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Reported earnings higher than estimates
Revenues, at INR 5 bn, were marginally higher than our estimates of INR 4.9 bn.
While operating expenses were slightly higher than our projections, savings in
capital charges meant that PAT, at INR 428 mn, was higher than our expectations
of INR 329 mn.
Traffic growth across airports; flat at road asset
MIAL performed strongly with its Y-o-Y passenger growth robust at 12%
(international 14% and domestic 11%) and cargo up ~19%. For BIAL, Y-o-Y
passenger growth was ~12.5% (international 13% and domestic ~12.5%), with
cargo volume up 30%. In JKEL, though overall traffic growth was flat Y-o-Y;
revenues were higher due to toll rate increase.
Margin surprise at BIAL and JKEL
Despite only ~36% contribution of non-aero segments to revenues, EBITDA
margins at BIAL were robust at ~65%. MIAL reported 40% EBITDA margins,
with ~64% of non-aero income. In JKEL, GVK did not incur the ~INR 150
mn/quarter spend on major maintenance in Q2FY11. Hence, operating expenses
declined and margins were higher.
Private equity stake sale on the cards
The management in the call indicated that it would dilute minority stake
aggregating USD 250-300 mn in both power and airport holding companies each,
with negotiations for stake sale in power at an fairly advanced stage.
Outlook and valuations: Fund raising the trigger; maintain ‘HOLD’
While there are near-term triggers due to possible stake sale at higher valuations
in the power/airport subsidiary, the lack of incremental development in MIAL land
and regulatory concerns in the airport businesses could impact valuations. Post
the recent restructuring of debt in power and restatement of opex in road project
and incorporating higher EBITDA margins in BIAL, we have revised our earnings
upwards by 21% for FY11E and 4% for FY12E to INR 1.5 bn and INR 2.9 bn
respectively. Hence, our SOTP value for GVK comes to INR 46 /share (INR
43/share earlier). We maintain ‘HOLD/ Sector Performer’ recommendation.
Traffic growth across airports; flat at road asset
MIAL performed strongly with Y-o-Y passenger growth robust at 12% (international 14%
and domestic 11%), with cargo rising ~19%. Non-aero income also grew ~8%, with
cargo (in particular) growing ~51% due to higher demurrage charges.
For BIAL, Y-o-Y passenger growth was ~12.5% (international 13% and domestic
~12.5%) with cargo volume rising 30%. Non-aero income also grew ~6%, with cargo (in
particular) growing ~50%.
In JKEL, though overall traffic growth was flat Y-o-Y and down 6% Q-o-Q (due to
monsoon), revenues were higher due to toll rate increase of ~9% (effective from July
01, 2010) based on WPI as on March 31, 2010. Y-o-Y, cars, LGVs and heavy vehicles
traffic have grown, but traffic for trucks and multi-axle vehicles has decreased.
Key takeaways from the conference call
• Gautami power project’s earnings were higher by ~INR 90–100 mn due to
refinancing of debt to 9.34% from 11.7% earlier. Benefits for JP2 are expected Q3
onwards. The management expects the ruling from the High Court on the merchant
sale over the next fortnight. JP1 project status beyond 2015 yet to be ascertained as
negotiations with AP government has not begun.
• There have been some delays in Alaknanda project; hence, management expects
CoD by December 2011 against June 2011 earlier. We expect the project to become
operational only in FY13.
• There has not been any order placed for gas projects and only USD 5 mn advance
was paid for pre-engineering works and EPC contracts blocked for price till
31/12/2010. The company will get benefit of earlier prices only if order to proceed is
issued to the vendor.
• MIAL land deal: Expect approvals by Q4FY11/Q1FY12. HDIL has not vacated families and,
hence, delays are expected. As per the original agreement, HDIL was expected to
handover the first tranche of land by June 2010 (currently expected by December 2010)
and the final land parcel by October 2011 (expected to get extended to June 2012).
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