrastructure Q3FY12 result, not comparable on a YoY basis due to consolidation of MIAL, disappointed on operational as well as net profit front. On the operational front power division recorded lower PLF’s due to reduced gas supply from RIL while the pax traffic growth in airports moderated to sub-8% levels. Higher fixed costs & forex losses affected operating profits for both the divisions. The net profit was lower on account of interest cost on debt used for funding the 13% stake acquisition in MIAL. The company booked an additional interest cost of ` 0.5bln in Q3FY12. Improvement in global sentiment, decline in risk aversion has supported the recent buoyancy in capital markets and has seen the stock price almost doubling from its recent lows. We believe the current price factors in a lot of positives, the most important being raising of capital in the airports division and consequent de-leveraging of the balance sheet supporting future cash flow and profitability. However, the run-up in stock price is not expected to be supported by any improvement on the operational front given that the gas production from RIL is expected to further decline and the COD of under construction power plants has been delayed by at least a year. Escalation in project costs and the funding of the same of an already stretched balance sheet has cast shadow on the airports division. Significant project cost escalations, possibility of further delay in execution due to shortfall in finance, lack of clarity on regulations and delay in real estate monetization undermine the company’s ability to complete the projects within the stated timelines. In addition, the contingent risk of Hancock acquisition still remains. We roll over our target price to FY13 & continue to maintain Sell with a price target of ` 13. A significant reduction in the final cost escalation est., real estate monetization and equity infusion in airports vertical pose upside risks.
Debt funding of MIAL stake acquisition hits bottomline …
GVK increased its stake in MIAL by acquiring 13.5% stake from Bidvest. The transaction cost ` 11.5bln was entirely funded through debt. A part of the debt of ` 6.5bln was raised through securitization of Jaipur-Kishangarh expressway at an interest of 12.98% while the rest ` 5bln was raised as a corporate loan at 13.9% taking the total acquisition debt to ` 24bln for consolidation of its stake in BIAL & MIAL. This translated into an interest outgo of ` 820mln and a net loss for the company.
Valuation: price factoring in lot of positives, risks remain
We believe the current market price factors in a lot of positives for the company while the risks still remain. Significant cost escalations, further delay due to shortfall in financing the escalation, regulatory approvals and the contingent risk of Hancock acquisition pose significant risk. We roll over our target price to FY13 and continue to maintain Sell with a price target of ` 13.
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