STOCKIDEAS : 

GMR INFRA  Long term story intact, despite near term challenges

Company Name : GMR INFRA

Bse Code : 532754
Nse Code : GMRINFRA
Face Value : 1
Group / Index : A / BSE100
ISIN : INE776C01039 

CMP : ` 54
52 WK HIGH : ` 74
52 WK LOW : ` 50.50

Particulars	BSE	NSE
EPS (Trailing 12 mnths,Rs)	0.01	0.01
Free Float (%)	29.39	29.39
FII holding	13.04	13.04

Desciption: 

         GMR Group is one of the fastest growing infrastructure organisations in the country with interests in Airports, Energy, Highways and Urban Infrastructure (including SEZ). Employing the Public Private Partnership model, the Group has successfully implemented several infrastructure projects in India. 

         GMR Infrastructure Limited is the infrastructure holding company formed to fund the capital requirements of various infrastructure projects in the Group’s Energy, Highways and Airport business. It undertakes the development of the infrastructure projects through its various subsidiaries.

         GMR Infrastructure Ltd has informed BSE that GMR Hyderabad International Airport Limited, subsidiary of the Company, is proposing to issue a press release titled "Rajiv Gandhi International Airport (RGIA) gets clearance from AERA to increase in the UDF (User Development Fee) from all outbound passengers". The Company has submitted to BSE a copy of the same.

        

       GMR Infrastructure said that it will be increasing the user development fee (UDF) for the Hyderabad international airport, for both domestic and international outbound passengers. The new increased UDF charges will be Rs 430 per head, for domestic outbound passengers and Rs 1,700 per head, for all international outbound passengers (excluding service taxes). 

Earlier the UDF charges were Rs 375 for domestic and Rs 1,000 for international (inclusive of service tax). The increased rates will be applicable with effect from November 1, 2010.

        

       GMR Infra,  Which is the developer of the airport received an approval from Airports Economic Regulatory Authority (AERA).  The company said that the increase was considered on an ad-hoc basis, after representations made by the developer to the regulator and a stakeholder consultation was held by AERA for the same with operating airlines, industry associations, consumer associations and related industry forums.

         

       However, our positive investment thesis remains intact, as we 

continue to see the potential in GMR stock to double on a 3-year 

horizon, albeit with a back-ended return profile. The stock currently trades at 14.6x our FY13e EPS, which we believe is attractive in the c

ontext of our 3-year EPS CAGR forecast of 48% beyond FY13. We 

believe listing of the Power business (GEL) within the next 3-years

could unlock significant value for GMR shareholders.

􀂄 

Funding concerns addressed; spotlight on execution :  GMR needs to 

contribute ~US$1bn over FY11-12 as project equity in power and roads 

segment, of which it has raised ~US$850m recently, through LT debt, 

NCDs, convertible preference shares (CCPS) and QIP issue. Another 

US$100-150m through CCPS in GMR Energy (GEL) should make 

GMR fully funded till FY12; after that, a likely GEL IPO + internal cash 

generation would finance the company’s domestic growth, in our view.

􀂄 Impact of higher DIAL capex offset by likely higher land valuation, guaranteed revenues. DIAL’s project capex is likely to be Rs127bn versus our forecast of Rs102bn. The negative impact on equity value is more than offset by additional debt, likely higher regulated revenues, and higher land value. DIAL has asked the airport regulator for additional Rs10.2bn of Development Fee (ADF)—an upside risk to our TP.

􀂄 Valuations. GMR’s premium valuations are supported by robust LT growth outlook—stock trades at 14.6x/10.0x our FY13e/14e EPS; FY11 and FY12 earnings are modest. Catalysts are: (1) Regulatory approval for higher fixed charge recovery in Vemagiri plant; (2) Re-start of merchant power sale by GEL; (3) Fuel tie-up and subsequent financial closure of Vemagiri expansion and Chhattisgarh power projects.

􀂄 Key risks to our view: (1) Execution delays; (2) Lower-than-expected regulated revenues in DIAL; (3) Govt. disapproval for high ‘upfront’ deposit in DIAL; and (3) Lower-than-expected merchant tariffs.

GMR Infra downside is limited to ` 38, While the Short Term Target ` 65,

For  Long Term View Target `. 80

       Midas Touch Capital Advisors does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.