>GMR INFRASTRUCTURE: 4QFY10 results (RBS)

Funding in place for projects
GMR's March quarter was affected by weaker sales momentum and a steep hike in interest expense owing to new project commissions. With a combined equity issuance of US$510m for GMR and GMR Energy, we believe GMR is well placed to deliver projects as scheduled. We reiterate our Buy rating.

■ 4QFY10 results – airports gaining traction
GMR’s 4QFY10 results were affected by a steep increase in interest costs (37% qoq and 93% yoy) owing to a 14% qoq increase in debt. Net sales were lower than we expected at Rs11.3bn but were up 5% qoq, and EBITDA dropped 9% qoq to Rs3.14bn. The company attributed the sequential sales momentum to a full quarter of operations at the new Sabiha Gökçen International Airport (SGIA) in Turkey and an increase in non-aero revenue at Delhi airport, DIAL. Normalised EPS for 4Q was Rs0.19 and, except for the Power division, all of GMR’s divisions recorded impressive FY10 sales and EBITDA growth to yield EPS of Rs0.34.

■ Power and road building progress as planned
In 4QFY10, GMR began construction work at Vemagiri Power Plant in India and paid an advance towards equipment for Chattisgarh power plant and EMCO Energy projects, both in India. The company recently completed financial closure of Hyderabad-Vijayawada project in its Roads division. In Airports, it plans to run the Hyderabad airport duty-free business as a fully owned subsidiary, as Nuance Group AG has withdrawn from the venture. DIAL integrated terminal (T3) is undergoing trial runs to ensure it can open for traffic in July, and a steep jump in traffic at SGIA (96% yoy) has prompted a feasibility study for a second runway.

■ Equity funds in place to deliver projects on time
The April 2010 qualified institutional placement of US$310m, coupled with US$200m in private equity funding for subsidiary GMR Energy, augurs well for GMR’s projects, considering that it has nearly Rs41bn in liquid investments and cash in its consolidated entity. GMR has several large infrastructure projects in the high-entry-barrier infrastructure BOT (build-operate-transfer) space that are scheduled to get under way over 1HFY11. Since early May, the stock has marginally underperformed the Sensex, which we believe indicates a buying opportunity. With a debt service coverage ratio of 1.36x for FY10, we reiterate Buy with a target price of Rs78.40.

To read the full report: GMR INFRASTRUCTURE