GMR Infrastructure Initiating Coverage 080911breport.myiris.com/ESSBL/GMRINFRA_20110908.pdf · GMR...
Transcript of GMR Infrastructure Initiating Coverage 080911breport.myiris.com/ESSBL/GMRINFRA_20110908.pdf · GMR...
Emkay Global Financial Services Ltd 1
September 8, 2011
Reco
Buy
CMP
Rs30
Target Price
Rs38
EPS change FY11E/12E (%) NA
Target Price change (%) NA
Nifty 5,001
Sensex 16,677
Price Performance
(%) 1M 3M 6M 12M
Absolute (0) (9) (25) (49)
Rel. to Nifty 1 (2) (20) (44)
Source: Bloomberg
Relative Price Chart
20
28
36
44
52
60
Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11
Rs
-50
-38
-26
-14
-2
10%
GMR Infrastructure (LHS) Rel to Nifty (RHS)
Source: Bloomberg
Stock Details
Sector Construction
Bloomberg GMRI@IN
Equity Capital (Rs mn) 3892
Face Value(Rs) 1
No of shares o/s (mn) 3892
52 Week H/L 61/26
Market Cap (Rs bn/USD mn) 116/2508
Daily Avg Volume (No of sh) 3642533
Daily Avg Turnover (US$mn) 2.4
Shareholding Pattern (%)
Jun-11 Mar-11 Dec-10
Promoters 71.4 71.2 70.7
FII/NRI 12.6 12.8 13.2
Institutions 8.1 8.2 8.3
Private Corp 1.2 1.2 1.4
Public 6.8 6.7 6.4
Source: Capitaline
Jitesh Bhanot
+91 22 6624 2491
Ajit Motwani
+91 22 6612 1255
Amit Golchha
+91 22 6624 2408
In
itia
tin
g C
overa
ge
GMR Infrastructure
Long term play… but worth the wait
� Airports – Investment phase over – DIAL turnaround holds the
key. Airport vertical turning cash positive with Rs 2.8bn in
FY13E v/s cash loss of Rs 1.1bn in FY12E
� Power – 4.5x growth in installed capacity by FY14E to
3,600MW & ~54% contribution to EBITDA. Captive mining
offers strong fuel security for smoother operations
� Short term funding comfort – Strong parent B/S with Rs 50bn
& internal accruals (Rs104 bn) sufficient till FY14E. Future
needs to be met by listing of power and airport verticals
� Recommend BUY with a target SOTP of Rs38 (27% upside).
Key triggers: Tariff implementation, land monetization &
captive mining. Risks – Further dilution not ruled out
Airport vertical, ready for takeoff- DIAL turnaround holds the key
DIAL airport, which has been a major overhang on the airport vertical’s profitability due
to its sheer size, is now fully operational. Given the momentum in aviation sector
coupled with the regulatory backdrop, it is showing signs of turning around by FY16E.
The key factor in the DIAL turnaround is the implementation of the regulatory tariff,
which is expected to drive its aero revenues and provide revenue visibility. With GMR’s
other airports (Male, Turkey and Hyderabad) offering relatively better revenue stability,
the turnaround of DIAL from a loss making entity (Rs 2.4bn in FY11) is likely to sway the
fortunes of the airport vertical. We expect GMR’s airport vertical to report a PAT of Rs
2.1bn in FY16E. Apart from operational profits, monetisation of land parcels can prove
to be the icing on the cake with significant opportunity to realize upfront deposits.
Power - Funding to ensure execution – Realisation holds the key
GMR Infrastructure is expanding rapidly in the energy vertical with the installed capacity
set to rise from 823 MW to ~3,600 MW by FY13E and 8,471 MW by FY18E. Strong
captive mining assets along with adequate funding are likely to ensure smooth
execution. Its ability to tie up future capacity at lucrative rate will determine the success
of power vertical. Strong parent balance sheet with ~ Rs 50 bn of Cash & liquid
investments which can be utilised in funding equity portion along with Rs 36 bn of
operating cash flow over FY12-13E will be sufficient to fund projects till FY13E. While
the power vertical is still in investment phase, its commissioned projects are likely to
ensure contribution rising to ~54% overall EBITDA by FY14E.
SOTP of Rs 38 - Upside potential with emerging regulatory clarity
GMR is available at a discount to its SOTP fair value with the current valuations ignoring
the enormous long term potential of key operating assets like DIAL. The recent
corrective phase led by ambiguous regulatory mechanism and sub optimal availability of
fuel at gas based power plants offers an opportunity for investors to position such long
term plays in the infrastructure universe. Our SOTP based value of Rs 38 offers 27%
upside from the present price. Airport assets (incl real estate) form ~49%, Power ~23%
and Roads ~10% of fair value. Key risks to our positive ratings are the delays in
implementation of tariff mechanism, Non availability of gas based fuel & ability to source
long term PPAs at attractive rates.
Financial Snapshot (Standalone) (Rsmn)
YE- Net EBITDA EPS EPS RoE EV/
Mar Sales (Core) (%) APAT (Rs) % chg (%) P/E EBITDA P/BV
FY10 45,665 13,643 29.9 1,581 0.4 -41.5 2.4 69.6 22.1 1.6
FY11A 57,738 15,555 26.9 -9,297 -2.4 NA -13.0 -12.6 20.9 1.2
FY12E 82,906 21,538 26.0 (631) -0.2 NA -0.8 -185.0 18.9 1.2
FY13E 117,609 36,557 31.1 4,437 1.1 NA 5.5 26.3 13.7 1.2
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 2
Company Description
GMR Infrastructure is a holding company and is among the largest developer
conglomerates in India with presence in verticals like aviation infrastructure, transportation,
energy, real estate and urban infrastructure. GMR commands a 54% stake in Delhi Airport,
63% stake in Hyderabad Airport, 40% stake in Sabiha Gokcen Airport (Turkey) and 77%
stake in Male Airport. In between Delhi & Hyderabad airport, GMR enjoys ~24.5% market
share of the overall Indian aviation passenger traffic. In the transportation vertical, GMR has
9 road projects entailing 730kms, out of which, 6 road projects comprising of 421 kms are
already operational and spread equally between toll and annuity based projects. GMR
aspires to gain significant scale in the power division. It has three operational power plants
with an overall capacity of 823 MW and has a huge pipeline of 7,648 MW in various stages
of development.
GMR Infrastructure - Profile
India business
International business
* % ownership might vary on project basis
GMR Infrastructure
(GMR)
Power
9 Road Projects5- Toll (446km)
4 -Annuity (284 km)
*
GEL -
Karnataka(220 MW)
100 %
Vemagiri -
AP(388.5 MW)
100 %
Road
Male Airport
~2.5mn pax77 %Maldives
SEZ & Real Estate
100 % 63 %51 %
GPCPL-
Chennai(200 MW)
Krishnagiri
SEZ3,300 acres
Tamil Nadu
Hyderabad Land - 1,000 acre Com. devlt.250 acre Aviation SEZ
250 acres of Logistics SEZ
Airports
Hyderabad Airport - GHIAL
~7.6mn pax
63 %54%
Delhi Airport - DIAL
~30 mn pax
Sabiha Gokcen ~11.8mn pax
40 %Turkey
250 acres of land development at DIAL
54 %Real Estate
International Airport
9 Power Projects
5- Thermal - 5,508 MW4 -Hydro - 2,140 MW
*
Indonesia (104MT)
South Africa (300MT)* International Coal
Mines
EPC arm~33bn orderbook split
between inhouse road & power projects
100%
GMR has emerged L1 in Ahmedabad – Kishangarh project
GMR has also entered into MOU for purchasing 30% stake in Golden mines in Indonesia
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 3
Rational snapshot
Airport vertical, ready for takeoff- DIAL turnaround holds the key
� Superior competitive positioning with strategic location of Airport assets
� Investment phase over – Focus to shift from execution to profitability
� Airports gaining independence - self sufficient to fund the next phase of growth
� Migration to regulatory framework in totality will be beneficial for GMR Infra
� GHIAL – Factored in single till – UDF charge important post FY13E
� DIAL – Holds key to overall airport vertical
� Fixation of ADF will pave the way for implementing regulatory tariff…
…Aero rev. growing 26% (FY11-14E) led by tariff implementation by FY13E…
….Thought after retail strategy (Non Aero) at DIAL to bolster returns…
…Turnaround of DIAL - set to drive overall vertical’s performance …
…. Profitability to follow suit led by guaranteed regulatory model…
� Significant operating leverage of airports to accentuate pace of improvement
� Rate of sustainable ROE to improve with timeline linked to regulatory policy
� Monetisation of real estate can significantly tilt the profitability equation
Commendable record of monetising the 1st tranche of 45 acre
Monetisation of remaining parcel (205 acre) to further ease funding equation
Road vertical: Good mix of annuity & toll road projects adds solidarity
� Addition of Ahmedabad – Kishangarh will catapult GMR to the big league
EPC vertical - key beneficiary of MALE airport & Abd-Kishangarh project win
Power - Funding to ensure execution, Realisation holds the key
� Gas availability is the biggest overhang on the power vertical
� EBITDA contribution to be equally good for the power vertical by FY14E
Mining - Investment enters fast lane in FY12E, negating fuel risk to coal based plants
Domestic focus top priority post the divestment of Intergen
Tied up funding for next 2 yrs, Future funding requirements to be met by IPO
� GMR Energy raised Rs 13.6bn through convertible pref. share(CCPS) in FY11
� GMR Airport raised Rs14.9bn through CCPS in FY11/12
Recent fund-raising to de-leverage balance sheet
Proven capabilities on execution front
Diversification across several emerging verticals
Near term catalysts for GMR Infrastructure
SWOT analysis of GMR Infrastructures
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 4
Investment Rationale
Airport vertical, ready for takeoff- DIAL turnaround holds the key
GMR’s airport vertical has leaped forward from investment phase towards the operational
phase. DIAL airport, the largest asset within GMR’s portfolio is now operational. Initial
stabilization phase at DIAL has been a major overhang on the vertical’s profitability due to
its sheer size. The underlying growth momentum of the Indian aviation sector coupled with
the regulatory backdrop promises a turnaround by FY16E. The key factor leading to DIAL’s
turnaround is the implementation of the regulatory tariff, which is expected to drive its aero
revenues and provide revenue visibility. We expect the fixation of ADF to be announced
over the next 2-3 months, setting in motion the other formalities for the implementation of
regulatory tariff. We estimate the DIAL airport to migrate towards tariff based recognition
from FY13E. The strong growth in aviation passenger traffic along with the hybrid till model
at DIAL, is likely to ensure steady pick up in non aero revenues as well. This ideal mix of
assured returns (through aero revenues) and high profit potential (from non aero revenues)
is likely to result in a turnaround of DIAL airport by FY16E. With GMR’s other airports (Male,
Turkey and Hyderabad) offering relatively better revenue stability, the turnaround of DIAL
from a loss making entity (Rs 2.4bn in FY11) is likely to sway the fortunes of its airport
vertical. We expect GMR’s airport vertical to report a PAT of Rs 2.1bn in FY16E. Apart from
operational profits, monetisation of land parcels can prove to be the icing on the cake,
offering significant interest free deposits to fund the next phase of overall growth.
Superior competitive positioning with strategic location of Airport assets
Airports under GMR’s portfolio have relatively strong and stable catchment areas as well as
high levels of transfer traffic secured through their hub positioning. The size and positioning
of DIAL enables it to enjoy geographically diversified flows of traffic. GMR infrastructure,
through DIAL & GHIAL airport, control ~26.2% market share of the Indian aviation sector. In
India, aviation passenger traffic has grown at a 15.9% CAGR from 59.2mn to 143.4mn over
FY05-11 demonstrating strong resilience and sharply recovering from the adverse impact of
the recent global financial crisis. With significant built up capacities in an infrastructure
deficit fast growing economy, GMR is poised to reap benefits in aviation vertical.
