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Results boosted by deferred tax asset recognition
GMR Infrastructure (GMR) reported loss of INR 223 mn (against our loss
estimates of INR 505 mn), which included deferred tax asset recognition of INR 1
bn. The resultant operating loss is due to higher capital charges at Delhi airport,
post commissioning of T3 terminal and lower-than-expected PLF in the power
division due to lower demand and deficient gas supply.
Robust traffic growth in road, airport projects; PLF dips in 2 power units
Traffic grew a robust 8.4% Y-o-Y in Delhi International Airport (DIAL; 7.4%
domestic and 10.7% international) and 17.5% Y-o-Y in Hyderabad International
Airport (HIAL; 18.6% domestic and 13.6% international). Its three toll-based road
projects also witnessed strong traffic growth, varying from 7% to 21%, Y-o-Y.
However, PLF at Chennai plant dipped further to 38% (40% in Q2FY11) due to
lower demand from Tamil Nadu Electricity Board (TNEB); Vemagiri plant was hit
by lower gas supplies, resulting in PLF falling from 90% in last quarter to 76% in
Q3FY11.
Two new project wins; financial closure achieved for two more projects
GMR was awarded a 25 MW solar power plant in Gujarat and also won a bid for
setting up 400KV 386 circuit kms transmission lines in Rajasthan. It also achieved
financial closure for: (a) 1,370 MW coal-based thermal power plant in
Chhattisgarh (INR 62 bn) and (b) MRO facility in Hyderabad aviation SEZ.
Outlook and valuations: Operating leverage to kick in; maintain ‘BUY’
We have calibrated FY11E to factor in impact of lower PLF in power plants and
higher traffic growth in airports and road projects. We are introducing FY13
estimates and have also increased our risk-free rate assumptions 100bps to 8%.
We have incorporated the uncertainty in airport regulations through a beta of 1.5x
for these assets. This has led to our SOTP value going down to INR 61/share (INR
64/share earlier). We like the management’s focus on improving profitability by
deleveraging balance sheet and believe that operating leverage is likely to kick in,
which could aid earnings growth and, hence, valuations. With imminent
introduction of new regulatory framework by AERA, we expect the financials of
DIAL to improve going ahead. We maintain ‘BUY/Sector Outperformer’
recommendation/rating on the stock.
Other highlights
• GMR received the environmental clearance for its 180 MW Bajoli Holi hydro power
project in Himachal Pradesh.
• For the 768 MW Vemagiri expansion project, physical progress is as per schedule with
about 77% of EPC work having been completed.
• For the 600 MW EMCO project, ~40% of the EPC work has been completed.
• GMR also received stage II forest clearance for the 1,050 MW (Stage 1) Kamalanga
project.
• The company is in the final stages of a stake sale in its airport holding company.
Company Description
GMR is the flagship company of the GMR Group promoted by Mr. G. M. Rao. The group
was initially active in the agri business and banking sector through a controlling stake in
Vysya Bank, the largest private sector bank in India, before banking sector reforms and
subsequent sale to ING. GMR follows the developer model for infrastructure projects
across different verticals—power, roads, airports, and urban infrastructure. The promoter
group is closely involved with the management with each of the different verticals in the
company. Each business head is supported by a strong group of professionals.
Investment Theme
Further upsides from commercial development linked to airports
If GMR manages to sell remaining 205 acres of land at a price greater than the value at
which it has sold 45 acres presently, it could result in further upsides for the company.
Similarly, monetization of Hyderabad airport land and SEZ land at higher than expected
valuations could result in a positive surprise.
Power project expansion pipeline at nascent stage
The company has about 3,290 MW of generation units in various stages of development,
which include ~2,800 MW of thermal generation and 1,190 MW of hydro power units.
The company plans to have a reasonable blend of merchant and PPA sale for its
expansion projects. Timely financial closure for the hydro projects and execution without
cost overrun of projects could result in increased earnings for the company.
Increase in passenger traffic in airports and toll-based roads
If the passenger traffic picks up in airports and the toll-based road projects, the
operating leverage is expected to be higher which would expand valuations.
Traction in projects
With the likelihood of sale of Intergen stake, huge cash reserves and likely listing of
power entity separately there is a likelihood of more projects being added to the portfolio
like the recent Male airport and Vemagiri expansion projects. If the same trend of value
accretion continues then there can be further upside to valuations.
Key Risks
Falling passenger traffic critical for airports’ valuations
Passenger traffic had been down due to slowdown in economic activities leading to lower
earnings at both Delhi and Hyderabad airports. This has been a drain on the valuation of
airports.
Failure to monetise airport land at attractive valuations on time
GMR has been successful in monetizing 45 acres out of 250 acres of land at Delhi airport.
However, if it does not succeed in monetizing the balance tranche at similar or higher
levels, it could drag valuations downwards.
