Taking off

POUND WISE

With two airports and ongoing projects in power, road and real estate under its belt, GMR Infrastructure is expected to see better days ahead.

GMR Infrastructure is ready to take-off as two of its prestigious airport projects, which account for over 27 per cent passenger traffic in India, are going on stream. Besides, there are huge opportunities in the infrastructure space, especially for projects in the public-private- partnership (PPP) domain.

GMR is an emerging player aggressively accumulating assets in the airport, power, road and real-estate businesses. Its revenues could jump three-fold on the back of its portfolio of the Delhi and Hyderabad Airports along with benefits of 1,250 acre of prime land (at the airports) over next two-three years.

In addition, over 5,000 mw of power projects (operational over 800 mw) and six BOT road projects will act as growth drivers. 
 

AIRPORT CALL
Year	Delhi	Hyderabad
FY04	10.39	2.24
FY05	12.78	2.85
FY06	16.24	4.04
FY07	20.44	5.75
FY08	23.24	6.90
Figures denote passenger traffic in milions. March 2008 numbers are projected based on traffic flow for nine months ending December 2007

Auto pilot
GMR Infrastructure is the holding company and, owns a stake in each of these businesses through special purpose vehicles (SPV) or subsidiaries.

The company currently generates majority of its revenue from the power division (66 per cent) followed by the airport division at 24 per cent.

However, revenue from the airport division is expected to grow faster and may account for about 56 per cent of total revenues by FY10. This will primarily be on account of the recently commissioned Hyderabad International Airport and commissioning of expanded facilities at the Delhi Airport (holding 50.1 per cent in the SPV) in August 2008.

The company also operates an international airport project at Istanbul, Turkey. The project provides concession for operation of the existing facilities and construction of a new international terminal building.

Within the airport division, the Delhi International Airport is considered to be among the busiest airports in India and offers huge revenue potential.

The company acquired the operating license for Delhi International Airport in 2007 and has to share 45.99 per cent of the net revenues (after expenses) with Airport Authority of India (AAI).

During the nine months ended December 2007, passenger traffic growth stood at a robust 20 per cent. Going ahead, this growth is expected to moderate to 11-12 per cent annually`.

On March 23, 2008, GMR has also commissioned the Hyderabad International Airport, which is operated through a SPV, wherein the company holds 63 per cent with the balance owned by the consortium partners.

The passenger traffic at Hyderabad Airport has grown at 27 per cent annually over the last four years, while cargo traffic has grown by 14 per cent. This is expected to be around 12-13 per cent over the long term. Notably, the SPV will share only four per cent of the net revenues with AAI, with the balance accruing in its own books.

Along with growth in the traffic, both the airports offer revenue opportunity from convenience stores, duty free shops, food and beverages, advertisements and car-parking among many other avenues.

For instance, the Delhi Airport has a 40-month agreement for leasing 1,500 square meters with Future Group for operating duty free shops, wherein the minimum guaranteed revenue is Rs 500 crore. Likewise, it also has an agreement for renting 150 advertising sites for Rs 168 crore for a period of three years. 
 

INFRA PUSH
Revenue (Rs crore)	FY07	FY08E	FY09E	FY10E
Airports	610	950	1,750	2,250
Roads	143	142	158	460
Power	923	928	780	1,700
Total	1,675	2,020	2,688	4,410

Real estate
In addition to the revenue from aeronautical and non-aeronautical segments, the company will also benefit from the development of land in-and-around the two airports.

The Delhi airport SPV has the developments rights for over 250 acre, while the Hyderabad airport SPV has development rights for 1,000 acre, along with a permissible floor space index (FSI) of three times.

The permitted developable area includes airport related facilities such as hospitality, commercial and retail. Based on current lease rentals and the developable area, analysts have pegged the value of land at about Rs 25 per share for the Delhi airport and Rs 65 for Hyderabad airport.

Power
GMR Infrastructure currently owns capacity worth 808 mw of gas-based power plants. That apart, it is implementing eight new hydro- and coal-based power projects with a combined capacity of 4,340 mw.

Of these new projects, some projects are expected to commission by 2012, which would help the company double its capacity to about 2,000 mw, while rest will be commissioned in a phased manner by FY2015. The existing power assets, as well as the ongoing power projects, are valued at about Rs 30-38 per share providing significant contribution to the overall valuations of the company.

Road
In the road segment, the company owns between 70-100 per cent stakes in various projects.

The portfolio mix is healthy with half of the projects being annuity based, while the balance being toll-based, with a combined length of 422 km. Out of these projects, two annuity-based projects are already operational commercially, while the rest are in the development phase and are expected to be commissioned over the next 12-15 months.

Analysts value the company's current portfolio of the road projects at about Rs 8 per share. Further, as the company is pre-qualified having submitted bids for the several road projects, besides huge investments planned towards in the roads sector, there is good growth potential in this business too.

Valuations
The robust growth prospects of GMR Infrastructure in all its business segments along with the significant correction in its share price in the aftermath of the recent fall in the stock market, makes the stock an attractive investment opportunity. 
 

MARGIN COMFORT
Rs cr	FY07	FY08E	FY09E	FY10E
Sales	1,675	2,020	2,688	4,410
OPM (%)	30	30	39	38
PAT	174	200	197	462
EPS (Rs)	1	1	2	2
PE (x)	145	120	90	60

Analysts have pegged a combined value of Rs 210-290 per share for all the businesses, after adjusting for debt and the company's stake in various SPVs (including Rs 120 per share as value of cash-flows from the two airports and Rs 90 per share for the real-estate).

Given the current price of Rs 145, the stock offers good upside in the near- to medium-term.