>GMR INFRASTRUCTURE (ICICI DIRECT)

GMR Infrastructure (GMR), a conglomerate with interests in airports, power, highways, mines and SEZ is a complete urban infrastructure play. The company has an exceptional track record of executing world-class infrastructural facilities within and outside India. GMR has an operational presence in high growth sectors like aviation where it is operating three airports in Delhi, Hyderabad and Turkey with an overall passenger (pax) base of ~33.5 million pax in FY09. It is building capacity to handle ~165 million pax by the end of the respective concession periods. In the power segment, GMR has been operating 823 MW of capacity. A huge pipeline of 7,628 MW is at various stages of development. GMR also has six operational road projects with an overall length of 421 km. The assets possess significant growth potential and we expect a CAGR revenue growth of 35% for the period FY08-FY12E from Rs 2,300 crore to Rs 7,700 crore. Thus, we are initiating coverage on the stock with an ADD rating.

Building mega structures…

■ Superior airports – In a sweet spot with ~27% market share in India
With Delhi and Hyderabad airports, GMR is handling close to ~27% of the overall Indian passenger base. Delhi has shown reasonable stability in the depressing phase over FY09 and Hyderabad is one of the fastest growing airports with passenger traffic growing at a CAGR of ~23% over FY04-09 compared to overall India passenger traffic growth of ~17%. GMR has also forayed into Turkey and inaugurated a new terminal in November 2009 with a capacity of 25 million pax.

■ Improving visibility for merchant play to support operating profitability
With the opening of the 20% merchant capacity at Vemagiri, GMR’s overall merchant capacity is expected to increase from the existing 220 MW to ~310 MW in the next quarter. GMR is also planning to relocate the existing barge mounted plant from Mangalore to Kakinada and would convert the source of fuel from naphtha to natural gas. We believe it will commence operations in April 2010 and lead to an overall incremental quarterly profit of ~Rs 80 crore from Q1FY11E.

■ Valuations
At the current market price of Rs 70, the stock is trading at P/BV of 4.0x in FY10E and 3.8x in FY11E. We have adopted an SOTP based methodology to arrive at the fair value. Airport, along with real estate, will have Rs 25 per share, power segment will have Rs 25 per share while remaining Rs 24 per share comes from various other segments. Thus, we are initiating coverage on the stock with an ADD rating.

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