Further equity dilution, unrelated diversification
The company has been raising equity money frequently in the recent past for enhancing
its project portfolio. One of the acquisition was stake in Intergen which has so far not
been value accretive. If a similar trend continues going forward then the same could
impact valuations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Results boosted by deferred tax asset recognition
GMR Infrastructure (GMR) reported loss of INR 223 mn (against our loss
estimates of INR 505 mn), which included deferred tax asset recognition of INR 1
bn. The resultant operating loss is due to higher capital charges at Delhi airport,
post commissioning of T3 terminal and lower-than-expected PLF in the power
division due to lower demand and deficient gas supply.
Robust traffic growth in road, airport projects; PLF dips in 2 power units
Traffic grew a robust 8.4% Y-o-Y in Delhi International Airport (DIAL; 7.4%
domestic and 10.7% international) and 17.5% Y-o-Y in Hyderabad International
Airport (HIAL; 18.6% domestic and 13.6% international). Its three toll-based road
projects also witnessed strong traffic growth, varying from 7% to 21%, Y-o-Y.
However, PLF at Chennai plant dipped further to 38% (40% in Q2FY11) due to
lower demand from Tamil Nadu Electricity Board (TNEB); Vemagiri plant was hit
by lower gas supplies, resulting in PLF falling from 90% in last quarter to 76% in
Q3FY11.
Two new project wins; financial closure achieved for two more projects
GMR was awarded a 25 MW solar power plant in Gujarat and also won a bid for
setting up 400KV 386 circuit kms transmission lines in Rajasthan. It also achieved
financial closure for: (a) 1,370 MW coal-based thermal power plant in
Chhattisgarh (INR 62 bn) and (b) MRO facility in Hyderabad aviation SEZ.
Outlook and valuations: Operating leverage to kick in; maintain ‘BUY’
We have calibrated FY11E to factor in impact of lower PLF in power plants and
higher traffic growth in airports and road projects. We are introducing FY13
estimates and have also increased our risk-free rate assumptions 100bps to 8%.
We have incorporated the uncertainty in airport regulations through a beta of 1.5x
for these assets. This has led to our SOTP value going down to INR 61/share (INR
64/share earlier). We like the management’s focus on improving profitability by
deleveraging balance sheet and believe that operating leverage is likely to kick in,
which could aid earnings growth and, hence, valuations. With imminent
introduction of new regulatory framework by AERA, we expect the financials of
DIAL to improve going ahead. We maintain ‘BUY/Sector Outperformer’
recommendation/rating on the stock.
Other highlights
• GMR received the environmental clearance for its 180 MW Bajoli Holi hydro power
project in Himachal Pradesh.
• For the 768 MW Vemagiri expansion project, physical progress is as per schedule with
about 77% of EPC work having been completed.
• For the 600 MW EMCO project, ~40% of the EPC work has been completed.
• GMR also received stage II forest clearance for the 1,050 MW (Stage 1) Kamalanga
project.
• The company is in the final stages of a stake sale in its airport holding company.
Company Description
GMR is the flagship company of the GMR Group promoted by Mr. G. M. Rao. The group
was initially active in the agri business and banking sector through a controlling stake in
Vysya Bank, the largest private sector bank in India, before banking sector reforms and
subsequent sale to ING. GMR follows the developer model for infrastructure projects
across different verticals—power, roads, airports, and urban infrastructure. The promoter
group is closely involved with the management with each of the different verticals in the
company. Each business head is supported by a strong group of professionals.
Investment Theme
Further upsides from commercial development linked to airports
If GMR manages to sell remaining 205 acres of land at a price greater than the value at
which it has sold 45 acres presently, it could result in further upsides for the company.
Similarly, monetization of Hyderabad airport land and SEZ land at higher than expected
valuations could result in a positive surprise.
Power project expansion pipeline at nascent stage
The company has about 3,290 MW of generation units in various stages of development,
which include ~2,800 MW of thermal generation and 1,190 MW of hydro power units.
The company plans to have a reasonable blend of merchant and PPA sale for its
expansion projects. Timely financial closure for the hydro projects and execution without
cost overrun of projects could result in increased earnings for the company.
Increase in passenger traffic in airports and toll-based roads
If the passenger traffic picks up in airports and the toll-based road projects, the
operating leverage is expected to be higher which would expand valuations.
Traction in projects
With the likelihood of sale of Intergen stake, huge cash reserves and likely listing of
power entity separately there is a likelihood of more projects being added to the portfolio
like the recent Male airport and Vemagiri expansion projects. If the same trend of value
accretion continues then there can be further upside to valuations.
Key Risks
Falling passenger traffic critical for airports’ valuations
Passenger traffic had been down due to slowdown in economic activities leading to lower
earnings at both Delhi and Hyderabad airports. This has been a drain on the valuation of
airports.
Failure to monetise airport land at attractive valuations on time
GMR has been successful in monetizing 45 acres out of 250 acres of land at Delhi airport.
However, if it does not succeed in monetizing the balance tranche at similar or higher
levels, it could drag valuations downwards.
Further equity dilution, unrelated diversification
The company has been raising equity money frequently in the recent past for enhancing
its project portfolio. One of the acquisition was stake in Intergen which has so far not
been value accretive. If a similar trend continues going forward then the same could
impact valuations.
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