GMRINFRA

Buy GMR Infrastructure; target Rs 39

A consultation paper on the framework for determining the tariff for DIAL (Delhi International Airport) released by the Airports Economic Regulatory Authority (AERA) has proposed the shared-till method for revenue calculation, weighted average cost of capital (WACC) of 10.33%, cost of equity of 16%, project cost of Rs 12.5bn and disallowance of refundable interest-free security deposit (RSD) as equity. The airports regulator has also recommended tariff hike by 148% in FY13 and FY14 each at DIAL, effective from 1 April 2012 to 31 March 2014. We believe this is a positive development that will eliminate the overhang on DIAL's valuation.

AERA has proposed that the first regulatory period may be taken as 1 April 2009 to 31 March 2014 and recovery of the revised tariff may be contemplated during 1 April 2012 to 31 March 2014. The regulator has proposed WACC of 10.33% as compared to bid WACC of 11.6% for the purpose of calculation of the returns on regulatory asset base (RAB). The reduction in WACC is primarily because of lower CoE of 16% against the projected CoE of 22%. AERA has proposed that the targeted revenue be calculated on the basis of the shared-till method, which includes reduction of 30% of non-aeronautical revenue. The regulator has proposed allowable project cost of Rs 125bn, which is as per its order in respect of the development fee. Proposed average RAB for the first regulatory period would be lower by Rs 12.7bn than what was submitted by DIAL because of lower hypothetical asset base and disallowance of future capex. AERA has proposed that refundable interest-free security deposit (RSD) of Rs 14.5bn, which was used for financing of the project, should not be considered as equity. AERA has not clarified on the issue of monetisation of remaining land bank at DIAL and usage of the funds generated. We believe this uncertainty would keep the hangover on valuation of DIAL's land parcel.

We have not revised our earnings estimates for DIAL based on the consultation paper and prefer to wait for the final order which is due in 4QFY12. However, we believe that based on the revised tariff the DIAL project is likely to report net profit of Rs 0.6bn in FY13 and Rs 7bn in FY13. Clarity on land monetisation and usage of the funds raised from it would be the next trigger for the GMR Infrastructure stock. We maintain our Buy rating on it with a SOTP-based target price of Rs 39.

Buy GMR Infrastructure; target Rs 32

GMR`s net sales grew 48.3% in Q2FY12 mainly on account of consolidation of the Male Airport (Rs 2.25 billion). The net losses came lower at Rs 625 million vs. our expectation of Rs 911 million largely on account of higher revenues and EBIT margin in the other segment (includes investment income, project management fees & charter rental income). The others division revenues grew 56.2% sequentially at Rs 1.9 billion with the EBIT margin of 77.2% in Q2FY12 (38.4% in Q1FY12).

The company has raised bridge loan to account for funding shortage due to suspension of ADF collection at DIAL. We believe any development on the tariff fixation from AERA will be a key trigger. The Rajahmundry project is on track and GMR (Q,N,C,F)* expects the commissioning of the same by Q4FY12. However, the uncertainty over gas allocation for the plant continues to persist.

During Q2FY12, GMR agreed to sell a 30% stake in GMR Energy (Singapore) to Petronas International Corp. The deal was done at a 30% premium to its equity investment (USD 127 million) implying a deal value of USD 50 million for a 30% stake.

Valuation:

At the CMP, the stock is trading at 1.0 FY13 P/BV. With uncertainty over airport regulation and concern over gas supply looming large, we believe any positive development on the airport issue will act as a key catalyst for GMR`s stock price performance. We maintain our `Buy` recommendation on the stock with a revised SOTP based price target of Rs 32/share. We have now incorporated GMR Energy (Singapore - Rs 1.7 a share), EPC business (Rs 1 a share) and standalone net debt (-Rs 4 a share).

