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UBS Investment Research
GVK Power and Infrastructure
Q1 FY12 Conference call: key takeaways
„ Event: Not to increase leverage/dilute for Australian mine acquisition
Though GVK did not disclose any details on the Australian mine acquisition plans
due to confidentiality clauses, it stated that acquisition of mines will not result in
any dilution or leverage for GVKPIL (the parent/holding company) or any of its
projects. The company could reveal the funding plan in the next 3-4weeks.
„ Impact: Mumbai real estate- plans to monetize 3msqft in FY12
Environmental clearance has been received. Rest of the clearances are expected
soon and the papers are pending with MMRDA- the company has furnished all
documents and expects the clearance in the next two months. 3msqft of real estate
is expected to be monetized in FY12. It expects to consolidate 50.5% stake in
Mumbai airport (~37% currently) from October onwards post receipt of RBI
approval. Stake purchases in both Mumbai and Bangalore airports are expected to
be funded through Letter of Credits and eventually through PE funding.
„ Action: Private Equity likely in airport and transport verticals
GVK is likely to raise Rs10-15bn through the PE route in its airport vertical for
funding the additional stake purchase in Mumbai and Bangalore airports (earlier
discussions with PE players that had been stopped due to regulatory uncertainties
have now been resumed). In the transport/road vertical also it could bring in PE
funding for the new projects (equity for the under-construction projects is likely
from Jaipur-Kishengarh cashflows/securitization).
„ Valuation: Buy rating
We have a buy rating with an SOTP based price target of Rs39.
Key highlights from the conference call
Q Australian mine acquisition: Company is currently not disclosing details
due to confidentiality clauses. It stated that acquisition of mines will not
result in any dilution or leverage for GVKPIL or any of its projects. The
company could reveal the funding plan in the next 3-4weeks (in our view it
could be asset-backed financing and could also potentially involve
guarantees).
Q Mumbai real estate: Environmental clearance received. Rest of the
clearances expected soon- papers pending with MMRDA. All information
has been furnished by the company and it expects to receive the clearance in
the next two months. 3m sqft expected to be monetized in FY12.
Airports:
Q MIAL construction: Slippage in construction time-line due to delays in
permission related to statue relocation- now expected anytime soon. May
result in cost overrun.
Q MIAL stake increase: Awaiting RBI approval for additional stake purchase
of 13.5% in MIAL (will increase GVK stake to 50.5%). Funding of the
payment will be done through Letter of Credit (for 3 year period, to be
guaranteed by the parent entity). Expect to consolidate from October
onwards.
Q BIAL expansion: Underway and will be completed in 18m. Equity funding
through internal accruals. Expect to achieve financial closure soon.
Q BIAL stake purchase: GVK could purchase additional 14% stake of
Siemens (though the LC route).
Q Funding: Rs10-15bn is expected to be raised through PE money. Earlier
discussions were stopped due to regulatory uncertainties, but have been now
resumed.
Power:
Q PLFs: Lack of gas availability constrained performance of power segment.
However, RL&G was allowed to be used for two and a half months. Future
PLFs depend on gas availability- currently operating only on RIL/GAIL gas.
Expect to see dip in PLFs in coming quarters if the supply bottlenecks
prevail (though plant availability continues to be high).
Q Alaknanda: Two units to be commissioned by mid next year. Another unit
would be commissioned by Q3CY12. Civil works has been completed up to
70%. Remaining expected to be completed by end of current fiscal year.
Q Goindwal Sahib: COD expected by December 2012.
Q Tokisud mine: Progressed well on execution. Most land acquisition
completed and called for bids for mine operator. It expects to open the mines
before year-end. Receipt of notice by the government is not a cause of worry
as everyone has received such notices (such notices are received every 6m).
Q Gas expansion projects: Has suspended 1,600MW expansion plans till there
is more clarity on gas availability. Had given Notice to Proceed to the EPC
contractor on one of the projects, with an advance of Rs1.3bn- now
negotiating with them on the same.
