Friday, October 16, 2009


GMR is India’s leading infrastructure company, with presence in airports, power, roads and special economic zones (SEZs). GMR’s superior airport assets (Delhi, Hyderabad & Sabiha Gokchen) have high growth potential with monopoly characteristics & downside protection. The company’s domestic power portfolio consists of 823MW operational capacity and another 6,860MW is in pipeline; it also has 631Kms of road projects. GMR has expanded international footprint with the acquisition of coal mines (188mnte), InterGen (~7,700MW installed power capacity) and Island Power Singapore (800MW). GMR has demonstrated astute ability to garner high quality and big-ticket projects with significant upside potential. Though short-term valuations are rich and funding risk remains, GMR’s assets would be value-accretive in the long term and capital raising could help tide short-term concerns – we are comforted by strong management & execution capabilities. GMR is a key play on India infrastructure, capitalising on burgeoning opportunities in the sector. We initiate coverage with BUY and Rs80 target price.

Airports – Superior-quality monopoly assets. GMR’s portfolio consists of two busiest Indian airports (Delhi & Hyderabad with 27% market share). Despite the downturn in FY09, traffic at Delhi and Hyderabad airports has grown at 12% & 16% through FY06-09. India is estimated to be the fastest growing market at 10.4% over the next 20 years. Given the strengthening demographics, rising international traffic, emergence of low-cost carriers and better infrastructure, GMR is in a sweet spot to capitalise from these assets and new projects opening up in the Indian aero space.

Power & real estate to provide significant upside. With 823MW operational capacity and 6,860MW in the pipeline, GMR is well positioned in the power sector. Further, it has internal presence with 7,700MW installed capacity via InterGen and intends to add 3,400MW globally. The company has 1,750 acres of premium land adjoining Delhi & Hyderabad airports, providing significant upside to valuations.

Strong management and execution capabilities. GMR has the ability tide through tough scenarios and has timely executed complex infrastructure projects. Despite the downturn, it has sold 29.3 acres (eight hotel plots) at Delhi International Airport (DIAL), raising Rs13.5bn as deposits with another Rs9.8bn as rental realisation.

Valuations. Our sum-of-the-parts (SOTP) valuation for GMR is Rs291.8bn or Rs80.2/share, with 30% from airport & real estate and 42% from power. GMR trades at FY11E & FY12E P/E of 52.4x & 36.2x with 40% earnings CAGR in FY09-13E. Though valuations are rich in the short term, we believe GMR’s superior positioning and long-term potential ensures premium valuations.

To see full report: GMR INFRA