>GMR INFRASTRUCTURE (MOTILAL OSWAL)

■ 2QFY10 performance boosted by construction earnings: During 2QFY10, GMR Infrastructure reported revenues of Rs12b (up 41% YoY), EBIDTA of Rs3.8b (up 53.8% YoY) and net profit after minority interest of Rs549m (down 50% YoY). Reported profits include several one-offs: 1) Rs95m of write-back of depreciation towards Vemagiri project, 2) Rs125m of prior period service tax charge in Hyderabad airport SPV. Adjusted for GMR's proportionate holding in SPVs, the net profit stands at Rs520m, down 41% YoY. GMR accounted for profit of Rs150m+ in 2QFY10 (v/s nil in 2QFY09) from Construction business division for executing Sabiha Gocken Airport (SGIA) at Turkey, through 50:50 JV with Limak.

■ Operating factors across projects improve in 2QFY10: During 2QFY10, GMR has witnessed momentum in terms of passenger traffic at both airport (DIAL: +20% YoY and HIAL: +8% YoY), most road projects under construction have entered operations phase and monthly annuity/toll collection stood at Rs305m (vs Rs116m in 2QFY09). PLF for power projects has also improved with Vemagiri operating at ~90% PLF for 2QFY10, Chennai Power at 73%.
Improvement in operating parameters is positive and could improve internal accruals in FY10 and FY11.

■ Business momentum picking up, growth to be equity dilutive: Over past six months, GMR Infrastructure has bagged 2 new road projects (cost of Rs33b), acquired 600MW power project from Emco, completed financial closure for 1.8GW power projects, and financial closure for ~2GW of capacity is expected in 2HFY10. DIAL has commenced re-bidding process for land monetization (15 acres) and lease is expected to be awarded by end January 2010. GMR's share of equity towards existing projects (excluding InterGen) stands at Rs47b and current cash on books stands at Rs16.6b. It has indicated plans to raise upto Rs75b in equity at SPVs/HOLDCO level over next 3 years.

■ Valuations and view: We expect GMR Infrastructure to report consolidated net profit of Rs4.8b in FY10E and Rs4.6b in FY11E. Our SOTP based target price stands at Rs54/sh. At the CMP of Rs67/sh, the stock trades at a PER of 51x FY10E and 53.4x FY11E and P/BV of 3.6x FY10E and 3.4x FY11E. Maintain Neutral.

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