Reacting to the news of GMR Infrastructure’s airport division — GMR Airports — emerging as the highest bidder for developing North Goa’s greenfield Mopa airport, its stock moved up nine per cent when trade started on Monday. But gains diminished gradually and the stock closed at Rs 13.3, up only 1.6 per cent. While analysts call the order win a positive, uncertainties around funding weighed on the stock.
Mopa airport's project, estimated to cost Rs 3,000 crore and to be set up in three years, would be developed under the build-operate-transfer (BOT) method. BOT projects require equity and debt finance. Debt would be raised by GMR Airports. But, what needs monitoring is how equity would be infused into this project. The management in a conference call with analysts indicated that equity would be raised either through internal accruals of GMR Airports or by mobilising deposits from the concessionaire. Monetising real estate available in the project is another option with GMR Infra.
But, the Street will watch whether GMR Infra will raise debt to provide its share of equity in this project. In that case, it may restrict Street’s outlook, because after a lot of efforts to cut debt, results have started to show. And if debt rises again, it could delay gains therefrom. According to Deepak Agarwala of Elara Capital, the manner in which GMR Infra has reduced its debt and the measures being taken to cut it further is noteworthy. “GMR Infra has taken control of its debt when a lot of others in the infrastructure industry have moved away from it,” he adds. Long-term borrowing, which peaked at Rs 38,739 crore in FY15 have moderated to Rs 37,413 crore in FY16, thanks to some of its recent monetisation efforts in roads and power projects. Operational performance is improving. Unlike in FY15 when GMR’s consolidated operating profit was Rs 2,578 crore and interest costs were higher at Rs 3,572 crore, in FY16 these figures stood at Rs 4,549 crore (up 77 per cent year-on-year) and Rs 4,058 crore, respectively. Thus, as compared to a loss before depreciation and tax of Rs 994 crore in FY15, the company reported a profit before depreciation and tax of Rs 491 crore. While the airports division remains the mainstay (50 per cent of revenues), posting revenue growth of 20 per cent year-on-year in FY16, segments such as power and roads are also catching up.
This is why even as debt remains a big burden for GMR Infra, sustained revival in operations has led three of five analysts (polled on Bloomberg) to recommend ‘buy’, with target price of Rs 16.5. Analysts say further success in paring debt and the mode to fund Mopa project’s equity will augment investor sentiment on GMR Infra.
 "GMR Infra: New airport deal doesn't offer much")