Investment phase over – Focus to shift from execution to profitability
Completion of T3 terminal at DIAL in July’11 marks the end of the investment phase for
GMR’s airport vertical. GMR’s airport vertical has no further capex requirement on existing
portfolio (DIAL, GHIAL & ISGIA) for the next 5 years, we expect the airport vertical to start
reaping the benefits of being a first mover in the airport segment. Male, which GMR Infra
has bagged recently, will continue to incur capex. While its 2 airports (Hyderabad and Male)
are already cash PAT positive, DIAL airport had been a drag on the airport vertical with the
vertical incurring a cash loss of Rs 511 mn in FY11. However, with the commissioning of
the T3 terminal and traction in aviation passengers, we believe benefits will start accruing
for DIAL. Near term cash burn will start yielding results for the vertical with the overall
airport segment is expected to become cash positive in FY13E and contribute Rs 7.9 bn of
positive cash by FY15.
No constraints to growth with adequate installed capacity
Expected Project cost Actual/Exp. Pax
Phase completion (Rs bn) Runways (Px Million/annum)
Delhi Aiport
Phase 1A Jul-08 2 22.80
Phase 1B Jul-11 127 2 29.57
Phase 2 Mar-22 77.5 3 70.38
Hyderabad Airport
Phase 1 Mar-08 29.2 1 7.0
Phase 2 Mar-16 12.1 1 13.0
Phase 3 Mar-24 18.8 2 23.4
Source: Company, Emkay Global
Completion of T3 at DIAL marks
the end of investment phase.
Management focus to shift towards
profitability
Airport vertical holds promise in
the long term with strategic assets
like DIAL expected to witness
turnaround after implementation of
tariff mechanism
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 5
Airports gaining independence - self sufficient to fund the next phase
All airports within GMR’s portfolio are expected to be self sufficient for funding the next
phase of development. The most recent addition i.e. the 4th airport, Male Airport is already
an operational asset. GMR, along with consortium partners i.e. Malaysia Airports, have
already invested ~ USD 30 mn. The remaining portion is expected through the internal
generation of Male Airport. The internal generation of Male is expected to receive further
boost from the commencement of additional charges of $25 per departing passenger from
Jan’ 2012, which will fetch ~$27 mn of incremental annual cash generation to support the
overall equity commitment. Male is expected to have an overall equity capex of USD 127mn
(Phase I) likely to be expended by FY14E.
Delhi’s T3 terminal is the 8th
largest airport in the world and has created adequate capacity
to sustain the growth momentum for a decade. Hyderabad airport can sustain the present
momentum for another 5 years. Hyderabad will hit the installed capacity by FY16E and we
believe, Hyderabad can sustain growth momentum till 14.4mn pax/pa. This is because
Airport infrastructure in general can sustain operations till 120% of their installed capacity.
DIAL- well placed to cater to growth for next decade
Delhi Airport
22.8 25.529.6
34.739.2
43.447.926 26
60 60 60 60 60
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
2009 2010 2011 2012 2013 2014 2015
Mn p
assengers
Pax handled Pax handling capacity
Source: Company, Emkay Global
SGIA- Concession does not provide for further expansion GHIAL – Can sustain growth for the next five years
4.4 7.712.2
15.417.9
20.623.7
25 25 25 25 25 25 25
-
5.0
10.0
15.0
20.0
25.0
30.0
2009 2010 2011 2012 2013 2014 2015
Mn p
assengers
Pax handled Pax handling capacity
Istanbul SGIA Airport
Hyderabad Airport
7.0 6.2 6.57.5
8.59.7
11.0
12 12 12 12 12 12 12
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2009 2010 2011 2012 2013 2014 2015
Mn p
assengers
Pax handled Pax handling capacity
Source: DIAL, Emkay Global Source: GHIAL, Emkay Global
Migration to regulatory framework in totality will be beneficial for GMR Infra
The existing regulatory framework at MALE & Sabiha Gokcen are fairly stable, with growing
footfalls and better utilization of available resources leading to sustained and predictable
profitability in the long term. However, the evolving policy mechanism at DIAL & GHIAL
makes it difficult to estimate revenues and profits accurately in the near term. We expect
status quo on the tariff front at Hyderabad airport till FY13E as the petition for single till is
being challenged in the Appellate tribunal. Thereafter, we have assumed single till model to
prevail. We believe clarity will emerge by FY12E on DIAL and it will migrate to tariff based
revenue recognition by FY13E. In the prevailing situation, the implementation of tariff
mechanism for DIAL will be positive and for Hyderabad, it will be marginally negative.
All airports in GMR’s portfolio are
self sufficient to fund the next
phase of expansion
Implementation of regulatory
framework positive for GMR - DIAL
expected to reap the benefit &
downside from single till at
Hyderabad already considered in
our base case
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 6
GHIAL – Factored in single till – UDF charge important post FY13E
The regulator has proposed a single till mechanism for computing tariff at all airports barring
Delhi & Mumbai. Under this mechanism the entire benefits from Non Aero segments is
utilised for subsidising the Aero revenue per pax. Such a mechanism ensures the returns
for airport operator remains capped. GHIAL has challenged the proposal of imposing single
till model in appellate tribunal, however remaining on the conservative side, we have
assumed a single till for GHIAL. In the interim, the regulator has proposed a UDF to meet
the revenue shortfall till FY13E. Presently GHIAL is charging a UDF of Rs 1,700 per
international departing pax and Rs 430 per domestic departing pax which is expected to
continue till FY13E. Thereafter, we expect UDF to decline from Rs 1700 to Rs 1000 per
departing international pax and from Rs 430 to Rs 300 per domestic departing pax for the
next 11 years, beyond which, this line item will cease to exist. A favourable verdict at the
appellate tribunal can trigger upsides to its profitability.
DIAL – Holds key to overall airport vertical
DIAL’s turnaround holds the key to the profitability of the overall airport segment. We
believe the fixation of ADF will pave the way for the implementation of tariff policy, which is
expected to be positive for DIAL. DIAL operates on a Hybrid till, which ensures that overall
profitability is well supported by Aero and Non Aero segments. Hefty growth in revenues
and significant operating leverage is likely to ensure its turnaround by FY16E.
Fixation of ADF will pave the way for implementing regulatory tariff…
Fixation of ADF, which is expected in Q2FY12E, will be the 1st process in the overall tariff
determination framework, which is expected by Q2FY12E. We believe post the ADF
approval, GMR will require 6 months to move to a regulated mechanism. GMR has already
undergone project audit for determining the overall cost and is awaiting the final order for
grant of additional ADF (Airport Development Fees). Fixation of ADF will pave the way for
computing the regulatory asset base (RAB). The RAB inturn, will be utilised as the net block
on which the developer will be entitled a fair rate of return. We believe the tariff order to
commence from FY13E. AERA officials earlier this year highlighted that Mumbai and Delhi
Airports will continue to be governed by the regulations of OMDA and adoption of single till
framework for other airports will have no effect on the computation of tariff for these 2
airports.
…Aero rev. growing 26% (FY11-14E) led by tariff implementation by FY13E…
The implementation of tariff policy is likely to be the biggest kicker for the Aeronautical
revenues, which are expected to grow at a CAGR of 26% over FY11 to FY14E from Rs
6.0bn to Rs 12bn. Implementation of tariff policy would mean Aero revenue per passenger
would increase from Rs 204 to ~Rs 407 by FY16E. DIAL operates on a hybrid till, where
Aero revenues are regulated by OMDA. Under the regulations, Non Aero revenues to the
extent of 30% will be utilized towards subsidizing Aero revenues. Remaining 70% of the
Non Aero revenues will not be regulated and the upsides after deducting 46% AAI share will
flow to the stake holders of DIAL. Aeronautical revenues would play a key role in
immediately turning around the DIAL airport. However, the Non Aero revenue will determine
a sustainable ROE.
DIAL, due to its sheer size, holds
the key to the airport vertical. With
Hybrid till, it can capture the
upsides from Non Aero operations
ADF fixation, expected by
Q2FY12E, to pave the way for
migration to tariff policy
Tariff implementation to boost aero
revenue per passenger at DIAL
frin Rs 204 to Rs 407 by FY16E
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 7
Flow showing calculation of yield per passenger
Fair rate of
Return
Aggregate revenue
requirement
/
Volume
Aeronautical Yield
per passenger
Capex
Regulatory Asset
Base
Return on RAB
Depreciation
Service Quality
+
Op
era
tion
Main
tain
en
ce
Exp
en
ditu
re
+
Ta
xa
tion -
Revenue services
other than Aero
services
=
Source : AERA
….Thought after retail strategy (Non Aero) at DIAL to bolster returns…
With Aero revenue per pax set to peak by FY17E (post migration to tariff based
mechanism), Non Aero revenue will take the mantle of driving future growth for DIAL. Non
Aero revenues are driven by footfalls (no. of passengers) and spending per passenger.
With the emerging middle class and rising buying power in the hands of Indian passengers,
we feel the average revenue per spend will increase sharply over the coming decade,
bolstering the revenues of Non Aero segment. Comparatively larger retail space than any
other airport in India, luxury focused concessionaire and JV models are expected to drive
DIAL’s Non Aero revenue at a CAGR of 19% over FY11 -FY14E from Rs 5.6bn to Rs 9.5bn.
With such rampant growth, the Non Aero revenue per pax will reach USD 4.9 by FY14E.
DIAL’s Non Aero revenue of USD 4.2 per pax in FY11 is at par with its Chinese peer
(Beijing international airport - USD 4.4 per pax). Considering the emerging trend at fast
growing airports in China, which have been able to double the Non Aero revenue per pax
over the last four years post the development of their airport infrastructure, the potential for
the Non Aero revenues appears immense for Indian airports. In our opinion, Non aero
revenues provide significant opportunity for scaling up, as value per passenger can be
enhanced by incorporating additional facilities at the airport. Non Aero has been a booming
segment across the globe and DIAL’s Non Aero revenues are significantly lower compared
to the global averages.
…Turnaround of DIAL - set to drive overall vertical’s performance …
DIAL, the biggest project in GMR’s portfolio post commercialization has been stabilizing and
has impacted the overall performance of the airport vertical. Post the execution,
management bandwidth is now shifting their focus on improving the operational profitability.
DIAL is expected to turn green over the next 5 years and will benefit from tariff
implementation tentatively expected by FY13E. We expect the adoption of tariff policy to be
positive for DIAL and revenue in such a scenario will jump by 24% from Rs 14.2bn in
FY12E to Rs 17.6bn in FY13E (As per our base case). Any delay in implementation of the
tariff policy is likely to result in a slower revenue growth at 17.1% from Rs 14.2bn to Rs
16.6bn in FY13E.
DIAL falls under a Hybrid Till mechanism assuring a guaranteed return on the Aero side
and upsides from the Non Aero side. Aero realisation per pax is expected to increase by
11% CAGR over FY11-14E led by tariff implementation. Non Aero segment, being
independent from the regulatory framework will continue to operate on free pricing basis
and will be determined by the increasing passenger spend and footfalls. DIAL has
witnessed robust trend in passenger growth at 16% CAGR over FY03-FY11 and is
expected to continue a double digit growth at a 14% CAGR over FY11-14E. Hence, Non
Aero is expected to be the key determinant driving the long term profitability of DIAL
considering the Aero upsides will always remain capped by the regulator.
Non aero revenues to contribute in
improving the sustainable ROE of
the airport vertical in the long run
Implementation of tariff policy to
drive turnaround at DIAL over the
next 5 years
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 8
…. Profitability to follow suit led by guaranteed regulatory model…
Due to the regulatory mechanism in place, we believe the question is not “whether”, it is
only “when” the airport segment will turn green. We expect the complete impact of tariff
policy to be visible after ~4 years for DIAL and overall Airport segment to turn green in
FY15E. Profitability for an airport operator is largely a function of revenues (Aero & Non
Aero) and cost (staff costs & administrative expenses). As most of the cost in an airport
facility is fixed in nature, there is a significant leverage coming from the incremental
passenger traffic at airports. However, the operating leverage can be exploited by airports
operating under Dual Till or Hybrid Till. Under the Dual till, the entire profitability for the Non
Aero revenues will be enjoyed by the Airport operators. The moot question is only when the
airport operations return to a sustainable profit zone and we believe, it should happen over
the next 4 years.