Buy GMR Infrastructure; target Rs 38

GMR reported in-line results in Q2FY12. Revenues at Rs 18.1 billion up 48.3% yoy v/s Rs 17.5 billion higher than estimates. The increase was primarily due to higher revenues at EPC & others vertical which witnessed handsome growth. EBITDA at Rs 5 billion up 41%yoy, 7% higher than our estimate mainly owing to significant contribution from Non recurring management fee which was recognized under the others category. Net loss of Rs 625 million was higher than our estimate of a loss of Rs 483 million. Loss was higher owing to lower than expected other income as the company has not recognized any gains on the 30% strategic sale of Singapore asset which took place in Q2FY12.

Performance -Roads-inline, Power & Airport - marginally lower, EPC Above est:

Delays in implementation of tariff at DIAL and lower merchant realization are hurting the overall company`s performance, however, road vertical has started stabilizing and is expected to turn positive by Q3FY12E. Airport vertical reported an EBITDA growth of 89%yoy to Rs 2.32 billion v/s exp of 2.65 billion led by lower than expected contribution from Male Airport. On the power front, PLF contracted in Q2 primarily due to scheduled outage of Vemagiri 388MW for a period of 15 days in Q2FY12 & PLF during Q2FY12 reduced to 59% from 66% in Q1FY12. Vemagiri expansion (768MW) continues to be on schedule and any development on sourcing fuel arrangement should be a positive catalyst. EPC vertical surprised on the upside more than doubling the EBITDA to Rs 189 million while others segment witnessed a 6x jump in EBITDA led by handsome growth in management fee being booked on the Male airport.

Regulatory risk remains an overhang, ADF likely to be approved anytime:

The regulatory risk associated with the Delhi Airport for tariff regulation remains a key overhang; management indicated that the matter is pending with the regulator and Tariff policy based revenue structure likely by Q4FY12E. We believe the ADF approvals will be the initial trigger for DIAL which will ease the cash flow situation at DIAL followed by the tariff implementation by Q1FY13E.

Maintain BUY rating with a TP of Rs 38 providing 49% upside:

Although infrastructure is a heavy capex industry, we believe, GMR`s  focus on exploring opportunities with limited equity investment from the parent in a manner similar to Male airport will drive the growth for airport vertical. Management is evaluating a few bids in emerging Europe & Asia pacific as well. With renewed focus on getting the operational parameters right at Delhi Airport we believe GMR Infra will witness positive action over Q3 and we continue to maintain BUY rating on GMR Infra with a price target of Rs 38 providing a 49% upside from the current levels.

Buy GMR Infrastructure; target Rs 38

We believe Kishangarh-Udaipur-Ahmedabad (KUA) holds significant importance to GMR`s overall portfolio. GMR has emerged as one of the largest road developers in India with 1,285 km of highway in its portfolio after the recent win. KUA in totality appears to be value accretive for GMR infrastructure. This project in addition to the developer value will bring in significant EPC opportunity for GMR Infra. Although we believe the developer based equity IRR will remain subdued at 12%, the upsides from the EPC opportunity will make up for any shortfall from the cost of equity at which the company operates, the incremental contribution coming from EPC and raising the overall equity IRR of this project to 15-16% based on the additional earnings from the EPC vertical.

Our Take on Male international airport:

Male Airport continues to hold promise with significant cash generating ability to support the overall fund requirement for the envisaged expansion at the terminal. We believe the project will provide an Equity IRR of 21% for GMR Infra. In addition, GMR Infrastructure will also have an EPC opportunity of Rs 250 million from the Male airport which will provide additional upside to our investment case.

Continue to maintain BUY rating with a TP of Rs 38 providing 46% upside:

Although infrastructure is a heavy capex industry, we believe, GMR`s focus on exploring opportunities with limited equity investment from the parent in a manner similar to Male airport will drive the growth for airport vertical. Management is evaluating a few bids in emerging Europe & Asia pacific as well. We are not incorporating the value of Ahmedabad-Kishangarh project to our Fair value and retain our value of Male airport at Rs 2.5 billion for a 77% stake. We continue to maintain BUY rating on GMR Infra with a price target of Rs 38 providing a 46% upside from the current levels.