Q Ratle: Currently in talks with bankers to raise funds and expects to
financially close it by the year-end
Q Funding: Tied-up for Alaknanda, Goindwal Sahib and Tokisud mines. PE
investments in the power vertical is to be received in two tranches- first
tranche already received and second tranche to come in by this year-end.
GVK has the option to financially close the gas-expansion projects by Dec-
13. Alternatively, it can replace these projects by equivalent projects. In case
the expansion projects do not go through and the company does not have any
replacement projects, current dilution of 25% will increase by 5% to 30%.
Roads:
Q Jaipur-Kishengarh: Toll rates were hiked by ~10%
Q Deoli-Kota: Expected to be completed within two years (well within 30
months schedule).
Q Bagodara Vasad Expressway: Has time till Nov-11 to achieve financial
closure. Construction commenced with promoter equity- to be completed in
2yrs (available time is 30m)
Q Shivpuri-Dewas: Expects to receive LOI soon.
Q Funding: JKEL cash accruals and securitization are expected to equity
provide funding for the u/construction projects. The company may bring in
PE funding going forward.
Q GVK Power and Infrastructure
GVK Power and Infrastructure is a leading and diversified infrastructure
developer. Its asset portfolio (attributable) includes: 1) about 2,000MW of
power capacity (including 1,240MW under construction; an additional
2,300MW is planned); 2) two airports (Mumbai and Bangalore) with maximum
passenger throughput of about 33m; 3) one 90km BOT road project; 4) coal
mines (for captive purposes) with reserves of about110m tons; 5) one 2,900-acre
Special Economic Zone; and 6) about 220 acres of real estate near Mumbai and
Bangalore airports.
Q Statement of Risk
In our view the key risks for GVK with regard to airport projects are: a)
execution delays; b) regulatory risks related to revenue; and c) traffic risks. With
regard to power projects, we believe the key risks are: a) shortages in fuel
supply; and b) collection risks. For road projects: a) traffic; and b) collection are
key risks. All of GVK’s projects face interest rate-related risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
GVK Power and Infrastructure
Q1 FY12 Conference call: key takeaways
„ Event: Not to increase leverage/dilute for Australian mine acquisition
Though GVK did not disclose any details on the Australian mine acquisition plans
due to confidentiality clauses, it stated that acquisition of mines will not result in
any dilution or leverage for GVKPIL (the parent/holding company) or any of its
projects. The company could reveal the funding plan in the next 3-4weeks.
„ Impact: Mumbai real estate- plans to monetize 3msqft in FY12
Environmental clearance has been received. Rest of the clearances are expected
soon and the papers are pending with MMRDA- the company has furnished all
documents and expects the clearance in the next two months. 3msqft of real estate
is expected to be monetized in FY12. It expects to consolidate 50.5% stake in
Mumbai airport (~37% currently) from October onwards post receipt of RBI
approval. Stake purchases in both Mumbai and Bangalore airports are expected to
be funded through Letter of Credits and eventually through PE funding.
„ Action: Private Equity likely in airport and transport verticals
GVK is likely to raise Rs10-15bn through the PE route in its airport vertical for
funding the additional stake purchase in Mumbai and Bangalore airports (earlier
discussions with PE players that had been stopped due to regulatory uncertainties
have now been resumed). In the transport/road vertical also it could bring in PE
funding for the new projects (equity for the under-construction projects is likely
from Jaipur-Kishengarh cashflows/securitization).
„ Valuation: Buy rating
We have a buy rating with an SOTP based price target of Rs39.
Key highlights from the conference call
Q Australian mine acquisition: Company is currently not disclosing details
due to confidentiality clauses. It stated that acquisition of mines will not
result in any dilution or leverage for GVKPIL or any of its projects. The
company could reveal the funding plan in the next 3-4weeks (in our view it
could be asset-backed financing and could also potentially involve
guarantees).
Q Mumbai real estate: Environmental clearance received. Rest of the
clearances expected soon- papers pending with MMRDA. All information
has been furnished by the company and it expects to receive the clearance in
the next two months. 3m sqft expected to be monetized in FY12.