Financial performance (DIAL)
Particulars Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 CAGR (FY11-14E)
Revenues (incl RE) 11.5 12.4 15.0 19.1 23.0 23%
Aero (Incl Cargo) 6.0 6.0 7.1 9.2 12.0 26%
Non Aero (excl. real estate) 5.1 5.6 7.1 8.4 9.5 19%
Real Estate rentals 0.5 0.8 0.8 1.5 1.5 25%
EBITDA 2.7 1.5 2.2 4.2 6.0 60%
EBITDA Margin 23.3 11.8 14.9 21.8 26.2 30%
PAT 0.4 (4.5) (7.8) (5.5) (3.6) -7%
PAT ( GMR Share ) 0.3 (2.4) (4.2) (3.0) (2.0) -7%
CFO 4.0 0.4 6.5 8.4 12.6 222%
Drivers
Passengers (mn) 25.5 29.6 34.7 39.2 43.4 14%
Capex -41.2 -11.6 0.0 0.0 0.0
Land parcel monetized 45 45 45 75 75 19%
Source: Company, Emkay Global
Significant operating leverage of airports to accentuate pace of improvement
Airport sector globally has been enjoying high EBITDA margins and benefits from the
economies of scale. We expect the airport vertical’s EBITDA margins to shoot from the
present ~21% to 28% by FY14E with significant traction in revenues and relatively stable
nature of operating costs. Aero & Non Aero revenues are also subject to assumptions with
regards to implementation of tariff order, which may lead to alterations in the EBITDA
margins at the airport vertical. As traffic volume increases & tariff implementation takes
effect at DIAL, we expect significant improvement in overall EBITDA.
EBITDA to grow at a faster pace with increasing margin Margins to expand for airport vertical
Airport
2.7 1.5 2.2 4.2 6.02.2 3.04.2
4.53.9
1.42.6
3.13.6
(5.0)
-
5.0
10.0
15.0
20.0
2010 2011 2012 2013 2014
EB
ITD
A (
Rs b
n)
DIAL incl. real estate GHIAL ISGIA Male Airport Others
CAGR 36%
(FY11-14E)
21.5
24.8
27.7 28.3
20.0
24.0
28.0
32.0
2011 2012 2013 2014
EB
ITD
A M
arg
ins
Source: Company, Emkay Global Source: Company, Emkay Global
Profitability assured due to
regulatory mechanism and hybrid
till to ensure better ROE’s
With significant build up in
capacities and the fixed nature of
expenses at airports, operating
leverage to accelerate EBITDA
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 9
Rate of sustainable ROE to improve with timeline linked to regulatory policy
With the evolving regulatory framework, there is a lot of ambiguity with regards to the
calculation of returns for airports. In the interim, Hyderabad has been allowed to charge
UDF till FY13E based on 18% cost of equity. Thus, we remain optimistic that even if the
airport has to adopts a single till mechanism, regulator should ensure 18% cost of equity for
computing regulated returns. For Delhi Airport, the regulator (AERA) is still contemplating
the fair rate of return, which will be allowed to airport developers. The regulator, we believe,
will ensure ~16% cost of equity or a ~12% WACC for the computation of regulatory returns.
Also, the ability to generate further returns under the hybrid or dual till model at Delhi airport
will mean the core ROE’s over the life of the concession will settle at ~21%.
Since part of the airport project is funded by land monetisation deposits in addition to
conventional debt & equity components, calculation of WACC for airport developers has its
own set of challenges - the principle issue being - Whether such land deposit be considered
as quasi equity or quasi debt for calculating the fair rate of returns. However, irrespective of
the outcome, the fair rate of return should not deviate significantly from our estimates due to
low weightage of such line item in overall project cost. Hyderabad airport has not monetised
any land parcel for funding the project and land monetization deposits at Delhi airport are a
meagre ~12% of overall project cost.
Stage at which Delhi & Hyderabad airport are placed on regulatory front
Current situation
Issue Delhi Hyderabad Company stance Regulator stance Status
Till
Hybrid till as per
OMDA
Dual till but no
specification in
OMDA
Hybrid till at Delhi dual
till at Hyderabad be
maintained
AERA has preferred
single till for Hyderabad
airport; Hybrid till to
continue at Delhi
Company has appealed
against the AERA order for
single till at Hyderabad, Delhi
airport awaiting finalisation of
ADF to file for tariff petition
Levy of Development Fees (DF)
Interim order
allows to charge
ADF for 3 years
subject to a ceiling
of Rs18 bn
Allowed to
charge UDF as
part of regulated
charges
DIAL asking for
another Rs16.5 bn of
DF
Decision to allow even
existing DF subject to
approval
Cost audit completed by EIL &
KPMG, ADF disapproved in
the interim & will commence
once the procedural approvals
are obtained
ROE will gradually improve to the
levels of cost of equity assured by
regulator, further improvement
depends on Non Aero segment
(incl Land monetization)
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 10
Monetisation of real estate can significantly tilt the profitability equation
Commendable record of monetising the 1st tranche of 45 acre
Land monetization has the potential of transforming the returns from the vertical and we are
confident of the same, given GMR’s successful track record. GMR had earlier monetised a
45 acre land parcel in 2010 at a time when the world was emerging from the aftermath of
global financial crises, Despite that, it garnered ~Rs 14.7bn as upfront deposits and Rs
800mn of annual rentals with an escalation of 5.5%p.a., which is a commendable
achievement. Infrastructure, in and around Delhi airport, is witnessing a significant facelift
and with the commencement of Metro services till the airport, the next phase of
monetisation is only expected to be at a premium compared to the earlier transaction.
250 acre of land parcel development at Delhi 45 acre of DIAL land parcel already monetised
Source: Company, Emkay Global Source: Company, Emkay Global
Monetisation of remaining parcel (205 acre) to further ease funding equation
DIAL further has ~205 acre of land parcel, the monetisation of which, can turn the tables
changing the fortunes for DIAL in a short span of time. Such monetisation will drive cash
flows (Initial deposits) & operating profitability (rental) to the next level. We have modelled a
moderate 5.5% p.a. appreciation in realisation value. We expect another 105 acre to be
monetised by FY15E (30acre - FY13E, 75acre - FY15E). This monetisation can result in
~Rs42.6bn of upfront deposits, which can be either utilised in de-leveraging the airport
operations or for further expansion of airport infrastructure. Valuation of Delhi land parcel
forms ~26% of the overall GMR Infrastructure value or Rs 9.2 per share in our base case.
We have valued the land parcel considering an escalation of 5.5% p.a. to the value realised
by GMR Infra in the 1st phase. Key factors impacting the valuation of real estate is the cost
of equity & fluctuations in realisation per acre. However, the land parcel in a situation were
the growth in realisation slows to 3.5% p.a. & cost of equity increases to 17% will decline by
12% to Rs 8.1 per share
Sensitivity of our valuation to CoE & change in realisation per acre to our base case
Increase in realisation p.a. Cost of Equity
3.5% 4.5% 5.5% 6.5% 7.5%
13.0% 10.1 10.2 10.4 10.6 10.8
14.0% 9.5 9.6 9.7 9.9 10.1
15.0% 9.0 9.1 9.2 9.3 9.5
16.0% 8.5 8.6 8.7 8.8 8.9
17.0% 8.1 8.1 8.2 8.3 8.4
Monetizing the 1st tranche (45
acre) in a grim market situation –
Truly commendable
Monetisation to tilt the equation in
favour of GMR Airports
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 11
Thus, we believe that real estate operations potentially hold more value as compared to the
core airport operations. Although at Hyderabad, GMR has been awarded 1,500 acres of
land for development, which includes the development of 250 acre of aviation SEZ, 250
acre of development of logistics SEZ & 1,000 acre of development of Airport City. We have
given a meagre Rs 15mn/ acre to the 1,000 acre of Airport city and not considered any land
value of the remaining 500 acre of SEZ development.
Road vertical: Good mix of annuity & toll road projects adds solidarity
GMR has emerged as one of the leading developers in the road BOT segment with pre-
qualification to bid for projects with overall ticket size of Rs 70bn per project at NHAI under
the RFAQ mechanism. GMR has ~421 kms of operational road portfolio (3 annuity & 3 toll).
GMR has an impressive portfolio of 3 other road projects (309km), which are at the
development stage. 2 of the under development projects are toll projects (280km) and the
3rd is an annuity project (29km). Revenues from road segment are expected to grow ~3
fold from Rs 3.9bn to Rs 11.9 bn by FY14E, due several big ticket projects set to become
operational over the next couple of years. We expect the EBITDA margin to shrink from
82% to 74% by FY14E due to Hyderabad-Vijaywada project, which operates on a 32.6%
revenue share, impacting the overall margin picture. However, the EBITDA is expected to
grow ~2.6fold from Rs 3.5bn to Rs 9.05bn by FY14E (excluding Ahmedabad – Kishangarh).
Profile of road projects with GMR
Toll based projects Stake Total project cost Expected CoD Kms Status
Ambala Chandigarh Exp. (GACEPL) 100.0% 4,993 Nov-08 35 Operational
Jadcherla Exp. (GJEPL) 100.0% 5,155 Feb-09 58 Operational
Ulunderpet Exp. (GUEPL) 100.0% 8,817 Jul-09 73 Operational
Hyderabad Vijaywada Exp. (GHVEPL) 74.0% 21,934 Jul-12 181 Under development
Hungud Hospet Exp.(GHHEPL) 51.0% 17,011 Mar-13 99 Under development
Ahmedabad - Kishangarh 100.0% 65,000 Apr-15 555 L1
Total Fair Value - a 1,22,910 1001
Annuity based projects
Tuni Anakapalli Exp. (GTAEPL) 61.0% 2,950 Dec-04 59 Operational
Tambaram Tindivanam Exp. (GTTEPL) 61.0% 3,620 Oct-04 93 Operational
Pochanpalli Exp. (GPEPL) 100.0% 7,043 Mar-09 103 Operational
Chennai Outer Ring Road (GCORRPL) 90.0% 11,668 Jun-12 29 Under development
Total Fair Value - b 25,281 284
Total Value of Road Portfolio - (a+b) 1,48,191 1285
Source: Company, Emkay Global
Addition of Ahmedabad – Kishangarh will catapult GMR to the big league
GMR has emerged as L1 for the largest single project ever awarded by NHAI i.e.
Kishangarh- Ahmedabad. The project entails 6 laning of 555 kms in the state of Gujarat and
Rajasthan. This is the single-biggest highway project awarded so far in India, both in terms
of value and length and covers ~40% of the length between Mumbai and Delhi on the
golden quadrilateral. NHAI pegged the overall cost of the project at Rs 53.87 bn. We also
expect the equity IRRs for such a project to settle in the range of 13-15%. With the recent
win, GMR is expected to increase the portfolio size by 76% from 731 kms to 1,286 kms.
With 43% of road kms under
development likely to commence
toll collection by FY14E, road
segment revenues to receive
significant boost
GMR has emerged as L1 for the
biggest project ever awarded by
NHAI - both in terms of value and
length
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 12
EPC vertical - key beneficiary of MALE airport & Abd-Kishangarh project win
GMR has emerged as L1 for the largest single project ever awarded by NHAI i.e.
Kishangarh- Ahmedabad and is expected to translate into order inflow for the construction
vertical (EPC) for GMR infrastructure. Present order backlog is set to witness rampant
growth from existing Rs 32bn to Rs 72bn assuming an inflow of Rs 40bn EPC component
from Ahmedabad – Kishangarh project. We have also not considered the potential addition
from Male airport which can provide further upsides to the outstanding backlog. With
existing order backlog already at 6.2x FY11 EPC revenues and a robust pipeline, GMR has
significant visibility for revenue growth in the EPC vertical.
EPC revenues expected to leap ahead with good orderbook backlog growth
4,0
99
5,1
56
10,4
00
20,4
00
25.8
101.7 96.2
-
5,000
10,000
15,000
20,000
25,000
FY 10 FY 11 FY 12 FY 13
Rs M
n
0.0
20.0
40.0
60.0
80.0
100.0
120.0
(%)
Construction Revenues Grow th
Source: Company, Emkay Global
EPC vertical to benefit from
addition of Ahmedabad-
Kishangarh and Male Airport
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 13
Power - Funding to ensure execution, Realisation holds the key
GMR Infrastructure is expanding rapidly in the energy vertical with the installed capacity set
to rise from 823 MW to ~3,600 MW by FY13E and gradually to 8,471 MW by FY18E.