 GMR Infrastructure Buy; target of Rs 35

Stake sale of 30% in Jurong Island project

GMR has agreed to sell a 30% stake in GMR Energy (Singapore) Pte to Petronas International Corp. This deal has been done at 30% premium to its equity investment (SUSD127 million). This implies a deal value of Singapore USD 50 million for a 30% stake. The transaction also values GMR`s investment in Jurong Island project at S$165 million (Singapore USD 115 million for 70% stake value + Singapore USD 50 million as cash) from the deal implying contribution of Rs 1.6/share for GMR`s investment in the Jurong Island project. The Singapore unit is developing a gas based 800 MW power project on Jurong Island. Total cost of the project is Singapore USD 1175 million with debt of Singapore USD 670 million, equity of Singapore USD 127 million and shareholders` loan of Singapore USD 378 million.



Bags first mega project from NHAI

GMR has also bagged the mega project for six laning of the Kishangarh Udaipur-Ahmedabad stretch. It is the biggest road project awarded by NHAI covering 555 km (3336 lane km). Media reports indicate that the project cost is Rs 72 billion and the concession period is 26 years. GMR will pay a premium of Rs 6.36 billion p.a. with 5% hike every year.

Valuation

At the CMP, the stock is currently trading at an attractive valuation of 1.1x FY13 P/BV. Hence, we are upgrading it to BUY recommendation with an SOTP price target of Rs 35/share. We have not incorporated the Singapore investment and mega project in our SOTP valuation. From a stock performance point of view, we believe the implementation of regulated tariff for DIAL and the PPA agreement for the power project under development would act as key catalysts.

Buy GMR Infrastructure;target of Rs 38

 Airport vertical, ready for takeoff- DIAL turnaround holds the key

DIAL airport, which has been a major overhang on the airport vertical`s profitability due to its sheer size, is now fully operational. Given the momentum in aviation sector coupled with the regulatory backdrop, it is showing signs of turning around by FY16E. The key factor in the DIAL turnaround is the implementation of the regulatory tariff, which is expected to drive its aero revenues and provide revenue visibility. With GMR`s  other airports (Male, Turkey and Hyderabad) offering relatively better revenue stability, the turnaround of DIAL from a loss making entity (Rs 2.4 billion in FY11) is likely to sway the fortunes of the airport vertical. We expect GMR`s airport vertical to report a PAT of Rs 2.1 billion in FY16E. Apart from operational profits, monetisation of land parcels can prove to be the icing on the cake with significant opportunity to realize upfront deposits.

Power - Funding to ensure execution - Realisation holds the key

GMR Infrastructure is expanding rapidly in the energy vertical with the installed capacity set to rise from 823 MW to ~3,600 MW by FY13E and 8,471 MW by FY18E. Strong captive mining assets along with adequate funding are likely to ensure smooth execution. Its ability to tie up future capacity at lucrative rate will determine the success of power vertical. Strong parent balance sheet with ~ Rs 50 billion of Cash & liquid investments which can be utilised in funding equity portion along with Rs 36 billion of operating cash flow over FY12-13E will be sufficient to fund projects till FY13E. While the power vertical is still in investment phase, its commissioned projects are likely to ensure contribution rising to ~54% overall EBITDA by FY14E.

SOTP of Rs 38 - Upside potential with emerging regulatory clarity

GMR is available at a discount to its SOTP fair value with the current valuations ignoring the enormous long term potential of key operating assets like DIAL. The recent corrective phase led by ambiguous regulatory mechanism and sub optimal availability of fuel at gas based power plants offers an opportunity for investors to position such long term plays in the infrastructure universe. Our SOTP based value of Rs 38 offers 27% upside from the present price. Airport assets (incl real estate) form ~49%, Power ~23% and Roads ~10% of fair value. Key risks to our positive ratings are the delays in implementation of tariff mechanism, Non availability of gas based fuel & ability to source long term PPAs at attractive rates.

