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Institutional Equities
Exhibit 11: Concerns related to projects
Verticals
Delhi airport
Hyderabad airport
Power sector
Coal mines in Indonesia and South Africa are natural hedge
GMR Infrastructure has bought 100% stake in PT Barasentoso Lestari, Indonesia, an undeveloped mine in
Indonesia for a consideration of $100mn and recently increased the stake in HEG to 55%, a step to mitigate
coal-availability issues and fluctuating coal-price risks. We believe owning mining assets abroad is a big
positive for the company, considering the visible shortage of coal in India. The company is estimated to have 3
power plants of 3.37GW by FY14 based on coal.
The total extractable coal reserve of the mine is 110mt. At full production capacity, it will have an output of
5mtpa.The valuation on the basis of US$1.5/tn translates into a mine value of $160mn and equity value of
Rs1.5/share.
Homeland Energy has a 74% stake in two mine assets which has reserves of around 270mt. The
company expects initial production of 5.5mtpa, which would be ramped up to 16mtpa. The valuation on
the basis of US$1/tn translates into a mine value of US$85m, resulting in a contribution of Rs0.6/share.
Regulatory issues overdone and clarity expected
During the past three years, GMR Infrastructure has underperformed by around 55% versus Nifty due to
multiple issues related to airport and power sectors like 1) Regulatory uncertainty on tariff determination for
airports, 2) Treatment for real estate and monetisation in Delhi airport by AERA, 3) Gas allocation and coal
availability for upcoming and existing power projects, 4) Single-till approach for Hyderabad airport, 5) Renewal
of ADF (temporarily suspended by Supreme Court until further clarity from the regulatory authority), and 6)
Enhanced capex and incremental ADF. We believe the current market price seems to be factoring in most of
these uncertainties and our earnings model is based on the worst case scenario in respect of these issues.
Hence, clarity on some of the issues, which is expected in the next two-three months would be positive for the
stock.
Concerns
No clarity on time frame for land monetisation of 205 acre in near future.
Regulatory uncertainty on tariff determination for airports
Renewal of ADF (temporarily suspended by Supreme Court until further clarity from the regulatory authority),
Enhanced capex, incremental ADF
AERA in favour of reduction in the value of real estate from regulated asset base (that is used for determining airport changed)
AERA in favour of a single till model for tariff setting.
Project execution delay
Pressure on merchant tariff
Lower PLF for projects
Issue regarding coal availability
Issue regarding gas availability
No PPAs for under-construction projects
Source: Company, Nirmal Bang Institutional Equities Research
60 GMR Infrastructure