~4,138 MW is currently under implementation, which is expected to be operational by
FY15E. While the energy vertical has the potential to become a future value creator, its
ability to tie up future capacity at lucrative rate remains the key determinant. As a result, we
expect the airport, EPC and road verticals to drive value over the next 2 years. The power
vertical is still in investment phase with a slew of projects lined up for commissioning over
the next couple of years.
Profile for generation capacity
Plant Capacity
(MW) Stake
Stake adjusted capacity
Fuel Type Status Project
cost (Rs mn)
Total equity req. (Rs Mn)
CoD/ Exp. CoD
Offtake Arrangements
GEL, Tamil Nadu 200 50 100 LSHS Operational 1998 Regulated
Barge Mounted, Karnataka GPCPL) 235 100 235 Natuaral Gas Operational 2001 Merchant
Vermagiri Phase I, AP (VPGL) 388 100 388 Natuaral Gas Operational FY10 Regulated/ Merchant
Vemagiri Phase II, AP (VPGL) 768 100 768 Natuaral Gas Financial Closure 32,500 7,800 Q4FY12E Merchant
Kamlanga Dhenkamal Orissa 1400 80 1,120 Captive coal mine Financial Closure 64,600 12,920 FY13 Regulated/ Merchant
Emco Energy 600 100 600 Coal linkage Financial Closure 34,800 8,700 FY13 Regulated/ Merchant
GMR energy Raipur Chattisgarh 1370 100 1,370 Coal linkage/ imported
Financial Closure 82,900 20,725 FY15 Regulated/ Merchant
Shahdol (SJK) 1370 70 959 Coal linkage/ imported
Expected shortly 82,900 14,508 FY15 Regulated/ Merchant
Alaknanda Hydro Uttarakhand 300 100 300 Hydro DPR approved FY16E Regulated/ Merchant
Bajoli Holi Himachal Pradesh 180 100 180 Hydro DPR Submitted FY16-17 Regulated/ Merchant
Talong Hydro Arunanchal Pradesh 160 88 141 Hydro DPR stage FY15-16 Regulated/ Merchant
Karnali, Nepal 900 51 459 Hydro DPR stage FY16-17 Regulated/ Merchant
Marsyangdi, Nepal 600 80 480 Hydro DPR stage FY16-17 Regulated/ Merchant
8471 7,100 297,700 64,653
Long term PPAs to the tune of ~1,200MW add a lot of comfort to the vertical’s cash
generating ability. Moreover, the intention to further convert open capacity into long term
PPA as and when the projects near commissioning, will further boost the long term visibility.
Gas availability is the biggest overhang on the power vertical
Overhang on the power vertical is due to short term mismatch of gas availability for
Vemagiri expansion phase II (768MW), with the commissioning expected in near term i.e.
Q4FY12E. Although in the long term, the plant will receive preference in getting fresh
allocation from EGOM as the plant is in advanced stages of commissioning. In the short
term, the hope solely rests on the ramp up at KG-D6 well. GMR is also actively seeking
options for any alternative fuel arrangement. However, in our assumptions, we are building
a delayed start i.e Q4FY13E to remain on the conservative side. And we have considered
operations at a suboptimal 70% PLF throughout the life of the plant.
EBITDA contribution to be equally good for the power vertical by FY14E
We expect GMR’s power vertical to support the overall operating performance, despite
muted merchant realisations and lower operating PLF assumptions for untied capacity. We
have assumed a merchant realisation of Rs 4.0 per/kwh till FY14E and corrected the
merchant realisation by 15% in FY15E to Rs 3.4 per Kwh. Thereafter, we have built in 3%
hike for every alternate year. Even with conservative merchant realisation and lower
operating matrix, the EBITDA of the power segment is expected to grow at 115% CAGR
from Rs 3.7bn in FY11 to Rs 37bn in FY14E.
Installed capacity for the power
vertical to grow ~4.5x over the
next 2 years by FY13E
Ambiguity on gas availability
priced in our estimates
Significant addition to installed
capacity & prospect in captive
mining for Kamlanga plant driving
the performance of power vertical
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 14
Mining - Investment enters fast lane in FY12E, negating fuel risk to coal
based plants
GMR Infra is counting on its coal mines in Indonesia, which are expected to commence
production by Q3FY12E (initial capacity of 1mtpa gradually ramping upto 5 mtpa by
FY15E). GMR Infra has already committed USD 180 mn and the mining is set to expand at
a meaningful pace. In the first phase of development, GMR is focusing on the development
of 5,500 hectares, out of 25,000 hectares of land approved for mining. Indonesian coal is of
slightly superior quality compared to its Indian counterpart with a calorific value of 4,400kcal
& 35% moisture. GMR’s Indonesian mines are expected to play a key role in ensuring fuel
security for its under development generation portfolio. The Indonesian mining capacity will
gradually ramp up to 5mtpa by FY15E. GMR has also acquired additional 30% stake in
another operational mine (Golden Energy Mine), which is expected to provide further
3MTPA to GMR.
The initial phase of Indonesian mines has 5,500 hectare under its possession with 104MT
of coal reserves. Although GMR’s upcoming capacities in its power portfolio have an
approved linkage of ~10MT, in case of Coal India failing to meet the obligation, GMR can
always fall back on their Indonesian mines to support their generation capacities.
GMR, in addition to the Indonesian coal mines, also own 55.84% stake in Homeland
Energy, which has an operational 1.2 mtpa opencast Kendal mine in South Africa. Lack of
infrastructure to export coal outside South Africa is impacting the realisation and profitability
of Kendal mines. Homeland is also developing another opencast coal mine Eloff with 275
mn tons of coal reserve and an annual capacity of 5MTPA by FY15E. The mine is expected
to commence production in FY14E. GMR is also developing along with its consortium
partners, the Rampia mines which are located in Orissa. The output from Rampia mine will
be utilised in meeting the fuel requirements at Kamlanga. GMR has entered into a definitive
agreement to acquire 30% stake in Golden Energy mines Tbk, a Sinar Mas group company
in Indonesia for a consideration of ~USD 500mn. The mine is currently producing in the
region of 2-3MTPA and is expected to increase the mining capacity to 10MTPA by FY15E,
improving the fuel security for its generation capacity.
Given its mining plans in the domestic and international arena, GMR Infrastructure is likely
to emerge as an integrated power player with highest fuel security in terms of thermal coal
adequacy. GMR Infrastructure by FY15E will require 22 MTPA of coal for running its
thermal coal based capacity and the company has acquired a linkage from Coal India of
10MTPA. GMR from the present Indonesian and South African mine is expecting a total
output of 14MTPA and additional 3 MTPA is expected from the recent pact to acquire 30%
stake in PT Golden Energy mines. Such a captive capacity of 17MTPA alongwith the
10MTPA linkage with Coal India will be sufficient to meet the overall capacity of 22MTPA.
Adequate backup from
international coal mining
operations to tremendously
increases fuel security
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 15
Domestic focus top priority post the divestment of Intergen
GMR Infra’s exit from InterGen is a big positive given the freeing up of management
bandwidth to concentrate on domestic energy vertical and incremental financial leverage,
which GMR undertook to support their investments in low yielding assets. GMR Infra
acquired 50% stake in InterGen in a largely debt funded acquisition worth USD 1.135 bn.
Although InterGen had a strong energy portfolio spanning across 11 projects or 5,826 MW,
its profitability always posed significant challenges due to its highly leveraged position.
Again, GMR Infra’s returns from InterGen over the holding period turned out to be lower
than the costs of servicing the acquisition-related debt, which was putting additional burden
on the parent’s cash flows. Further, with IFRS convergence, GMR Infra’s financials would
have been impacted by the debt raised to fund the acquisition. As such, although the
divestment of stake in InterGen was made at a loss, we expect the exit to be beneficial in
the long run and free up resources, which will help in funding domestic projects.
Tied up funding for next 2 yrs, Future funding requirements to be met by IPO
GMR has no further obligations to commit equity in any of the airport projects. It will have to
deploy funds only in power, mining and road vertical. GMR is expected to invest another Rs
35bn to support 4,138 MW of projects under development and another Rs 7.42bn for the 3
under development road projects. The first phase of investment for Indonesia coal mines is
already committed and any further requirement will be met through internal accruals of the
coal mine.
Despite the ambitious capex plans, the recent fund raising by way of QIP and issuance of
convertible instruments in the energy and aviation holding company are sufficient to meet
GMR’s funding requirements for the next 2 years. We believe that even their future funding
requirements can be met by listing their power and airport verticals.
GMR Energy raised Rs 13.6bn through convertible pref. share(CCPS) in FY11
GMR’s current holding of cash & cash equivalents will be adequate to meet their investment
requirements till FY14E i.e the ongoing power project under construction aggregating
~4,138 MW, 3 ongoing road projects and Indonesian coal mines. Funding plans post
FY14E are expected to be met by proposed value unlocking in the energy segment through
the IPO route of GMR Energy (Holding company of the energy vertical).
GMR’s energy vertical has raised ~Rs 13.65 bn in FY11. We expect it to meet its future
requirement as well as provide an exit to private equity investors through an IPO of Rs
30bn. Strong cash reserve of Rs 30bn with the parent company alongwith cash accruals
from the operational asset base are sufficient to meet GMR’s future equity commitments.
Money raised at GMR Energy
Date Type Rs bn Investors
Apr-10 Compulsorily convertible preference shares 9.0 Temasek holdings,
Jun-10 Compulsorily convertible preference shares 4.6 IDFC PE, Ascent Capital, Argounaut Ventures Capital Advisors
Total - Energy vertical 13.6
Source: Company, Emkay Global
Further equity dilution at GMR Infra or SPV level cannot be ruled out in the event of any
delay in raising money through IPO beyond FY14E and/or any increase in equity
commitments through new projects.
Near term funding in place for the
next 2 years and long term funding
requirement to be met by IPO
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 16
GMR Airport raised Rs14.9bn through CCPS in FY11/12
GMR has raised money twice in the past six months through the PE route in the airport
vertical. GMR airport vertical has raised ~ $331 mn through the compulsorily convertible
preference share route. As a part of the deal, the airport holding arm will convert the issued
CCPS into equity shares at the time of planned listing of GMR Airport. We believe the
airport arm is expected to target a listing in FY14-15E. The exact valuation at which such
CCPS will be converted into equity is not known. Further, we believe it will translate into
~10% dilution at GMR Airport.
Airport segment is self sufficient to fund the existing portfolio of assets with no requirement
of fresh equity contribution to the vertical. Even then, GMR has raised ~$331 mn or Rs 14.9
bn and will be considering an IPO for giving the PE investors an exit in FY14-15E. The
proceeds raised are expected to be utilised for general corporate purpose and to fund future
growth opportunities in the vertical.
Money raised at GMR Airport
Date Type Rs bn Investors
Mar-11 Compulsorily convertible Preference shares 9.0 Macquire & SBI Infrastructure
Jul-11 Compulsorily convertible Preference shares 5.9 Standard Chartered PE, Old Lane partners, JM Financials & Build India capital
Total - Airport vertical 14.9
Source: Company, Emkay Global
Recent fund-raising to de-leverage balance sheet
GMR Infra raised ~Rs 14 bn in Apr’10 through a QIP issue. In the last 9 months, GMR
Energy and Airports Hold Co have together raised ~Rs28.5 bn through private equity. As a
result, the balance sheet is well funded to develop projects till FY14E. Since these funds
were expected to be invested in various planned projects over a period of time only, GMR
Infra partially used these funds to retire debt in the interim. While the reduced debt levels
and increase in equity base have resulted in lower balance sheet leverage, we expect this
improvement to be transient and the re-leveraging of balance sheet is imminent given the
substantial capex plans. We expect the overall net Debt/Equity at 3.3x by FY13E with
immense built up of installed capacities.
