Institutional Equities - Online Share Trading
Institutional Equities - Online Share Trading
Institutional Equities - Online Share Trading
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Initiating Coverage<br />
<strong>Institutional</strong> <strong>Equities</strong><br />
GMR Infrastructure<br />
Reuters: GMRI.BO; Bloomberg: GMRI IN<br />
On Recovery Path<br />
GMR Infrastructure, a leading infrastructure company, has underperformed the<br />
Nifty in the past three years by 55% because of multiple issues like Balance<br />
Sheet concerns post leveraged buyout of Intergen, funding constraints for mega<br />
expansion plan, overhang of regulatory issues and pressure on profitability.<br />
Looking at the recent developments like adequate raising of capital for near-term<br />
expansion, sale of Intergen stake and expected other positive developments like<br />
improvement in profitability and clarity on regulatory issues, we believe the<br />
concerns have been largely priced in the CMP of GMR Infrastructure and<br />
provides a good investment opportunity for long-term investors. We assign a<br />
Buy rating and a target price of Rs39 to the stock based on SOTP valuation.<br />
Blend of improvement in profitability and growth: Post commercial operations of<br />
projects like Delhi airport, Turkey airport and shifting of Barge mount power plant, the<br />
company has started incurring losses due to higher capacity charges. We believe<br />
robust growth in traffic coupled with cost-cutting measures will improve profitability and<br />
loss-making projects will turn FCF positive in FY12, staging a turnaround in the next<br />
two years (favourable tariff outcome at Delhi airport to expedite the process). Three<br />
thermal power projects of 2.7GW are in advanced stage of construction and slated for<br />
commercial operations in FY12-13, which will drive growth.<br />
Projects under construction well funded: The company has divested stake and<br />
booked all losses pertaining to Intergen in 4QFY11, which has released equity capital<br />
of Rs 9.58bn and eased rising leverage concerns. Apart from this, the company has<br />
raised around $950mn (for power and airport subsidiary), which is sufficient to meet<br />
the near-term funding requirements of the project pipeline.<br />
Clarity expected on regulatory issues: The company continues to face a lot of<br />
regulatory issues like enhanced project costs, renewal of suspended ADF and<br />
incremental ADF of Rs17bn, rate of return on regulated base and gas/coal availability<br />
for power projects under construction. We believe the current market price seems to<br />
be factoring in most of these uncertainties and our earnings model is based on a worst<br />
case scenario. Hence, clarity on these issues, which is expected in the next two-three<br />
months, will be positive for the stock.<br />
Valuation: We assign a Buy rating and a SOTP-based target price of Rs39 to GMR<br />
Infrastructure. In our target price, 75% is contributed by operational projects and the<br />
remaining 25% from projects at various stages of development. Key contributors to our<br />
TP of Rs39 comprise Rs20 from airports business (including real estate), Rs14 from<br />
power generation and coal mining, and Rs3 from the road segment.<br />
Y/E Mar (Rsmn) FY09 FY10 FY11 FY12E FY13E<br />
Net Sales 40,192 45,665 57,738 71,096 105,284<br />
YoY (%) 75.1 13.6 26.4 23.1 48.1<br />
EBIDTA 10,668 13,643 15,553 21,644 38,014<br />
EBIDTAM (%) 26.5 29.9 26.9 30.4 36.1<br />
Adj. Net Profit 2,794 1,581 (1,313) 811 4,777<br />
EPS Growth (%) 33.0 (43.4) (183.0) 161.8 489.2<br />
Adj. EPS 0.7 0.4 (0.3) 0.2 1.2<br />
P/BV (x) 0.8 1.7 1.2 1.2 1.2<br />
PER (X) 41.8 73.9 NA 144.0 24.4<br />
EV/EBIDTA 18.7 19.2 19.0 15.6 9.5<br />
ROE (%) 4.3 2.4 NA 1.0 5.8<br />
ROCE (%) 5.2 4.6 4.3 5.7 9.4<br />
Source: Company, Nirmal Bang <strong>Institutional</strong> <strong>Equities</strong> Research<br />
26 September 2011<br />
BUY<br />
Sector: Infrastructure<br />
CMP: Rs28<br />
Target Price: Rs39<br />
Upside: 39%<br />
Amit Srivastava<br />
amit.srivastava@nirmalbang.com<br />
+91-22-3926 8116<br />
Nitin Arora<br />
nitin.arora@nirmalbang.com<br />
+91-22-3926 8169<br />
Key Data<br />
Current <strong>Share</strong>s O/S (mn) 3,892.4<br />
Mkt Cap (Rsbn/US$bn) 110.4/2.2<br />
52 Wk H / L (Rs) 61/26<br />
Daily Vol. (3M NSE Avg.) 4,080,979<br />
<strong>Share</strong> holding (%)<br />
3QFY11 4QFY11 1QFY12<br />
Promoter 70.7 71.2 71.4<br />
FII 13.2 12.8 12.6<br />
DII 8.3 8.2 8.1<br />
Corporate 1.4 1.2 1.2<br />
General Public 6.4 6.7 6.8<br />
One Year Indexed Stock Performance<br />
Price Performance (%)<br />
1 M 6 M 1 Yr<br />
GMR Infra 0.5 (24.1) (51.7)<br />
Nifty Index (1.6) (11.2) 18.3<br />
Source: Bloomberg