Buy GMR Infra; target of Rs 40

At crucial convergence support GMR Infra has produced a Hammer Candle stick pattern on weekly chart. The Hammer pattern signifies a weakening in bearish sentiment at important support zone and bulls coming with vengeance to protect important level and recapture the lost ground. A follow up action in terms of a big white candle or a gap-up opening is required to confirm the possible reversal in trend. At such important support zone stock has hit the lower band of the Bollinger band formed a hammer and has also produced a positive divergence with RSI.

Momentum indicator like SMI are in buy mode on weekly chart and with yesterdays price action the Daily SMI too has turned positive such dual frame time conversion may just prove right for an up move. This suggest holding hammer lows of 29.90 and then successful breach of the hammer high level of 32.30 can atleast take the stock higher towards the middle of the Bollinger band currently placed at 37 levels and possibly further towards the upper band zone of 44 levels. Buy GMR Infra only above weekly hammer high of 32.30 with a closing stop-loss of 30 for a possible target of 40 levels.

Accumulate GMR Infra; tgt of Rs 52

GMR Infrastructure (GMR) had acquired a 50% stake in ‘InterGen NV’, a Dutch power utility, in October 2008 for USD 1135 million. Additional transaction cost and fees on the deal was to the tune of USD 110 million (including Island power). The deal was financed with a combination of short - term and long - term loans worth USD 837 million and USD 275 million, respectively. Post the acquisition, GMR injected additional funds of close to USD 130 million for interest payments on the loans and has received dividends to the tune of USD 32.5 million till now. In August 2010, GMR refinanced the short - term loans and converted USD 100 million of debt to equity. Thus, the total equity on assets invested stood at USD 225 million and short term was reduced to USD 737 million.

GMR has sold their stake in Intergen to the China - based Huaneng Group, the largest power generation company in China, for an equity value of USD 1232 million. Netting off the loan repayments which stands at USD 1007 million, cash inflow would be to the tune of USD 225 million. If the transaction cost is to be adjusted, GMR will have to amortize this amount in future for which the company is seeking its auditor’s advice. However, the company looks to have successfully pulled out its pricy investments (invested at peak power valuations). GMR has been constantly looking out for funds for its Energy vertical where it has capacity addition plans of 5000 MWs under various stages of construction and development. Of late, the near - term requirement of close to Rs 55 billion has been regularly funded through dilution via QIP of Rs 14 billion and stake sale (in GMR Energy) to IDFC/Temasek of Rs 13.5 billion. The money received from Intergen sale to the tune of Rs 10 billion would come in handy to fund the ongoing road and power projects without dilution.

Our SOTP on GMR was Rs 52 at the end of Q2FY11 results, post which, the stock has corrected 15% and hence, throws an opportunity to enter at these levels. We, thus, upgrade the stock to ‘Accumulate’ from ‘Reduce’, (for target price of Rs 52) on account of a sharp correction in stock prices and no major near - term risks.

Buy GMR Infrastructure; target of Rs 63.40

GMR Infrastructure has breached immediate hurdle of Rs 59 which persisted for almost 14 trading session and managed to close above same. So far stock remained laggard with formation of multiple black candles in the past. After yesterday closing above Rs 59 stock also has closed above its 50 DMA which is likely to accentuate buying momentum in the near term. Daily RSI giving a positive crossover also support buying argument in the counter. We advise buying stock above Rs 59.75 with stop loss of Rs 58 for target of Rs 63.40.