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 17
Proven capabilities on execution front
GMR Infra operates largely as a developer with the actual construction being outsourced to
various third party sub-contractors. GMR Infra has proved its execution capabilities under
such a model with the delivery of flagship airport (Delhi) before the commonwealth games.
12 operational projects i.e 3 airports, 6 road projects and 3 power projects without
significant time overruns are all indicative of GMR’s project execution capabilities. With
growing impetus on the in-house EPC arm, we expect the company to maintain a healthy
mix of in-house and third party subcontracting in the future. Some of the major
accomplishments and milestones of GMR infrastructure are highlighted in the table
attached below.
Major milestones for GMR Infrastructure
Airports Energy Urban Infrastructure & Highways
2011-12 Acquired 30% stake in Golden Energy - Indonesian Mine
Emerged as L1 for Ahmedabad - Kishangarh (555 km) 4 to 6 laning project
2010-11 Won the bid to develop Male Airport Signed MOU for development of 25MW solar plant in Gujarat
Completed financial closure for Hyderabad - Vijaywada,
Achieved financial closure for MRO operations
Financial Closure for Vemagiri - II & Chattisgarh – 1,370 MW
Chennai ORR, Hungund-Hospet project
New terminal T3 became operational on July 3, 2010
Won bid to develop & operate 320 kms of transmission project at Rajasthan
MOU with MP for development of 1,980 MW coal based power plant
2009-10 New terminal 1D commissioned in Delhi Airport
Acquired EMCO & SJK Powergen coal based power plant
Won Chennai ORR,
Achieved financial closure for Kamlanga & EMCO
Won Hungund - Hospet road project
Expansion work started at Vemagiri powerplant 768MW
Won Hyderabad - Vijaywada
2008-09 Acquired 100% stake in PT Barsentosa Lestari - Indonesia Coal mine
CoD of AdloorYellareddy - Gundlapochanpalli
Acquired 33.3% stake in Homeland Energy Thondapalli - Jadcherla
Acquired 50% stake for USD 1.1bn in IntergenNV
Ambala Chandigarh
2007-08 Commenced operations at Hyderabad Airport
MOU for 160MW Talong Krishnagiri SEZ project, TN
Won a bid to develop and operate Sabiha Gokcen Airport in Turkey
MOU for 1200MW plant in Chattisgarh Two Hyderabad Airport SEZ
2006-07 Awarded 180 MW Bajoli Holi
Awarded 250 MW Upper Marsyangdi
Awarded 300MW Upper Karnali
2006-07 CoD of 388.5MW Vemagiri Plant
MOU for 1050 MW Kamalanga Power plant in Orrissa
2005-06 Won a bid to develop Delhi Airport Awarded 300 MW Alaknanda Power Plant
CoD of Tambaram - Tindivanam 2004-05
CoD of Tuni Anarkapalli
2003-04 Awarded Hyderabad Airport
2001-02 CoD of 220MW power plant in Mangalore
1998-99 CoD of 200MW Chennai power plant
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 18
Diversification across several emerging verticals
GMR Infra has ventured into several urban infrastructure projects like SEZ, Solar projects &
Transmission and distribution segment. GMR is already developing a multi product SEZ
spread over 3,300 acres at Krishnagiri in Tamil Nadu. About 70% of the land has already
been procured. Within the power vertical, GMR Infrastructure is developing 25 MW solar
project in Gujarat, which is expected to commence operations in Q4FY12E and has further
won 2 bids from Rajasthan Rajya Vidyut Nigam for setting up 386 circuit kms of
transmission line on BOT with a concession period of 25 years.
Near term catalysts for GMR Infrastructure
� Approval of ADF, which has been stopped by a Delhi High court order
� Announcement of land monetization at DIAL
� Positive outcome from the Appellate tribunal on the Hyderabad airport.
� Continued growth momentum in the aviation sector
� Stronger growth in realisation on the Non Aero side
� Commencement of mining operations in Indonesia and developing Eloff mines in
South Africa
� Strong traction in the EPC vertical with order backlog benefiting from addition of
Ahmedabad- Kishangarh and Male Airport projects
� Higher visibility on gas availability over the next 6 months
� Favourable merchant realisation
� Better than expected operating performance of power plants
SWOT analysis of GMR Infrastructures
Strengths
First mover advantage in high growth Indian aviation sector, scalable projects in its portfolio,
Impressive project-execution record of completing projects ahead of schedule, wide
management bandwidth, Balance sheet strength to qualify for larger infrastructure projects
across verticals.
Weaknesses
Complex holding structure of the entity, frequent alterations in the policy framework in
different verticals hampers strategic outlook, Airport vertical awaiting clarity on regulatory
mechanism, Imposition of MAT on SEZ’s in the budget 2011 has impacted viability of SEZ.
Opportunities
Sweet spot to exploit opportunities in Indian infrastructure space, as 12th Five year plan to
target USD 1 trillion in infrastructure spending. GMR's first-mover advantage in the
infrastructure developer space adds significant technical edge to the company.
Threats
Regulatory framework still evolving for the Indian aviation sector, Delays in implementation
of framework will delay the profitability for GMR’s aviation vertical,
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 19
Risk
Regulatory ambiguity is still the biggest overhang
Lack of regulatory framework for implementation of tariff order at DIAL and GHIAL along
with the ambiguity on the calculation of RAB with regards to land value is deterring
turnaround of operating performance at DIAL. We also believe the overall prospects of land
bank monetization will depend on the computation of RAB. We expect the regulator to
finalize the matters over the next 6 months and the tariff policy will be implemented by
FY13E at DIAL. The matter is sub-judice at GHIAL and till further clarity emerges on the
verdict from the appellate tribunal, we have assumed status quo for the GHIAL.
Fortune tied to the airline industry
Airlines need airports and airports need customers. There is a symbiotic relationship
between airports and airlines and therefore, airports often share the fortunes and woes of
their home flag carriers. Airlines currently operate on very thin margins and are therefore,
extremely mindful of minimizing the fees they pay to airports. In our view, airports are
somewhat at the mercy of the demands of the regulator and the airline industry, which can
often result in non-ideal outcomes for airport operators.
Oil price fears
Rising oil prices are an obvious concern to the air transportation industry. We believe rising
oil prices can lead to reduced airport traffic if the rise is material and sustainable and the
speed of the increase is severe. This is due to the fact that fuel prices can change
operational behaviours in the airline industry. The airlines typically have a high degree of
fixed costs. Hence, to reduce fixed cost there is a temptation to grow capacity often
impacting profitability and hurting yields. Higher fuel prices raise the proportion of marginal
costs, leading airlines to be more disciplined on capacity and therefore, reduce growth.
Fuel security in the near term
Considering the bleak outlook for ramping up of gas production at KG-D6 gas block, the fuel
security for the gas based power plants is a big overhang on the power vertical. We believe
the existing capacity will continue to operate at suboptimal levels till the alternative sources
of gas are developed or there is significant ramp up in the KG-D6 gas availability.
Lack of domestic growth opportunity for the airport segment
Airport privatisation has taken a back step and the government has not been able to
develop more number of opportunities under the PPP route which has meant the
companies which are considering opportunities have to venture outside India. We believe
GMR is well funded to tap further opportunities of growth following the recent equity infusion
in the GMR Airport holding company.
Inability to internally fund the long term capex requirements
In the short term, GMR is adequately funded to meet its capital requirement for the next two
years. We believe with humungous pipeline of projects, which are under development,
GMR will continue to seek additional funding which is expected to be raised by monetisation
of investments in the energy and infrastructure vertical. We believe, with strong portfolio
under both the power and aviation vertical, the company is in a strong position to explore
such an opportunity.
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 20
Financials
Strong project pipeline under devel. set to drive 43% rev. CAGR (FY11-14E)
GMR has been in capex mode for the past few years and continues to invest heavily in
developing power and road capacities. We expect the Power and Airports vertical to drive
revenues from Rs 64 bn to Rs 187 bn, registering a CAGR of 43%. The business model of
Power & Airport vertical complement each other extremely well as cash flows in the airport
vertical are back ended while that in the power vertical start immediately after
commissioning. The revenue traction is expected from commissioning of additional 2,768
MW of power generation capacity, commencement of Indonesian & South African coal
mine, implementation of tariff order at DIAL and organic growth of passengers for aviation
segment & commencement of toll collection at 3 new road projects.
Revenue growing at 43% CAGR over FY11-14E
GMR Infra
20.1 30.5 43.6 52.0 58.020.421.1
25.436.2
82.0
3.22.9
2.3
2.3
2.3
0.0
50.0
100.0
150.0
200.0
2010 2011 2012 2013 2014
Revenue (
Rs b
n)
Airports Pow er Roads EPC Mining Others
CAGR 43% (FY11-14E)
Source: Company, Emkay Global
Power & Airport which forms ~ 70% of the overall revenues and are expected to grow by
57% and 24% CAGR (FY11-14E) respectively. Traction in the power segment is visible due
to the commencement of operations (2,768 MW) of several thermal based capacities by
FY14E. Traction in revenues is mainly led by the implementation of regulatory mechanism
& streamlining of newer opportunities to earn revenue at Male Airport.
DIAL & MALE driving the airport performance Under development capacity to drive power segment
Airport
11.5 12.4 15.0 19.1 23.04.3 5.2 6.67.3
6.86.1
8.19.3
10.7
4.0
11.113.6
14.7
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
2010 2011 2012 2013 2014
Revenue (
Rs b
n)
DIAL incl. real estate GHIAL ISGIA Male Airport Others
CAGR 24%
(FY11-14E)
Pow er
2.4 3.5 5.5 5.1 5.57.7 7.5 7.6 7.68.7 7.6 9.8 9.9 10.8- - -
17.0
- - -6.3
18.8
- - -
4.7
- -
15.1
-
20.0
40.0
60.0
80.0
100.0
2010 2011 2012 2013 2014
Revenue (
Rs b
n)
Barge VPGL GPCL VPGL-II Kamlanga Kam.-ext. Emco
CAGR 57%
(FY11-14E)
Source: Company, Emkay Global
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 21
EBITDA to grow at a staggering pace of 63% over FY11-14E
We expect the company to report EBITDA of Rs67.9bn in FY14E, up from Rs15.5bn in
FY11. Overall EBITDA margins on a consolidated basis will improve from 24.2% in FY11 to
36.3% in FY14E, due to 54% contribution coming from high margin power segment instead
of 24% in FY11. Expansion in EBITDA margins at power and Airport vertical will also
contribute to the overall expansion in margins.
EBITDA outpacing revenues led by margin expansion Overall EBITDA margin to expand to 36% by FY14E
GMR Infra
5.3 6.6 10.8 14.4 16.54.9
11.0
36.8
2.8 3.23.3
6.5
8.9
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
2010 2011 2012 2013 2014
EB
ITD
A (
Rs b
n)
Airports Pow er Roads EPC Mining Others
CAGR 63%
(FY11-14E)
GMR Infra
27
24
24
29
36
2622 25 28 28
80 82 81 77 75
28
12 11 12 12
4248 45 45 45
0
20
40
60
80
100
2010 2011 2012 2013 2014
EB
ITD
A M
arg
ins
GMR Infra Airports Pow er Roads EPC Mining Others
Source: Company, Emkay Global
Power vertical again steals the limelight with 115% CAGR in EBITDA growth from Rs 3.7bn
to Rs 36.8bn due to commencement of fresh capacity with higher EBITDA margins from
coal based capacities under development. We also expect airport segment EBITDA to grow
at 36% CAGR (FY11-14E) from Rs 6.6bn to Rs 16.5bn.
