Despite lower than expected losses reported by GMR Infrastructure for the quarter ended December 2011, its stock couldn’t sustain the rise (it was up eight per cent to Rs 32 immediately after the results on February 14) and is currently around Rs 28 levels. While the company has reported an improved performance in its airport business with reduction in regulatory risks, as a result of approval of Airport Development Fees, news that the tariff revision at Delhi Airport will get the nod soon also helped.
However, analysts remain concerned about the fuel availability for its existing and upcoming power projects, which, if resolved, could be positive for its stock. Developments over its high leverage and funding of upcoming projects are also among key factors that the Street will be watching. In this backdrop, analysts believe that near-term issues persist. But, consequent to the different assets already operational and under construction they see value in the stock from a long-term perspective, pegging its sum-of-the-part price at Rs 30-50.
Operational hit
For the December 2011 quarter, GMR reported an over 47 per cent jump in sales, which was mainly led by better performance of the airport and EPC businesses. Strong growth in traffic helped the airport business report a 43 per cent growth in revenue at Rs 894 crore. However, operating profits grew by only 23.1 per cent, as a result of hike in the fuel price. At the net level, the loss of Rs 108 crore was significantly higher compared to Rs 22.25 crore reported in the year ago quarter. Analysts attribute the latter to losses incurred at Delhi Airport of about Rs 227 crore coupled with Rs 85 crore loss incurred by the power division. “The power plants operated at blended PLF (plant load factor) of 49 per cent against 64 per cent last year, largely due to lower gas supplies. Power earnings were further impacted by higher operation and maintenance expenses and bad debts provisions of Rs 38 crore,” says Shankar K who tracks the company at Edelweiss Securities.
Outlook
Airport accounts for more than 40 per cent of the company’s revenue, which includes two airports in India and another two in overseas markets. Despite strong traffic growth and operating profits, this division has been making losses due to the pending tariff revision for the Delhi Airport. The good news is that the tariff fixation is already in the advanced stages wherein the proposed 334 per cent hike in the aeronautical revenues is expected to be cleared.
This will be a key positive for the company in terms of cash flows, given that the large Delhi Airport asset is already operational. Shankar K estimates with the likely approval in the tariffs of Delhi Airport, cash flows (net profit and depreciation) will improve from a negative Rs 69 crore in FY11 to Rs 2,300 crore in FY14.
Besides, the major thrust will come from the power division, which currently accounts for about 28 per cent of total revenue. The company has five operating power plants with cumulative power generation capacity of 835.6 Mw. The company is working on another 4,938 Mw of which 2,418 Mw will be operational over the next one year. Taking this into consideration, analysts are expecting power segment revenues to more than treble in the next two years. However, the key things to watch include any deviation in PLF (against expected levels) and fuel costs.
| REVENUE PIE | |||||
| In Rs crore | FY11 | FY12E | FY13E | FY14E | 3 yrCAGR (%) |
| Airports | 1,622 | 3,186 | 4,201 | 5,424 | 49.6 |
| Energy | 1,857 | 2,315 | 4,046 | 6,813 | 54.2 |
| Road | 390 | 420 | 657 | 924 | 33.3 |
| Others* | 0 | 1,610 | 1,660 | 1,712 | 3.1 |
| Total | 3,868 | 7,531 | 10,564 | 14,874 | 56.7 |
| E: Estimates; *Others segment CAGR growth is for two years Source: Analyst reports | |||||
Also, investor will need to watch the development regarding gas allocation for its Vemagiri gas-based power plant of 768 Mw, which is soon expected to be operational, as these have a bearing on the company’s profitability. Fuel availability for upcoming projects will also need to be monitored.
In the road segment, about 309 km of road projects will be operational in 2012-13, which will also add significantly to overall revenues.
For now, analysts expect all the three segments to report strong growth in revenues (overall growth of 50 per cent annually) over the next two years.
However, given that many of new projects will take time to generate profits (given the long-gestation nature of the business), interest costs (which are already growing fast) will take away a large share of the operating profits. Nevertheless, analysts expect the company to report profits from end-FY13 onwards, provided issues relating to fuel availability and costs remain under control (in power) and tariff hikes (in airport) are taken care off.