Airports:
Q MIAL construction: Slippage in construction time-line due to delays in
permission related to statue relocation- now expected anytime soon. May
result in cost overrun.
Q MIAL stake increase: Awaiting RBI approval for additional stake purchase
of 13.5% in MIAL (will increase GVK stake to 50.5%). Funding of the
payment will be done through Letter of Credit (for 3 year period, to be
guaranteed by the parent entity). Expect to consolidate from October
onwards.
Q BIAL expansion: Underway and will be completed in 18m. Equity funding
through internal accruals. Expect to achieve financial closure soon.
Q BIAL stake purchase: GVK could purchase additional 14% stake of
Siemens (though the LC route).
Q Funding: Rs10-15bn is expected to be raised through PE money. Earlier
discussions were stopped due to regulatory uncertainties, but have been now
resumed.
Power:
Q PLFs: Lack of gas availability constrained performance of power segment.
However, RL&G was allowed to be used for two and a half months. Future
PLFs depend on gas availability- currently operating only on RIL/GAIL gas.
Expect to see dip in PLFs in coming quarters if the supply bottlenecks
prevail (though plant availability continues to be high).
Q Alaknanda: Two units to be commissioned by mid next year. Another unit
would be commissioned by Q3CY12. Civil works has been completed up to
70%. Remaining expected to be completed by end of current fiscal year.
Q Goindwal Sahib: COD expected by December 2012.
Q Tokisud mine: Progressed well on execution. Most land acquisition
completed and called for bids for mine operator. It expects to open the mines
before year-end. Receipt of notice by the government is not a cause of worry
as everyone has received such notices (such notices are received every 6m).
Q Gas expansion projects: Has suspended 1,600MW expansion plans till there
is more clarity on gas availability. Had given Notice to Proceed to the EPC
contractor on one of the projects, with an advance of Rs1.3bn- now
negotiating with them on the same.
Q Ratle: Currently in talks with bankers to raise funds and expects to
financially close it by the year-end
Q Funding: Tied-up for Alaknanda, Goindwal Sahib and Tokisud mines. PE
investments in the power vertical is to be received in two tranches- first
tranche already received and second tranche to come in by this year-end.
GVK has the option to financially close the gas-expansion projects by Dec-
13. Alternatively, it can replace these projects by equivalent projects. In case
the expansion projects do not go through and the company does not have any
replacement projects, current dilution of 25% will increase by 5% to 30%.
Roads:
Q Jaipur-Kishengarh: Toll rates were hiked by ~10%
Q Deoli-Kota: Expected to be completed within two years (well within 30
months schedule).
Q Bagodara Vasad Expressway: Has time till Nov-11 to achieve financial
closure. Construction commenced with promoter equity- to be completed in
2yrs (available time is 30m)
Q Shivpuri-Dewas: Expects to receive LOI soon.
Q Funding: JKEL cash accruals and securitization are expected to equity
provide funding for the u/construction projects. The company may bring in
PE funding going forward.
Q GVK Power and Infrastructure
GVK Power and Infrastructure is a leading and diversified infrastructure
developer. Its asset portfolio (attributable) includes: 1) about 2,000MW of
power capacity (including 1,240MW under construction; an additional
2,300MW is planned); 2) two airports (Mumbai and Bangalore) with maximum
passenger throughput of about 33m; 3) one 90km BOT road project; 4) coal
mines (for captive purposes) with reserves of about110m tons; 5) one 2,900-acre
Special Economic Zone; and 6) about 220 acres of real estate near Mumbai and
Bangalore airports.
Q Statement of Risk
In our view the key risks for GVK with regard to airport projects are: a)
execution delays; b) regulatory risks related to revenue; and c) traffic risks. With
regard to power projects, we believe the key risks are: a) shortages in fuel
supply; and b) collection risks. For road projects: a) traffic; and b) collection are
key risks. All of GVK’s projects face interest rate-related risk.
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