GMR Infrastructure - Good Performance : Morgan Stanley

Visit http://indiaer.blogspot.com/ for complete details �� ��


GMR Infrastructure Ltd Quick Comment: Airport Division Shows Good Performance


Earnings don’t matter – Project execution and
capital availability are key: For an asset developer like
GMR, we believe that quarterly results will not matter
much for the stock since it is an asset story based on
long-term sustainable cash flows, rather than short-term
earnings surprises.


Revenue growth driven by Airport division: GMR
posted revenues of Rs12.2 bn up 2.3% driven by the
airport division, which was up 42% YoY in top-line terms,
helped by pick up in domestic passenger traffic at DIAL
and HIAL and a 93% growth at SGIA. With GEL (barge
mounted plant) operational since August 2010 and the
completion of construction of Sabiha Gocken airport,
this resulted in GMR posting revenue declines of 8%
and 55% at the power and construction divisions
respectively.

Interest and depreciation depress profit before tax:
GMR reported a 41% increase in depreciation and
interest cost. Depreciation was higher mainly due to the
partial capitalization (46%) of T3 at Delhi airport. GMR
has used the entire QIP proceeds of Rs 14 bn to pre-pay
the debt mainly at operating power subsidiaries and at
the parent level. The high depreciation and interest
costs resulted in loss at the PBT level of Rs781 mn.

There was a one-time income item of Rs1.4 bn from the
write back of earlier expense at the Island power which
we have included as an exceptional item. Loss after tax
was at Rs978 mn (vs Rs592 profit in F2Q10).

Reiterate our UW stance: While the long-term story on
GMR is compelling along and the company has great
management in place, we believe the market is ignoring
risks (including political and execution risks and the risk
of falling returns of the sector) and is thus valuing the
stock too highly. In addition, with the company’s projects
being either in the investment or growth phase, we
believe future growth will come only at the cost of
dilution of current shareholders.