>GMR INFRASTRUCTIRE (EDELWEISS)

■ Earnings higher than estimate; boosted by extra-ordinaries
GMR Infrastructure (GMR) reported PAT of INR 536 mn in Q2FY10 against our estimate of INR 295 mn. The variance was due to extra-ordinary elements like write-back of depreciation of INR 95 mn in the Vemagiri power plant, deferred tax write-back of INR 97.7 mn, and higher-than-expected other income of INR 155 mn. Adjusted profit stood at INR 447 mn for the quarter.

■ Passenger and cargo traffic at airports registers growth
Passenger traffic rose 5% Q-o-Q and 8% Y-o-Y at Hyderabad International Airport (HIAL), while at Delhi International Airport (DIAL), it was flat Q-o-Q but rose 21% Y-o-Y. Cargo tonnage increased Q-o-Q as well as Y-o-Y at HIAL and DIAL. However, higher capex servicing costs and prior period service tax in HIAL negated the benefits.

Extra-ordinaries boost PAT

■ Merchant sales at Vemagiri power plant to commence by Jan 2010
GMR’s power plants posted stable PLFs—Vemagiri clocked 89% (due to increased gas supplies from KG D6), Chennai clocked 73%, and the Mangalore plant clocked 26% PLF. The Mangalore plant will be shifted to KG basin in Q4FY10 and, hence, will not be operational during the same period. APERC has recently proposed to allow sale of 20% power from the Vemagiri power plant (388 MW) on merchant basis. Management expects this to be effective by January 2010.

■ Financial closure for 600 MW EMCO power plant complete
GMR had acquired the rights to develop a 600 MW coal-fired power plant from EMCO in Q1FY10 for a consideration of INR 1.2 bn. It has achieved financial closure of the same. The company has made the lowest bid at INR 2.88/unit (levelised) for supplying 200 MW to MSEDCL and is in the process of tying up the balance.

■ Outlook and valuations: Rich; maintain ‘REDUCE’
We incorporate the value of the recently financially closed EMCO project and have assumed sale of 20% output on merchant basis from the Vemagiri power plant from Q4FY10 in our valuation. We are, therefore, raising our target price to INR 54/share (from INR 51.5/share). However, we believe that the losses at airports will continue to drag profitability in the near term. We maintain our ‘REDUCE’ recommendation on the stock. On a relative basis, we rate the stock ‘Sector Underperformer’

To read the full report: GMR INFRA