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