Buy GMR Infra; target of Rs 78

GMR Infrastructure (GIL)'s Q1FY11 result is broadly inline with our estimates. Net sales was 4.6% higher on yoy basis to Rs 12.3 billion but 4% lower than our estimate. EBIDTA grew by 18% and EBIDTA margin has improved by 340bps yoy to 30.7% driven by improvement in airport division's margin. Despite increase in Interest and depreciation cost; Adj. PAT has increased by 26.2% to Rs 284 million driven by sharp increase in other income to Rs 673 million (mainly forex gains and investments in mutual funds of the QIP money) and lower tax. We have valued the company using DCF methodology for most of the assets. Accordingly, we have arrived at a value of Rs 78 per share comprising Rs 40 (51% of SOTP) for airports, Rs 27 (35% of SOTP) for power & coal mining, Rs 6 ( 8% of SOTP) for roads, and the balance representing cash. We maintain our BUY rating on GMR Infra with a price target of Rs 78 per share based on SOTP (sum-of-the-parts) valuation,

Buy GMR Infra; target of Rs 65

GMR Infrastructure has been forming a Rounding Bottom in the short term chart which is considered as bullish formation. An appearance of a Falling Window on 7th June 2010 at Rs 56.75 levels has acted as stiff resistance so far and three consecutive closing above Rs 57 has invalidated the weak structure. Negation of bearish pattern has a positive influence on stock in the near term, unless it is followed by retracement of more than 61.8%. The relative strength in the counter too suggests a positive bias after the stock ended above its 50-DMA yesterday despite weakness in overall market. We advise buying stock above the levels of Rs 59.25 for one week delivery with stop loss of Rs 56.5 for target of Rs 65

Buy GMR Infra, target of Rs 78

We re-iterate our buy rating on GMR Infra with a price target of Rs 78 per share based on SOTP (sum-of-the-parts) valuation, indicating a potential upside of 35% from the current level. We have valued the company using DCF methodology for most of the assets.

Buy GMR Infra; target of Rs 78

We maintain our BUY rating on GMR Infra with a price target of Rs 78 per share based on SOTP (sum-of-the-parts) valuation, indicating a potential upside of 25% from the current level. We have valued the company using DCF methodology for most of the assets. Accordingly, we have arrived at a value of Rs 78 per share comprising Rs 40 (51% of SOTP) for airports, Rs 27 (35% of SOTP) for power & coal mining, Rs 6 (8% of SOTP) for roads, and the balance representing cash. In our SOTP valuation, we have not factored in projects which are still in the planning stage. In our price target, 40% of the total value is contributed by operational projects and the remaining 60% comes from projects which are at various stages of development.

Buy GMR Infrastructure, target of Rs 78

GMR Infrastructure is a large business conglomerate with presence across various verticals in the infrastructure space, such as airports, power, road-highways and urban development. The company has an excellent track record of execution across different segments, and is in a sweet spot with the pick-up in airport passenger traffic and improving visibility for monetization of real estate at premium valuations. It has a strong pipeline of new power projects which will be operational over the period and would unlock value for the parent company. We initiate coverage with a buy rating and a price target of Rs 78 based on SOTP (sum-of-the-parts) valuation.

Buy GMR Infra, target of Rs 214

The company has performed very well although constrain on the margin, which we expect to be on track in the near future. The future growth is expected to come from power and airports. Lower naphtha prices and higher gas availability is further likely to benefit the company. The biggest growth driver is going to be the airport business. The companys efforts to add new airlines, increase the user development fee and other aero charges will increase revenue. The roads projects help the company to improve their margins, as the margin from roads projects is highest. We are very positive on the long term business prospects of the company and financial performance. We reiterate BUY on the stock with target price of Rs 214.00 with a medium to long term investment horizon

Reduce GMR Infra

GMR Infrastructure (GMR) has reported consolidated revenues of Rs 11.8 billion (33% YoY growth) and PAT after minority interest (PATAMI) of Rs 225 million (70% YoY and 57.9% QoQ de-growth) in Q1FY10 as against our expectations of Rs 9.5 billion and Rs 318 million, respectively. We expect revenues from the airport segment to grow on account of an increase in aero revenues from Hyderabad airport and increase in non-aero revenues from Delhi airport. Similarly, with all six projects becoming operational, road revenues are also expected to show a decent growth. However, on account of capitalisation, profitability is expected to grow at slower pace. While revenues are likely to grow for the power sector, EBITDA margins will suffer on account of high cost of operation for the Mangalore power plant. We maintain Reduce on the stock.