Institutional Equities - Online Share Trading

Institutional Equities
Investment Arguments
Airport portfolio - Focus on profitability (54% of SOTP value)
GMR Infrastructure currently has a portfolio of four airport assets, two of which are domestic (New Delhi and
Hyderabad) and two international projects which include Sabiha Gokcen International Airport (SGIA), Istanbul,
and Male International Airport, Maldives. The Hyderabad airport is a greenfield project while Delhi, Sabiha
Gokcen and Male airports are brownfield projects.
We have valued the airports' core business at Rs41bn based on FCFE valuation method, given the steady
and recurring cash flow during the concession period. Airports' core assets contribute 22.5% to our SOTP
valuation. If we include the value of real estate development, the airport assets account for 54% of our SOTP.
Exhibit 3: Airport portfolio
Stake Capex (Rsbn) Project status Passenger traffic (mn) Development rights
Delhi airport 54% 12.7 Operational 30.0 250-acre land
H’bad airport 63% 29.2 Operational 7.59 1,500-acre land
Sabiha 40% 29.3 Operational 12.20 N/A
Male airport 77% 13.9 Brownfield-U/I 2.50 N/A
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 4: Airport valuation
Airports (Rsmn) Asset value GMR stake Value of stake Project cost Value/share CoE
DIALCore 30,032 54% 16,218 12,760 4.2 15%
DIAL Real estate - - 38,155 - 10 -
HIALCore 34,998 63% 22,049 29,200 5.7 16%
HIAL Real estate - - 9,900 - - -
SGHIA 8,320 40% 3,328 29,315 0.9 15%
Total 73,351 - 89,649 - 20 -
Source: Company, Nirmal Bang Institutional Equities Research
Airport assets: Focus on profitability
Airport assets, which are capital intensive in nature, have higher capacity charges and are loss-making in the
initial two-three years. The company has completed two brownfield expansions (DIAL and SGIA) and one
greenfield expansion (GHIAL) in the past three years. The company has recently bagged the brownfield
expansion project at Male airport, which is profitable and has operating cash flow, and it would be funded
through internal accruals. Hyderabad airport has turned profit-making in 4QFY11 and started having operating
cash flow.
Delhi airport and Sabiha Gokcen airport projects were completed in the past one year and due to higher
capacity charges have reported losses, which led consolidated financials to show losses. SGIA is witnessing
robust traffic growth and is expected to turn around in the next three quarters. Profitability of Delhi airport will
be based on clarity by the Airports Economic Regulatory Authority (AERA) on tariff determination for airports
and the rate of return on regulated asset base as well as renewal of suspended ADF and incremental ADF of
Rs17bn. Based on the current tariff, with a hybrid model; we expect the Delhi airport to turn around in FY14,
registering cash profit and turning FCF positive in FY12.
Exhibit 5: Passenger traffic trend (Delhi airport) (Hyderabad airport)
(mn Pax) (%)
8
80
7
60
6
40
5
20
4
0
3
2
(20)
1
(40)
0
(60)
Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12
Domestic (Pax Traffic) International (Pax Traffic) % Growth % Growth
Source: Company, Nirmal Bang Institutional Equities Research
(mn Pax) (%)
1.8
30
1.6
20
1.4
10
1.2
0
1
(10)
0.8
(20)
0.6
(30)
0.4
(40)
0.2
(50)
0
(60)
Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12
Domestic (Pax Traffic) International (Pax Traffic) % Growth % Growth
Source: Bloomberg, Nirmal Bang Institutional Equities Research
57 GMR Infrastructure