Integrated coal based power plants to drive margins Tariff policy, growth in pax driving airport performance
Pow er
(0.4) 0.9 2.0 1.5 1.7
8.2
11.0
-
3.2
1.7
9.5
(10.0)
-
10.0
20.0
30.0
40.0
2010 2011 2012 2013 2014
EB
ITD
A (
Rs b
n)
Barge VPGL GPCL VPGL-II Kamlanga Kam.-ext. Emco
CAGR 115%
(FY11-14E)
Airport
2.7 1.5 2.2 4.2 6.02.2 3.04.2
4.53.9
1.42.6
3.13.6
(5.0)
-
5.0
10.0
15.0
20.0
2010 2011 2012 2013 2014
EB
ITD
A (
Rs b
n)
DIAL incl. real estate GHIAL ISGIA Male Airport Others
CAGR 36%
(FY11-14E)
Source: Company, Emkay Global
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 22
Power vertical to drive profitability for GMR
We expect the company to report net profit of Rs10.8bn in FY14E, turning around from a
loss of Rs 9.3bn in FY11. Major decline in FY11 numbers was led by write off of one time
non recurring loss of Rs 9.4bn from divestment of Intergen. The power vertical will take the
lead in expansion of PAT. We believe both Power and Aviation segment complement each
other extremely well with the power segment contributing to the initial growth and
subsequent growth coming from the aviation segment.
Power vertical steals the limelight at PAT level PAT margins back in green by FY14E
GMR Infra
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
2010 2011 2012 2013 2014
PA
T (
Rs b
n)
Airports Pow er Roads EPC Mining Others
1.
-9.3
-
4.4
11
.8
-0.6
1.6
GMR Infra
3
-14 -1
4 6
-5-7 -7
-2
-1
10 128
11 12
-19
-12-9
1 0
22
127 7 7
-17
-2
60
-25
-15
-5
5
15
25
2010 2011 2012 2013 2014
PA
T M
arg
ins
GMR Infra Margins Airports Pow er Roads EPC Mining
Source: Company, Emkay Global
Power segment profits are expected to grow at 60% CAGR from Rs 2.5bn to Rs 10.1bn by
FY14E. We expect the profit contribution from new projects to exceed the profitability from
existing projects. With the commencement of regulatory framework and sustained
momentum in the Indian aviation segment, the existing losses at DIAL will stabilise over the
coming 4 years, which will result in airport segment turning around and contributing
positively to GMR infrastructure.
Underdevelopment capacities will be the key drivers Profitability marred by delays in implementation of
regulatory framework
Pow er
0.1 0.7 0.7 0.61.3 1.4
2.5
1.9
1.1
2.9
-
2.0
4.0
6.0
8.0
10.0
12.0
2010 2011 2012 2013 2014
PA
T (
Rs b
n)
Barge VPGL GPCL VPGL-II Kamlanga Kam.-ext. Emco
CAGR 60%
(FY11-14E)
Airport
-1.0
-2.2-2.9
-0.9-0.4
0.3
-3.0
-2.0
-0.6
0.8 0.8 1.0 0.7
-0.9
-0.1
-0.1
0.00.00.4 0.5
1.0 0.8
-2.4
-0.6
(4.0)
(3.0)
(2.0)
(1.0)
-
1.0
2.0
2010 2011 2012 2013 2014
PA
T (
Rs b
n)
GMR DIAL incl. RE GHIAL ISGIA Male Airport
Source: Company, Emkay Global
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 23
Valuation
Valuation methodology
We have used DCF valuation methodology to value the airport assets, since we believe this
is the most appropriate way to differentiate between these in a fair manner given the
different regulatory schemes under which they operate. We think DCF valuation allows less
arbitrary assumptions than sum-of-the parts (SOTP) models based on multiples approach,
especially given the limited breakdown in profitability of various airports. Without firm
regulatory basis for calculating returns on the basis of homogenous methodologies, we
think peer multiples do not depict the true valuations of an infrastructure company in capex
mode. In addition, airports offer long term visibility, which we believe, is more properly
reflected in DCF calculations along with the flexibility to alter the asset base.
We have used similar methodology for valuation of Power, Mining and Road segments as
well, which have different concession lives and different realisations. We have valued the
EPC based on FY13E EBITDA multiple, which is relatively conservative in comparison to
their peers. We have also accounted for the Net cash at the standalone level.
SOTP at Rs 38 - Discounted value offers great long term upside potential
GMR’s share price has underperformed the Nifty over the past year, mainly on the back of
concerns surrounding the airport regulatory mechanism and sub optimal availability of fuel
at gas based power plants. We believe GMR is available at a discount to its long term fair
value and operating assets like DIAL, with overall strategic importance within its portfolio
are being valued ignoring the enormous long term potential. Our SOTP based value of Rs
38 offers 27% upside from the present price. Airport assets including real estate contribute
~49%, Power contributes ~23% and Roads contributes ~10% to the total value. Key risks to
our positive ratings are regulations, delays in implementation and major new plan
announcements.
GMR Infra's SOTP Value
Sector GIL’s Equity Value (in Rs.Cr) Value Per GIL’s share (Rs.) Contribution to overall value
Airports (incl real estate) 71.7 18.4 49%
Roads 14.6 3.9 10%
Power 34.5 8.9 23%
Mines 6.0 1.5 4%
SEZ 3.5 0.9 2%
EPC 9.8 2.5 7%
GIL’s Net Cash 6.9 1.8 5%
GIL's Valuation 147.0 37.8 100%
Source: Emkay Global
While we estimate tariff based mechanism to commence at DIAL in FY13E, we do believe
the regulator will take into account the delay in implementation of the tariff policy and will
reimburse the actual revenues which DIAL was entitled to, had the tariff been implemented
from FY12E itself. Also, commissioning of ~2,800 MW of power capacity by FY13E
coupled with expansion of captive mining and traction in EPC vertical will drive the
operating performance at GMR. We also think it should continue to put on a resilient show
in case economic downturns persist, as the company is better placed than peers in terms of
funding. Superior positioning of the airports will further enhance the operating outlook with
significant growth in aviation traffic mitigating the overall regulatory risk.
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 24
Airport constitutes 49% of the overall SOTP
DIAL, including real estate, forms ~74% of the overall airport assets while the remaining 3
airports including the land parcel and ancillary development of hotels form ~26% of the
overall airport SOTP. We have taken a conservative approach for valuing the land parcel at
Hyderabad Airport assigning value per acre at less than 1/3rd
of the Delhi land parcel.
However, in the near term we do not forsee any development barring the MRO SEZ at
Hyderabad land parcel over the coming 2 years.
DIAL to form major chunk of Airport value
Project Cost of Equity Total Equity
Value (Rs. bn) Stake (%)
GIL’s Equity Value (Rs.bn)
Value Per share (Rs.)
Contribution to overall value
DIAL 13 28.8 54 15.6 4.0 23%
GHIAL 13 1.3 63 0.8 0.2 1%
SGIA 13 11.0 40 4.4 1.1 6%
Male 14 3.3 77 2.5 0.6 4%
DIAL Real estate 15 66.1 54 35.7 9.2 52%
GMR Hotel & resorts - Hyderabad 1x BV 1.1 63 0.7 0.2 1%
GHIAL - Real estate 15mn/acre 15.0 63 9.5 2.4 14%
Airport Assets Valuation 126.6 69.2 17.8 100%
Net Cash at Airport Holdco 10.5 10.5 2.7
Total Value of Airport Holdco 137.1 79.6 20.5
Value of convertible instruments issued
13.7 8.0 2.0
Total Value of Airport Holdco 123.4 71.7 18.4
Power forms 23% of the overall SOTP value
Operational Assets i.e GEL barge mounted, GMR Power, Vemagiri form ~32% of the
overall power valuation, projects which are expected to commence operations till FY13E
form ~47% of the overall power valuation with the remaining coming from projects
scheduled to start post FY14E.
Valuation driven by captive capacity
Project Cost of Equity Total Equity
Value (Rs. bn) Stake (%)
GIL’s Equity Value (Rs.bn)
Value Per GIL’s share (Rs.)
Contribution to overall value
GEL Barge Mounted 13 3.2 100 3.2 0.8 6%
GMR Power (Chennai) 13 7.2 51 3.7 0.9 7%
VPGL 13 6.4 100 6.4 1.6 12%
VPGL Expansion 14 7.2 100 7.2 1.8 13%
Kamalanga (Incl. extension) 14 22.5 80 18.0 4.6 33%
EMCO 14 3.7 100 3.7 0.9 7%
Chattisgarh 14 10.0 100 10.0 2.6 18%
Alaknanda 15 1.0 100 1.0 0.3 2%
Island Power 1x BV 1.4 100 1.4 0.4 3%
Power Assets Valuation 62.8 54.8 14.1 100%
Net Cash at Power Hold Co -14.2 -14.2 -3.6
Total Value of Power Holdco 48.6 40.6 10.4
Value of convertible instruments issued
7.3 6.1 1.6
Total Value of Power Holdco 41.4 34.5 8.9
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 25
Mining contributes 4% of the overall valuation
Indonesian Mines PT Barsentosa forms ~90% of the overall while the South African mines
forms ~10% of the overall mining value. In our valuation case, we have not considered the
domestic mining operations as we believe the upsides of such operations will be captured in
the power vertical.
Indonesia mines to be the major driver
Project Book Value Total Equity
Value (Rs. bn) Stake (%)
GIL’s Equity Value (Rs.bn)
Value Per GIL’s share (Rs.)
Contribution to overall value
Indonesian Mines 1.5x 3.6 100.0 5.4 1.4 90%
Homeland Energy 0.5x 1.1 55.8 0.6 0.2 10%
Road to contribute 10% to the overall SOTP
Toll based projects form the bulk of the overall value with ~84% value coming from this
segment. ~16% of the overall road value comes from annuity based projects. We have not
included Ahmedabad – Kishangarh project in our valuations.
Valuation driven by toll based project forming 82% of the value
Toll based projects Cost of Equity
Total Equity Value
Stake Equity Value -
GMR Infra Per share
Contribution to
overall value
GMR Ambala Chandigarh Expressways Private Limited (GACEPL) 14.0% -87.5 100.0% -87.5 -0.02 -1%
GMR Jadcherla Expressways Private Limited (GJEPL) 13.0% 2,037.0 100.0% 2,037.0 0.56 14%
GMR Ulunderpet Expressways Private Limited (GUEPL) 13.0% 1,769.0 100.0% 1,769.0 0.48 12%
GMR Hyderabad Vijaywada Expressways Private Limited (GHVEPL) 14.0% 6,081.7 74.0% 4,500.5 1.23 31%
GMR Hungud Hospet Expressways Private Limited (GHHEPL) 14.0% 3,414.7 51.0% 1,741.5 0.48 12%
Total Fair Value - a 13,214.9 9,960.5 2.72 69%
Annuity based projects
GMR Tuni Anakapalli Expressways Private Limited (GTAEPL) 12.0% 936.8 61.0% 571.5 0.16 4%
GMR Tambaram Tindivanam Expressways Private Limited (GTTEPL) 12.0% 2,002.5 61.0% 1,221.5 0.33 8%
GMR Pochanpalli Expressways Private Limited (GPEPL) 12.0% 1,648.7 100.0% 1,648.7 0.45 11%
GMR Chennai Outer Ring Road Private Limited (GCORRPL) 13.0% 1,338.4 90.0% 1,204.6 0.27 7%
Total Fair Value - b 5,926.5 4,646.3 1.21 31%
Total Value of Road Portfolio - (a+b) 19,141.3 14,606.7 3.93 100%
SEZ to contribute 3% of the SOTP value
Krishnagiri SEZ forms ~94% of the overall SEZ value, which is considered at 1x its book
value while the Hyderabad MRO operations, which are scheduled to commence operations
in FY12E, are valued at 1.5x considering the heavy demand of MRO operations in India.
Krishnagiri SEZ forms major chunk of valuation
Project Book Value Total Equity
Value (Rs. bn) Stake (%)
GIL’s Equity Value (Rs.bn)
Value Per GIL’s share (Rs.)
Contribution to overall value
Krishnagiri 1x 3.5 95 3.3 0.85 94%
Hyderabad MRO 1.5x 0.3 63 0.2 0.05 6%
SEZ's Valuation 3.8 3.5 0.9
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 26
EPC to contribute 7% to the SOTP value
With prior experience of executing contracts in aviation & road sector, GMR is progressively
increasing its array of offering. GMR order backlog is likely to grow exorbitantly from Rs 32
bn to Rs 75bn, led by addition of Ahmedabad – Kishangarh project and also, addition of
works from Male Airport. We have considered a 4x FY13E EBITDA multiple, which leaves
room for positive surprises.
