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Backed by proceeds from asset monetisation, GMR Infrastructure report consolidated net profit of Rs 579 crore for the year's fourth quarter, ended March. The company reported exceptional income of Rs 780 crore as a result of divestment of its stake in GMR Energy (Singapore) and the road project.
However, if one adjusts for these, the company would have an adjusted loss of Rs 203 crore as against one of Rs 124 crore in the year-ago quarter. These could be attributed to higher interest cost and loss in the power business, which continue to suffer as a result of lower fuel availability.
Thankfully, the Street found comfort in the improvement in operational performance of GMR's airport business, which accounts for 65 per cent of consolidated revenue. After the results, the stock has risen 2.2 per cent to Rs 21, despite news about the company's proposal to charge a User Development Fee on those arriving at the Hyderabad airport getting rejected by the sector's economic regulator.
Most analysts have a 'buy' rating. They believe the downside risks are already factored in the share price and, importantly, due to improvement in operating performance. With operational gains likely to continue in the airport business and power business (20 per cent of revenue) growth picking up, led by new capacities, the depressed stock valuations could get some breather in the coming months.
Notably, if the ongoing plan to monetise assets gathers pace, it could provide further triggers. The Street would be keenly watching the progress on these fronts, given GMR's huge debt.
Boost from one-offs
In the March quarter, net revenue grew three per cent, primarily helped by 50 per cent growth in the airport business. Though some of this growth can be attributed to operational gains, a large part of it can be attributed to the rise in aero-based rates at Delhi Airport and a change in accounting policy from a receipt basis to an accrual basis in the case of dues from National Aviation Co (Nacil, which owns Air India). "NACIL has paid a large portion of its dues. It has also agreed to 12 per cent interest on its dues and, hence, uncertainty on this account has reduced. DIAL's (Delhi Airport) net revenues have increased by Rs 970 crore on this count and GHIAL's (Hyderabad Airport) by Rs 59 crore," said Sandip Bansal who tracks the company at UBS Securities.
Amit Srivastava, analyst with Nirmal Bang Equities, believes the change in accounting provided incremental Ebitda (earnings before interest, taxes, depreciation and amortisation) of Rs 150 crore and overall Ebitda growth of 184.6 per cent at Rs 770 crore. "Adjusted for Nacil, the Ebitda would have been six per cent below Bloomberg consensus estimates due to poor performance of the power generation segment," he adds. The power segment reported a 4.5 per cent decline in revenue and a loss of Rs 110 crore at the operating level, compared to a Rs 27.9 crore loss in the December 2012 quarter.
Profitability the key
The Street expects the company to make loss at the net level for another one to two years, mainly due to higher interest cost and depreciation on account of recently commissioned projects. However, led by rates increases, a recovery of dues from Nacil and stability in traffic growth at the airport business, GMR is expected to report healthy revenue and operating profit growth, as well as higher cash flows.
While a large part of the existing capacity in the power business continues to face challenges due to lack of fuel availability, upcoming capacities have secure supply. The business recently commissioned the first of two units (coal-based) of 300 Mw each in Maharashtra and the first of three units of 350 Mw each at Odisha. In the coming months, this would help boost revenue growth of the power business. But, given that interest cost and depreciation charges are higher in the initial years, profit contribution might be slightly lower.
Since a major part of GMR's capex is done, the need for funds will be far lower than seen in the past, while revenue contribution from new projects will start. In this context, the success in lowering its debt of Rs 35,000 crore will play an important role in driving profits. In the March quarter, GMR sold assets which helped lower debt by Rs 4,200 crore. Plans to monetise assets in the airport and roads business have been drawn up, which should help cut debt further.
