Thursday, June 7, 2012


Power, airport segment drag bottomline…
In Q4FY12, GMR Infrastructure (GMR) reported net losses that were higher on account of poor power (due to lower PLF, forex losses for loans of Homeland Energy, etc.) and airport segment performance (cash basis accounting of NACIL, one time charges at DIAL, incentives at SGIA and one time interest on DF). During the quarter, DIAL was also granted a 352% tariff hike on aero charges wef May 15, 2012. As a result, DIAL is expected to break even at the net profit level in FY13. With the anticipation of better profitability for DIAL and attractive valuation (0.7x P/BV), we have upgraded it to BUY with a price target of | 23.

Higher losses due to poor power segment performance, one-offs…
GMR’s net sales declined by 0.7% to | 1948.3 crore in Q4FY12 owing to poor power segment performance on account of lower PLF. The EBITDA came at 13.8% vs. our estimate of 25.5% mainly on account of forex losses of | 79.7 crore (mainly attributed to restatement of foreign currency loans amounting for Homeland Energy), poor performance of DIAL and lower EBITDA of power plants. Consequently, GMR reported a loss of | 366.2 crore due to lower EBITDA, higher interest expenses and one-time interest on loans against development fund of | 162.1 crore as the same was disallowed by AERA as a regulated asset base.

Tariff hike order received… granting hike of 352% on Aero charges
Recently, GMR received approval for DIAL tariff hike of ~352% from May 15, 2012, which was largely on account of losses incurred during the first three years of regulatory period (April 1, 2009 to March 31, 2014). As a result, DIAL’s losses are expected to get wiped off in FY13E and the management expects DIAL to break even at the bottomline level during the same year.

While the power segment is expected to remain a drag, airport is expected to report profitability in coming quarters. At the CMP, the stock is currently trading at an attractive valuation of 0.7x P/BV. Additionally, the stock has corrected ~37% since our last HOLD recommendation. Hence, we have upgraded it to BUY recommendation with a price target of | 23 based on our SOTP based valuation methodology. Lack of fuel for the power projects remains a key risk to our call.

To read report in detail: GMR INFRASTRUCTURE