EPC arm valued at a 4x FY13 multiple
Description EV/EBITDA Total Equity value Stake Equity Value - GMR Per share
EPC 4x FY13 9.8 100.0% 9.8 2.5
Relative valuation
PE (x) PB (x) EV/EBITDA (x) ROE (%)
Company Name FY11P FY12E FY13E FY11P FY12E FY13E FY11P FY12E FY13E FY11P FY12E FY13E
GMR Infrastructure NA NA 26.3 1.2 1.2 1.2 20.9 18.9 13.7 -13.0 -0.8 5.5
Bloomberg Consensus
Domestic peerset 13.7 12.7 10.1 1.6 1.4 1.2 13.6 10.7 8.3 11.3 10.4 11.5
Gvk Power & Infrastructure 14.3 12.9 10.0 0.8 0.6 0.6 14.2 11.0 7.3 5.0 4.9 5.8
Reliance Infrastructure Ltd 7.4 6.9 5.4 0.5 0.5 0.4 12.1 7.9 6.3 7.8 7.4 9.2
Jaiprakash Associates Ltd 11.2 12.3 9.1 1.1 1.0 0.9 12.6 11.0 8.7 12.7 9.8 11.3
Larsen & Toubro Ltd 22.0 18.7 15.7 4.0 3.5 3.0 15.5 12.9 11.0 19.7 19.5 19.8
(Values in USD mn)
International Airport peerset 20.7 17.5 13.8 1.6 1.5 1.4 9.3 8.5 7.5 10.1 9.8 10.9
Europe Airports 18.1 15.7 14.4 2.2 2.1 2.1 8.7 7.8 7.4 15.3 13.3 14.2
ADP 19.6 17.7 16.0 1.7 1.6 1.5 8.8 8.0 7.5 8.9 9.2 9.8
Flughafen Zuerich AG-Reg 17.4 13.5 12.1 1.4 1.2 1.1 7.8 6.4 6.1 8.2 9.3 9.4
Kobenhavns Lufthavne 17.1 16.0 15.0 3.6 3.7 3.7 9.6 9.0 8.6 29.0 21.3 23.4
Asian Airports 19.8 14.3 12.2 1.5 1.4 1.3 8.6 7.3 6.4 9.4 10.1 10.7
Airports Of Thailand PCL 30.5 19.2 14.6 0.9 0.9 0.8 8.0 6.8 6.3 3.0 4.4 5.9
Malaysia Airports Hldgs Bhd 19.4 17.5 16.0 2.0 2.0 1.9 12.1 10.5 9.4 9.6 11.3 11.3
Beijing Capital Intl Airpo-H 27.7 13.1 10.6 1.0 0.9 0.8 10.4 8.3 7.5 3.5 6.7 7.9
Hainan Meilan Intl Airport-H 10.9 9.1 7.8 1.2 1.0 0.9 5.0 3.5 2.7 10.9 10.5 11.4
Shanghai International Air-A 21.1 16.5 14.5 1.8 1.6 1.5 12.2 10.2 8.8 8.6 10.2 10.7
Guangzhou Baiyun Internati-A 14.5 12.6 11.0 1.4 1.3 1.2 5.1 4.8 4.3 10.1 10.1 11.0
Xiamen International Air-A 14.2 12.3 11.0 2.6 2.1 1.8 7.6 6.7 5.9 19.9 17.8 17.0
Australian Airports 25.5 26.8 16.9 1.1 1.1 1.1 11.6 12.0 10.2 6.4 5.5 7.9
Australian Infrastructure Fd 7.3 8.6 7.7 0.7 0.6 0.6 6.8 6.6 5.9 9.3 7.2 7.5
Map Group 43.6 48.4 21.8 1.1 1.5 1.4 14.4 16.6 12.6 3.5 3.8 10.4
Auckland Intl Airport Ltd 25.7 23.5 21.4 1.6 1.2 1.2 13.8 12.8 12.1 6.2 5.5 5.9
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 27
Annexure
Financial highlights – Portfolio assets
AIRPORT :
DIAL's Financial performance
DIAL (Rs Bn) Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 CAGR (FY11-14E)
Revenues (incl RE) 11.5 12.4 15.0 19.1 23.0 23%
Aero (Incl Cargo) 6.0 6.0 7.1 9.2 12.0 26%
Non Aero (excl. real estate) 5.1 5.6 7.1 8.4 9.5 19%
Real Estate rentals 0.5 0.8 0.8 1.5 1.5 25%
EBITDA 2.7 1.5 2.2 4.2 6.0 60%
EBITDA Margin 23.3 11.8 14.9 21.8 26.2 30%
PAT 0.4 (4.5) (7.8) (5.5) (3.6) -7%
PAT ( GMR Share ) 0.3 (2.4) (4.2) (3.0) (2.0) -7%
CFO 4.0 0.4 6.5 8.4 12.6 222%
Drivers
Passengers (mn) 25.5 29.6 34.7 39.2 43.4 14%
Capex -41.2 -11.6 0.0 0.0 0.0
Cumulative land parcel monetized 45 45 45 75 75 19%
Source: Company, Emkay Global
GHIAL's financial performance
GHIAL (Rs Bn) Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 CAGR (FY11-14E)
Revenues 4.3 5.2 6.6 7.3 6.8 10%
Aero (Incl Cargo) 2.2 3.0 4.4 4.8 4.0 10%
Non Aero (excl. real estate) 2.0 2.2 2.2 2.4 2.8 9%
Others NA
EBITDA 2.2 3.0 4.2 4.5 3.9 10%
EBITDA Margin 52.8 57.6 64.4 62.0 57.7 0%
PAT (1.0) 1.2 1.2 1.6 1.1 -2%
PAT ( GMR Share ) (0.6) 0.8 0.8 1.0 0.7 -4%
CFO 1.6 2.8 4.7 4.9 4.4 16%
Drivers
Passengers (mn) 6.5 7.5 8.5 9.7 11.0 13%
Capex 0.0 0.0 0.0
Cumulative land parcel monetized We have not considered monetization of land parcel in our model
Source: Company, Emkay Global
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 28
ISGIA's financial performance
ISGIA Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 CAGR (FY11-14E)
Revenues 3.8 6.1 8.1 9.3 10.7 21%
Revenues 0.6 1.0 2.0 2.2 2.6 37%
Aero (Incl Cargo) 0.6 1.1 1.6 1.9 2.2 27%
Fuel 2.6 4.0 4.5 5.2 5.9 14%
EBITDA 0.6 1.4 2.6 3.1 3.6 38%
EBITDA Margin 15.3 22.9 31.9 33.0 34.1 14%
PAT (0.6) (0.9) (0.1) (0.1) (0.0) -66%
PAT ( GMR Share ) (0.6) (0.9) (0.1) (0.1) (0.0) -66%
CFO 0.9 (0.7) 0.6 1.1 1.7 NA
Drivers
Passengers (mn) 7.7 12.2 15.4 17.9 20.6 19%
Capex
Cumulative land parcel monetized
Source: Company, Emkay Global
Male Airport's financial performance
Male Airport Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 CAGR (FY11-14E)
Revenues 4.0 11.1 13.6 14.7 55%
Aero Revenue 0.2 0.6 1.3 1.4 96%
Non Aero Revenue 0.7 2.7 3.6 3.8 81%
Fuel 3.1 7.8 8.6 9.4 44%
EBITDA 0.5 1.1 2.0 2.2 63%
EBITDA Margin 13.0 9.9 15.0 15.1 5%
PAT 0.5 0.6 1.3 1.0 29%
PAT ( GMR Share ) 0.4 0.5 1.0 0.8 29%
CFO - 1.6 1.9 2.3 NA
Drivers
Passengers (mn) 2.5 2.6 2.7 2.8 4%
Capex 3.4 6.3 6.6 2.4
Cumulative land parcel monetized
Source: Company, Emkay Global
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 29
POWER :
Barge Mounted financial performance
Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 CAGR (FY11-14E
Barge mounted (235 MW)
Revenues 2.4 3.5 5.5 5.1 5.5 16%
EBITDA -0.4 0.9 2.0 1.5 1.7 23%
EBITDA Margin -17.4 25.8 36.0 30.4 31.2
PAT 0.1 0.7 0.7 0.6 0.1 -58%
PAT Margins 5.9 20.3 12.4 11.0 0.9
CFO (463.3) 752.8 1,480.6 1,341.9 1,571.8 28%
CAPEX (2,010.0) (4,020.0) - - -
Units produced 683.7 867.6 1,265.8 1,265.8 1,363.2 16%
PLF 28% 59% 70% 70% 70%
Realisation per unit 3.5 4.1 4.3 4.0 4.0
Variable cost per unit 2.0 2.0 2.0 2.0 2.0
Contribution per unit 1.4 2.0 2.3 2.0 2.0
Fixed cost per unit 1.6 1.8 1.7 1.7 1.6
Source: Company, Emkay Global
Vemagiri Plant financial performance
Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 CAGR (FY11-14E
Vemagiri Plant (370 MW)
Revenues 7.7 7.5 7.6 7.6 7.6 1%
EBITDA 2.2 2.2 2.4 2.4 2.4 4%
EBITDA Margin 29.1 29.0 30.9 32.0 31.6
PAT 0.9 0.7 1.1 1.3 1.4 25%
PAT Margins 12.3 9.5 14.6 17.0 18.3
CFO 2,199.2 1,976.9 2,043.4 2,095.0 2,045.0 1%
CAPEX - - - - -
Units produced 2,515.2 2,515.2 2,515.2 2,515.2 2,515.2 0%
PLF 86% 80% 80% 80% 80%
Realisation per unit 3.1 3.0 3.0 3.0 3.0
Variable cost per unit 1.9 1.9 1.9 1.9 1.9
Contribution per unit 1.2 1.1 1.2 1.2 1.2
Fixed cost per unit 0.8 1.2 1.2 1.2 1.2
Source: Company, Emkay Global
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 30
GPCPL - Chennai financial performance
Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 CAGR (FY11-14E
GPCL-Chennai-LSHS (200 MW)
Revenues 8.7 7.6 9.8 9.9 10.8 12%
EBITDA 1.2 1.0 0.6 0.6 0.6 -15%
EBITDA Margin 13.6 12.5 5.7 5.7 5.4
PAT 0.7 0.4 0.3 0.2 0.2 -20%
PAT Margins 7.5 5.3 2.9 1.8 1.9
CFO 989.1 873.7 939.1 1,472.4 414.4 -22%
CAPEX - - - - -
Units produced 1,189.6 883.7 1,019.7 934.7 934.7 2%
PLF 65% 52% 60% 55% 55%
Realisation per unit 7.3 8.6 9.6 10.6 11.5
Variable cost per unit 7.2 7.9 8.6 9.5 10.4
Contribution per unit 0.2 0.8 1.0 1.1 1.1
Fixed cost per unit 0.8 1.3 1.0 1.1 1.1
Source: Company, Emkay Global
Rajahmundry financial performance
Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 CAGR (FY11-14E
Rajahmundry (768 MW)
Revenues - - - 2.3 17.0 NA
EBITDA - - - 1.1 8.2 NA
EBITDA Margin NA NA NA 47.8 48.6
PAT - - - 0.4 2.5 NA
PAT Margins NA NA NA 19.1 14.6
CFO - - - 573.5 5,281.8 NA
CAPEX (3,630.0) (18,150.0) (11,220.0) - -
Units produced - - - 571.0 4,241.8 NA
PLF 0% 0% 0% 70% 65%
Realisation per unit NA NA NA 4.0 4.0
Variable cost per unit - - - 1.8 1.8
Contribution per unit NA NA NA 2.2 2.2
Fixed cost per unit - - - 1.8 1.9
Source: Company, Emkay Global
Kamlanga financial performance
Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 CAGR (FY11-14E
Kamalanga (1050 MW)
Revenues - - - 6.3 18.8 NA
EBITDA - - - 3.6 11.0 NA
EBITDA Margin NA NA NA 58.0 58.8
PAT - - - 0.7 1.9 NA
PAT Margins NA NA NA 11.0 10.2
CFO - - - 2,109.8 7,687.6 NA
CAPEX (13,166.0) (16,344.0) (9,534.0) (6,356.0) -
Units produced - - - 2,267.6 6,802.8 NA
PLF 80% 80%
Realisation per unit NA NA NA 2.8 2.8
Variable cost per unit - - - 0.9 0.8
Contribution per unit NA NA NA 1.9 1.9
Fixed cost per unit - - - 1.6 1.7
Source: Company, Emkay Global
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 31
Kamlanga Ext. financial performance
Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 CAGR (FY11-14E
Kamalanga Ext. (350 MW)
Revenues - - - - 4.7 NA
EBITDA - - - - 3.2 NA
EBITDA Margin NA NA NA NA 67.2
PAT - - - - 1.1 NA
PAT Margins NA NA NA NA 22.7
CFO - - - - 1,889.6 NA
CAPEX - (4,350.0) (5,400.0) (3,150.0) (2,100.0)
Units produced - - - - 1,157.4 NA
PLF 70% 70%
Realisation per unit NA NA NA NA 4.1
Variable cost per unit - - - - 0.8
Contribution per unit NA NA NA NA 3.2
Fixed cost per unit - - - - 1.8
Source: Company, Emkay Global
