Without enough gas, GVK Power and Infrastructure is not able to run all its power plants and that is hurting growth. The Secunderabad-based firm posted a 23.5 per cent top line growth in 2007-08 to Rs 470 crore but that would be hard to repeat this year. It’s possible that revenues will remain flat — in the first half, they were up just 9 per cent at Rs 243 crore.
However, with a bit of luck and gas, the firm should bounce back in 2009-10. That’s important because nearly 70 per cent of the company’s revenues are derived from the power division and currently just 216 MW of a total capacity of about 900 MW, is operational. Gas is expected to be available in the first quarter of 2009-10 and with that GVK should be able to run the Jegurupada II and Gautami power projects.
In 2007-08, GVK reported net profits of Rs 136 crore, partly aided by other income and profits from associate companies. This year the numbers could be disappointing and would come mainly from profit from associates. Already operating profit margins fell by about 570 basis points to 40 per cent in the six months to September. GVK’s other revenue stream — it has a 37 per cent stake in the Mumbai airport (MIAL) — is also expected to be weaker because of slowing air traffic. In the September 2008 quarter, MIAL saw a fall in traffic of 11.5 per cent and it wouldn’t be surprising if the trend continued because of the slowdown in the economy.
Airport operators like GVK may be allowed to increase some charges in line with the capital expenditure they have incurred. But already airlines have been reducing the number of flights and if landing and navigation charges are hiked further, they may be prompted to cut down on the number of flights. Also, in a slowing economy, it would be difficult for any airport operator to increase cargo handling charges. And if passenger traffic remains low, they would find it hard to raise user fees. GVK is also allowed to use 10 per cent of the 197 acres for commercial purposes and this could create value for the company in the future. However, acquiring the land could be a time-consuming process.
