Nirmal Bang: “BUY” GMR Infrastructure - Target Price: Rs30

Losses Peak Out, Relief Ahead
GMR Infrastructure reported 4QFY12 net loss of Rs3.66bn (above our
estimate of a loss of Rs1.16bn and Bloomberg estimate of a loss of
Rs656mn) due to lower PLF in the energy segment, annual corporate cost
allocation to the airport segment, cost adjustment in the EPC segment and
exceptional items of Rs 1.16bn. We believe the losses have peaked out and
the revised tariff rates at Delhi airport (major reason for the losses in the
past) would improve its financial performance. However, poor performance
of the power segment due to shortage of gas and delay in the process of
monetisation of real estate at DIAL (Delhi International Airport) leads us to
trim our earnings estimate for FY13 and also the target price. We have
revised downwards our TP on the stock from Rs39 to Rs30 based on SOTP
valuation, but retained our Buy rating on it.

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Change in earnings estimates, introduced FY14E: We have cut our earnings
estimates for FY13 and introduced FY14 estimates. We have cut FY13E net sales
estimate by 3%, EBITDA by 16% and net profit by 47% to factor in the delay in
commissioning of the power plant and lower PLF due to shortage of gas. For
FY14E, we expect net sales to increase by 29.5%, EBITDA by 57% and net profit
by 256%.
4QFY12 performance below expectations: The company reported flat revenue at
Rs 19.4bn due to the following: 1) Power segment revenue declining by 28% due to
lower PLF in the energy segment, 2) Airport revenue related to NACIL recognised
on receipt basis at DIAL and Hyderabad airport (revenue loss of Rs495mn) and
seasonally weak quarter for SGIA. EBITDA was 41% below our estimate at
Rs2.69bn (-39% YoY) due to allocation of annual corporate costs for the airport
segment, lower PLF, and adjustment of costs of Rs480mn for the EPC segment.
Consequently, the company reported a net loss of Rs3.66bn (including Rs1.16bn of
exceptional items), which was higher than our estimate.
Valuation: We believe the company’s earnings would start improving from
1QFY13, primarily driven by increase in airport tariff at DIAL. However, the
regulator airport regulator (AERA) has not given any clarifications on its tariff order
related to monetisation of real estate parcel at DIAL. Regulatory uncertainty related
to fuel availability for the power sector remains, but the government has given an
assurance of a positive solution to the issue. Looking at the delay in fuel availability
for the power segment and lack of clarity on monetisation of real estate parcel, we
have revised downwards our target price on the stock from Rs39 to Rs30.
However, we retain our Buy rating on the stock.