GMR Infrastructure- 1Q: higher interest cost hurts earnings :: Macquarie Research,

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GMR Infrastructure
1Q: higher interest cost hurts earnings
Event
 GMR Infra reported its 1QFY12 results. EBITDA at Rs5bn was 6% ahead of
estimates and adjusted net loss at Rs427mn was lower than our estimates of
profit of Rs220mn primarily due to higher interest costs in the airport segment.
We have an Outperform rating on the stock with a target price of Rs44.
Impact
 1QFY12 results – higher interest and depreciation hurts profits: GMR
reported revenues of Rs18.7bn (up 51% YoY due to the inclusion of the Male
airport) and adjusted net loss at Rs427mn (v/s Rs284mn in 1QFY11). The decline
in profits on a yearly basis is mainly due to higher interest and depreciation
charges due to commissioning of the T3 terminal of the Delhi airport.
 Strong traffic growth in airports, tariff ruling for Delhi airport awaited:
Traffic in Delhi and Hyderabad airports increased by 22% and 15% YoY,
respectively, driving strong operating performance of these airports. While
Hyderabad metro has turned profitable since 4QFY11, a delay in the tariff
fixation in the Delhi airport (DIAL) continues to hurt earnings. Following the
Supreme Court ban on the collection of ADF, DIAL had to borrow Rs5.5bn in
short-term loans, which added to its losses.
Management expects ADF collection to begin in 15-30 days and tariff
charges to be fixed by the airport regulator by the end of CY11. We have
built in a new tariff model for DIAL starting FY13E.
 Fuel availability drives power plants’ performance: Higher gas availability
drove power plants’ PLF. Interestingly, GMR continues to guide for gas supply
continuing at a 75-85% range in 2QFY12. GMR Infra has indicated that it
would have a 75-25 mix of long-term and merchant contracts from its
Vemagiri expansion which is likely to be commissioned by the end of FY12.
 Adequately funded for projects under construction: GMR Infra has a cash
balance of US$800mn which was raised through private equity deals in airport
and energy verticals and QIP in the parent entity in FY11. Equity requirements
for the company over the next 18-24 months across all verticals could easily
be met with the outstanding cash balance.
Earnings and target price revision
 No change.
Price catalyst
 12-month price target: Rs44.00 based on a Sum of Parts methodology.
 Catalyst: fixation of Delhi airport’s tariff charges
Action and recommendation
 Regulatory uncertainties a near-term overhang: Tariff fixation in the Delhi
airport and firm gas allocation for the Vemagiri expansion remain key nearterm
concerns on the stock. However, at a 1.2x P/B, we see very limited
downside from current levels. Maintain Outperform with Rs44 target price.