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India Equity Research Reports, IPO and Stock News
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GMR is gearing up for the commissioning of its three large power plants and three road
projects in the next five quarters, which should boost its earnings significantly by FY14F.
With the upcoming airport regulator order for Delhi airport, we believe the historically-low PB
valuation is attractive. Buy maintained.
International expansion limited to airport and resource segments
In a recent investor meeting, GMR group chairman said global expansion would be limited to
brownfield projects in the airport and resources segments. This addresses recent investor
concerns post the large investment (US$450m) GMR is making in an Indonesian coal mine.
With GMR’s impressive execution track record in the Indian infrastructure asset space, the
company’s successful bid for a Rs70bn road project in 1H11 should help the road and EPC
divisions gain traction in the medium term. We have not yet built these two projects into our
estimates and asset valuation, pending further details.
Quarter-on-quarter loss reduction suggests GMR is on the right track
GMR’s 1QFY12 normalised losses were 43% lower qoq as the company improved Delhi
airport (DIAL) EBITDA margins and power division extended peak-season earnings. Though
fuel availability for its upcoming power projects (2,793MW in the next five quarters) is a
cause for concern, we remain cautious and trim our FY12-13 EBITDA forecasts by just 2-3%.
However, this translates into a big swing in net losses in FY12F due to the low base.
Valuation at historical low; a good time to enter a quality asset play, in our view
GMR’s stock price has halved over the last year due to slow government decision-making and
regulatory hurdles. GMR’s current P/BV is at a historical low, and in our view offers a good point
for medium-term investors to enter into a large infrastructure-asset owner with a monopoly in
airport assets. We view a potential reversal in the current high interest rate cycle in the coming
quarter and the easing of regulatory concerns related to airports as potential stock price catalysts
for companies like GMR. The big trigger for GMR’s profitability should be tariff fixation for DIAL
and fuel security for the company’s power plants. With no significant impact on our SOTP-based
valuation from our marginal EPS changes, we reiterate Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GMR is gearing up for the commissioning of its three large power plants and three road
projects in the next five quarters, which should boost its earnings significantly by FY14F.
With the upcoming airport regulator order for Delhi airport, we believe the historically-low PB
valuation is attractive. Buy maintained.
International expansion limited to airport and resource segments
In a recent investor meeting, GMR group chairman said global expansion would be limited to
brownfield projects in the airport and resources segments. This addresses recent investor
concerns post the large investment (US$450m) GMR is making in an Indonesian coal mine.
With GMR’s impressive execution track record in the Indian infrastructure asset space, the
company’s successful bid for a Rs70bn road project in 1H11 should help the road and EPC
divisions gain traction in the medium term. We have not yet built these two projects into our
estimates and asset valuation, pending further details.
Quarter-on-quarter loss reduction suggests GMR is on the right track
GMR’s 1QFY12 normalised losses were 43% lower qoq as the company improved Delhi
airport (DIAL) EBITDA margins and power division extended peak-season earnings. Though
fuel availability for its upcoming power projects (2,793MW in the next five quarters) is a
cause for concern, we remain cautious and trim our FY12-13 EBITDA forecasts by just 2-3%.
However, this translates into a big swing in net losses in FY12F due to the low base.
Valuation at historical low; a good time to enter a quality asset play, in our view
GMR’s stock price has halved over the last year due to slow government decision-making and
regulatory hurdles. GMR’s current P/BV is at a historical low, and in our view offers a good point
for medium-term investors to enter into a large infrastructure-asset owner with a monopoly in
airport assets. We view a potential reversal in the current high interest rate cycle in the coming
quarter and the easing of regulatory concerns related to airports as potential stock price catalysts
for companies like GMR. The big trigger for GMR’s profitability should be tariff fixation for DIAL
and fuel security for the company’s power plants. With no significant impact on our SOTP-based
valuation from our marginal EPS changes, we reiterate Buy.
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