With the aim to restructure its businesses with a separate company focusing on owning and operating infrastructure assets, Gammon India is listing its subsidiary Gammon Infrastructure Projects (GIPL). Gammon India, an established player in the civil construction, will continue to focus on the construction, while GIPL will own and operate assets in the infrastructure sector. | |
| GIPL has 14 projects valued at Rs 5,500 crore in the road, power and port segment, of which four are operational and 10 are at different stages of completion. GIPL holds about 70 per cent in these projects, which will require an equity contribution of Rs 650 crore over the next 4-5 years. |
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| Of this, it has already invested Rs 250 crore, while a part of the balance will be funded from the proceeds of the IPO, wherein GIPL aims to raise Rs 276-331 crore at Rs 167-200 per share. |
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| Ports |
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| The company has also made inroads in the port segment, wherein it operates one project at Visakhapatnam. The company holds a 42.22 per cent stake in this project through the SPV, Vizag Seaport. The SPV has entered into a 30-year agreement with SAIL to handle three million tonne per year, at Rs 189 per tonne besides, a one-year contract with Rashtriya Ispat Nigam for handling about 5 lakh tonne of coal. |
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| GIPL intends to hike current capacity of 4 million tonne to 9 million tonne per year. On the expanded capacity, assuming full utilisation levels and a rate of Rs 150 per tonne, the SPV can generate revenues of Rs 146.70 crore per year. The company has recently won another port project worth Rs 1,200 crore in a consortium. |
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| The project involves operations and management of the existing Mumbai Port container terminal for an initial period of five years, and development and management of the new offshore container terminal, comprising two berths. With rates at $85-95 per TEU, the new port could generate Rs 272-304 crore per year. |
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Besides, the company is a preferred bidder for the development of a multi-purpose port at Bedi, Gujarat. If awarded, this project, with an expected capacity about 4-5 million tonne and executable over the next three-four years, will further add significantly to GIPL's revenues. On a consolidated basis, these three port projects have the potential to add about Rs 480 crore to revenues.
| PORTS BUSINESS | | Port segment | Cost
(Rs cr) | Status | Revenue
(Rs cr) | Capacity | Stake
(%) | Equity
(Rs cr) | Cash/year
@20% RoE | | Vizag port | 313.71 | Operational | 147.00 | 9 mn tn | 42.22 | 46.36 | 9.27 | | Mumbai Terminal | 1200.00 | 3-4 years | 272.00 | 8 lakh TEU | 50.00 | 210.00 | 42.00 | | Bedi, Gujarat | 400.00 | 3-4 years | 60.00 | 4 mn tn | 100.00 | 120.00 | 24.00 | | Total | 1913.71 | | 479.00 | | | 376.36 | 75.27 | | Note: Bedi project is L1 project and yet to be declared as awarded |
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| Roads |
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| The company is focused on annuity or toll-based projects for stable long-term revenues. The company has six road projects, of which three are annuity-based and operational. These three road projects (100 kms, including a 700 meter toll-bridge) help the company earn an annuity of Rs 115 crore. |
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| To scale up this business further, the company is adding over 142 km to its portfolio, including the recently acquired 99.5 km Mumbai-Nasik toll based road project. The Mumbai-Nasik road, where GIPL holds 70 per cent, will be fully commissioned by April 2009 and is expected to contribute about Rs 90-108 crore per year to revenues. |
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| By October 2009, the 32 km Gorakhpur Bypass road will be commissioned and is expected to contribute an annuity of Rs 96 crore. Thereafter, the annuity-based Kosi Road project is expected to add another Rs 62 crore a year from April 2010 onwards. |
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To sum up, most of the GIPL's road projects are fixed-income based. Within the new projects, once fully commissioned, they will add Rs 258 crore to the current revenues of Rs 115 crore per annum.
| TOLL CASH | | Road Segment | Cost
(Rs cr) | Status | Revenue
(Rs cr) | Km | Stake
(Rs) | Project | | Rajahmundry Expressway | 256.42 | Operational | 66.08 | 53.00 | 93.50 | Annuity | | Dharmavaram Tuni | 248.00 | Operational | 62.12 | 47.00 | 93.50 | Annuity | | Mattanchery Bridge Cochin | 25.74 | Operational | 5.38 | 0.70 | 97.65 | Annuity +Toll | | Vadape "� Gonde Road | 753.00 | COD in April 09 | 90.00 | 99.50 | 70.00 | Toll | | Gorakhpur Bypass | 649.21 | COD, Oct, 09 | 97.20 | 32.00 | 94.90 | Annuity | | Kosi Road Project | 439.61 | Cod, April,10 | 63.80 | 10.00 | 100.00 | Annuity | | Total | 2,371.98 | | 374.04 | | | |
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| Power |
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| GIPL has also forayed into power generation and distribution, mainly hydro-electric and biomass projects on public-private partnership basis. The company has five power projects with a total capacity of 326 mw and investments of Rs 1,493 crore. |
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These projects are expected to be commissioned in a phased manner by FY012. Once commissioned, they could generate net income of about Rs 45.50-63 crore for GIPL, based on the current capital structure and blended return on equity (RoE) of 18-25 per cent.
| POWER PLAY | | Power Segment | Cost
(Rs cr) | Capacity
(mw) | Stake
(%) | Equity
(Rs cr) | Annual cash generation | | RoE @18% | RoE @25% | | Rangit II Hydroelectric | 430.00 | 66.00 | 100.00 | 358.60 | 64.55 | 89.66 | | Punjab Biomass Power | 414.00 | 90.00 | 50.00 | 95.00 | 17.10 | 23.75 | | Haryana Biomass Power | 368.00 | 80.00 | 50.00 | 95.00 | 17.10 | 23.75 | | Pravara Co-Generation | 165.00 | 30.00 | 100.00 | 165.00 | 29.70 | 41.25 | | Tidong Hydroelectric | 275.40 | 60.00 | 50.00 | 140.50 | 25.28 | 35.11 | | Total | 1179.40 | 326.00 | | 854.10 | 153.74 | 213.52 |
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| Investment rationale |
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| With a healthy portfolio consisting of projects across different segments and many more in the pipe line, GIPL is set to gain scale. However, since most are long gestation projects, they will require three-four years to fully reflect in the company's financials. |
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| And, as these are fixed-income projects based on annuity, long-term purchase agreement and toll, these will provide stable revenue growth over the long-term, which is why the company should be seen on the basis of the future stream of revenues. |
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| Given that its ongoing 14 projects require an estimated Rs 5,500 crore and GIPL's contribution at Rs 650 crore (over next four-five years), assuming an RoE of 15-20 per cent, these SPVs can generate net annual income of Rs 97-130 crore per year, as compared with Rs 29.85 crore in FY07, once fully operational. |
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| On the flip side, while the company has experience in the road and port segments and, support of its parent with regards construction of infrastructure, it does not have any prior experience in the power space, where it has chosen the consortium route. Given this backdrop, patient investors with a long-term view of over three years can consider investing in the IPO. |
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