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