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