Emco’ Wardha financial performance
Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 CAGR (FY11-14E
EMCO (600 MW)
Revenues - - - 2.6 15.1 NA
EBITDA - - - 1.7 9.5 NA
EBITDA Margin NA NA NA 64.9 63.1
PAT - - - 0.7 2.9 NA
PAT Margins NA NA NA 28.2 19.2
CFO - - - 1,021.7 6,409.2 NA
CAPEX - (6,960.0) (12,180.0) (12,180.0) (3,480.0)
Units produced - - - 637.7 3,826.4 NA
PLF 80% 80%
Realisation per unit NA NA NA 4.0 4.0
Variable cost per unit - - - 1.2 1.3
Contribution per unit NA NA NA 2.8 2.7
Fixed cost per unit - - - 1.7 1.9
Source: Company, Emkay Global
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 32
ROAD :
Performance for annuity based project
Rs Mn Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 CAGR (FY11-14E)
Revenues 2,484 2,483 2,485 3,726 3,726 14%
GTTEPL - TambaTindi 810 810 810 810 810 0%
GTAEPL - TuniAnka 590 590 591 590 590 0%
GPEPL - Pochanpalli 1,084 1,084 1,084 1,084 1,084 0%
GCORRPL - ChenORR - - - 1,243 1,243 NA
EBITDA 2,107 2,073 1,968 3,124 3,083 14%
GTTEPL - TambaTindi 646 612 630 626 620 0%
GTAEPL - TuniAnka 475 469 479 473 468 0%
GPEPL - Pochanpalli 985 993 858 845 831 -6%
GCORRPL - ChenORR - - - 1,181 1,163 NA
PAT 82,576 85,692 87,090 99,225 111,714 9%
GTTEPL - TambaTindi 351 162 162 185 208 9%
GTAEPL - TuniAnka 102 75 97 102 89 6%
GPEPL - Pochanpalli 56 50 (72) (53) (35) NA
GCORRPL - ChenORR - - - 27 (220) NA
Performance for Toll based road projects
Rs Mn Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 CAGR (FY11-14E)
Revenues 979 1,419 1,583 4,712 8,175 79%
GACEPL - AmbaChan 185 217 242 269 299 11%
GJEPL - FaruJagd 419 512 571 634 705 11%
GUEPL - TindiUlu 375 690 770 855 951 11%
GHVEPL - HydVij - - - 2,796 4,146 NA
GHHEPL - HunHos - - - 158 2,073 NA
EBITDA 702 1,165 1,313 3,343 5,812 71%
GACEPL - AmbaChan 120 158 180 202 227 13%
GJEPL - FaruJagd 326 420 474 529 503 6%
GUEPL - TindiUlu 255 586 660 738 827 12%
GHVEPL - HydVij - - - 1,733 2,467 NA
GHHEPL - HunHos - - - 141 1,787 NA
PAT (918) (517) (447) 59 114 NA
GACEPL - AmbaChan (413) (272) (284) (272) (260) -1%
GJEPL - FaruJagd (216) (31) 8 57 22 NA
GUEPL - TindiUlu (289) (215) (171) (108) (37) -45%
GHVEPL - HydVij - - - 357 352 NA
GHHEPL - HunHos - - - 26 38 NA
Source: Company, Emkay Global
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 33
Glossary - Definition of important terms – acronyms used in the report
Aero Revenue :
Aero revenues include services provided by an operator which assists in conducting day to
day operation in relation to the aircraft and includes :-
� Landing, Housing and parking charges for Aircraft,
� Ground facility in connection with aircraft operation
� Ground safety services at an airport
� Ground handling services related to aircraft, passenger or cargo
� Cargo facility at an airport
� Supplying fuel to aircraft
� Passenger service fee
� User development fees
Non Aero Revenue :
All revenues which cannot be classified as Aero revenues are considered as Non Aero
revenue and includes
� Fuel farm
� Flight catering
� Advertisement
� Retail
� Food & Beverages
� Land and space
� Others
Single Till :
Under the single till mechanism entire benefit from the Non Aero segment is utilised in
subsidizing the operations from the Aero segment.
Dual Till :
Under the dual till mechanism both the Aero & Non Aero revenues are completely different
and entire upsides from the Non Aero vertical is captured by the Airport operator.
Hybrid Till :
Under the Hydbrid till a part of benefits from Non Aero segment is utilised in subsidising the
operations of the Aero segment, however some part of upsides from the Non Aero segment
will belong to the airport operator. The percentage will vary from airport to airport depending
on the concession agreement – DIAL & MIAL falls under this mechanism where 30% of Non
Aero revenues are utilised in subsidising the Aero operations.
ADF – Airport development fees
Airport development fee is a mode of charging fee to every departing passenger for
supporting the construction & development of the airport.
UDF – User development fees
User development fees is a mode of levying a charge on every departing passenger for
supporting the regular daily operations and is approved by the regulator to support meet the
shortfall from other sources of revenue
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Emkay Research 8 September 2011 34
Key Financials (Standalone)
Income Statement Balance Sheet
Y/E, Mar (Rs. m) FY10 FY11 FY12E FY13E Y/E, Mar (Rs. m) FY10 FY11 FY12E FY13E
Net Sales 45,665 57,738 82,906 117,609 Equity share capital 3,667 3,892 3,892 3,892
Growth (%) 14% 26% 44% 42% Reserves & surplus 63,003 72,854 74,405 79,405
Total Expenditure 32,022 42,183 61,368 81,052 Shareholders Funds 66,671 76,746 78,297 83,297
Raw material 10,717 19,896 26,199 40,578 Minority Interest 17901.5 19981 17172.7 15910.1
Employee expenses 3,110 4,219 4,878 4,014 Preference share 2,000 18,149 18,149 18,149
Power & Fuel cost 14,489 13,815 14,325 17,657 Secured Loans 162,294 189,107 273,867 350,263
Selling and Admin 3,114 3,615 4,612 5,636 Unsecured Loans 46,080 53,189 53,189 53,189
Others 7,267 10,869 11,354 13,167 Loan Funds 208,374 242,296 327,056 403,452
EBIDTA 13,643 15,555 21,538 36,557 Net Deferred Taxes 2,535 764 1,351 2,434
Growth (%) 28% 14% 38% 70% Total Liabilities 297,480 357,936 442,026 523,242
EBIDTA % 29.9% 26.9% 26.0% 31.1% Gross Block 148,896 243,702 256,796 380,987
Depreciation 6,122 8,609 9,957 12,696 Less: Acc Depreciation 23,416 31,503 41,460 54,156
EBIT 7,521 6,946 11,581 23,860 Net block 125,481 212,200 215,336 326,831
EBIT Margin (%) 13.4% 14.9% 12.0% 10.8% Capital WIP 103,829 94,898 159,894 137,373
Other income 2,913 (4,873) 2,825 2,700 Investment 46,411 29,741 29,741 29,741
Interest 8,503 12,301 15,735 19,539 Current Assets 41,408 74,921 86,341 70,103
PBT 1,931 (10,228) (1,330) 7,021 Inventories 1,159 1,846 1,626 1,637
Tax -319 239 2,110 3,846 Sundry Debtors 8,649 13,199 16,264 20,321
Effective tax rate (%) -16.5% -2.3% -158.6% 54.8% Cash and Bank 16,826 33,732 36,743 18,743
Adjusted PAT 2,250 (10,467) (3,440) 3,175 Loans and Advances 13,156 18,516 23,788 21,782
Growth (%) -19% -565% -67% -192% Other current assets 1616.5 7627.8 7,920 7,620
Net Margin (%) 4.9% -18.1% -4.1% 2.7% Current Liab & Prov 19,653 53,898 49,361 40,880
(Profit)/loss from JV's/Ass/MI 669.4 -1170.3 -2808.3 -1262.6 Current liabilities 15,775 51,617 49,361 40,880
Adjusted PAT After JVs/Ass/MI 1,581 (9,297) (631) 4,437 Provisions 3,878 2,281 0 0
E/O items 0 0 0 0 Net current assets 21,755 21,024 36,980 29,223
Reported PAT 1,581 (9,297) (631) 4,437 Miscellaneous Exps 5 74 74 74
Growth (%) 489% -688% -93% -803% Total Assets 297,480 357,936 442,026 523,242
Cash Flow Key ratios
Y/E, Mar (Rs. m) FY10 FY11 FY12E FY13E Y/E, Mar (Rs. m) FY10 FY11 FY12 FY13
PBT (Ex-Other income) 1,931 (10,228) (1,330) 7,021 Profitability (%)
Depreciation 6,122 8,609 9,957 12,696 EBITDA Margin 29.9 26.9 26.0 31.1
Interest Provided 5,697 12,321 15,735 19,539 Net Margin 3.5 -16.1 -0.8 3.8
Other Non-Cash items -916 4,390 ROCE 3.0 2.1 2.9 4.9
Chg in working cap 187 17,724 -12,946 -10,243 ROE 2.4 -13.0 -0.8 5.5
Tax paid -511 -2,434 -1,523 -2,763 RoIC 4.3 3.0 4.7 6.5
Operating Cashflow 12,511 30,382 9,893 26,251 Per Share Data (Rs)
Capital expenditure -68,725 -74,050 -78,090 -101,670 EPS 4.3 -2.4 -0.2 1.1
Free Cash Flow -56,214 -43,667 -68,197 -75,419 CEPS 6.0 -0.2 2.4 4.4
Other income BVPS 18.7 24.4 24.8 26.1
Investments -31,868 9,660 0 0 DPS 0.0 1.0 0.0 0.0
Investing Cashflow -101,443 -64,390 -78,090 -101,670 Valuations (x)
Equity Capital Raised 3,839 15,907 0 0 PER 7.0 -12.6 -185.0 26.3
Loans Taken / (Repaid) 97,293 23,542 84,760 76,396 P/CEPS 5.0 -169.9 12.5 6.8
Interest Paid -7,615 -11,783 -15,735 -19,539 P/BV 1.6 1.2 1.2 1.2
Dividend paid (incl tax) -5 -87 EV / Sales 6.6 5.6 4.9 4.3
Income from investments 0 EV / EBITDA 22.1 20.9 18.9 13.7
Others -708 23,029 Dividend Yield (%) 0.0 1.0 2.0 3.0
Financing Cashflow 81,093 50,608 69,025 56,857 Gearing Ratio (x)
Net chg in cash -7,839 16,906 828 -18,562 Net debt/ Equity 2.2 1.8 2.6 3.3
Opening cash position 24,665 16,826 33,732 34,560 Net Debt/EBIDTA 14.0 13.4 13.5 10.5
Closing cash position 16,826 33,732 34,560 15,999 Working Cap Cycle (days) 39.4 -80.3 1.0 32.5
GMR Infrastructure Initiating Coverage
Emkay Research 8 September 2011 35
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