>GMR INFRASTRUCTURE: Focus back on domestic assets

GMR's focus is fully back on its high-growth domestic assets following the commissioning of its largest asset, the Delhi airport (DIAL), the start of its gasbased power plant in Kakinanda and the progress on exiting Intergen. However, DIAL's ramp-up has been delayed. We lower our EPS forecasts but reiterate Buy.

■ 1QFY11 results impress on EBITDA, but disappoint on PAT
GMR Infra recorded consolidated normalised PAT post minority of Rs24m (-89% yoy, -95%
qoq) on net sales of Rs12.3bn (+5% yoy, +9% qoq). Even though EBITDA was 11% ahead of our estimate, growing 17% yoy and 20% qoq to Rs3.78bn, PAT disappointed due to FX translation impact, a sharp decline in other income and higher taxes. In terms of divisional performance, all except roads and others recorded qoq dips in EBIT, while, on a yoy basis, airports and roads recorded a sharp increase.

■ Delay in DIAL ramp-up impacts financials
We halve our FY11 EPS forecast, as we build in the more than three-month delay in DIAL becoming fully operational, the change in our revenue-recognition method from assured returns to actual sales, and higher interest and depreciation costs for GMR’s Turkey airport. Our FY12F EPS cut is limited to 25%, as the Vemagiri power-plant expansion is ahead of schedule and operations are likely to start six months early, in October 2011. These EPS cuts have little impact on our DCF value for individual projects, as airport returns are assured by the government for the time value of money. We value the 50% stake in Intergen at the restructured equity investment of Rs15.8bn (Rs8.5bn earlier), which raises our SOTP-based target to Rs79 (from Rs78.40). Upside could come from pending financial closure of projects that we haven’t valued, like Male International Airport and 2,800MW in power projects.

■ Intergen overhang is behind us, focus on domestic project execution. Buy
We expect sales traction to improve sharply in the coming months, with the commissioning of
GMR Infra’s largest asset, DIAL Terminal 3, and GMR Energy’s gas-based Kakinada power
plant. For the medium term, GMR’s plan to sell its 50% stake in Intergen and deploy it in the
domestic power business should help drive ROE higher. We expect a sharp ROE uptrend in
FY13, which puts GMR at only 1.18x FY13F PB with low equity-dilution risk following the
improvement in its net debt/equity to 1.43x in June 2010. We reiterate Buy on 27% upside.

To read the full report: GMR INFRASTRUCTURE