>GMR INFRASTRUCTURE: Largest asset gets commissioned

Our visit to GMR's new terminal at Delhi airport highlighted its project execution capability in building the world's sixth largest terminal in 37 months. With this Rs80bn commissioning, we expect GMR's airport sales to jump sharply. Supported by sufficient cash for ongoing projects, we reiterate Buy.

■ World’s sixth largest airport terminal commissioned in a record 37 months
Our visit to GMR’s new Terminal 3 (T3) at Delhi airport, which opens to traffic in the coming week, impressed us on the company’s large project execution capability (Rs80bn of Delhi airport’s Rs124bn project cost). Covering 80 acres and consuming 0.57m tonnes of cement and 0.14m tonnes of steel, the terminal was completed in around 60% of the time of similarsized terminals elsewhere. Delhi terminal capacity now exceeds demand (34m passengers vs 26m) for the first time, and management is aiming to make best use of the 5.5m sq ft inside the airport to raise non-aeronautical revenue from the 43% of gross sales in FY09.

■ Strong traffic growth in existing projects and new opportunity in the Maldives
We believe FY11 has started well for GMR’s airport division, with management disclosing yoy passenger traffic growth in April-May 2010 ahead of our expectations: 20-22% at Delhi and 16-24% at Hyderabad vs RBS estimates of 15% for each. We view GMR’s successful US$380m bid to construct a new terminal and expand the runway at Malé (Maldives) as an attractive opportunity as GMR will hold 77% in this profitable airport in a popular tourist destination and it won the bid with a 7% premium over the next closest bid. We await traffic details and financial closure information before incorporating this project’s valuation.

■ Reiterate Buy rating, with 33% upside potential as large asset commissioned
With the commissioning of this large Delhi airport asset and traffic growth ytd ahead of our forecasts, we forecast that GMR will grow its airport division gross sales 85% yoy to Rs38.2bn in FY11, with Delhi contributing 63% vs 50% in FY10F. With the T3 project demonstrating GMR’s physical execution skills, supported by its successful US$510m equity raising, we believe the company is set to build a world-scale infrastructure in airports and power generation and thus create shareholder value. We reiterate our Buy rating, with an SOTP-based target price of Rs78.40, as we expect ROE to improve from its low in FY10.

To read the full report: GMR INFRASTRUCTURE