After dropping to its all-time low of Rs 16.75
last Thursday post the Maldives’ government cancelling the airport contract
with GMR Infrastructure, the latter’s share price has recovered 17.3 per cent, including the
5.4 per cent rise seen on Monday. The gains are consequent to the company
getting a stay order against the cancellation of the contract from the High court of Singapore. Secondly, post the event, promoters have also bought shares from the
open market. While most analysts believe there would not be much impact on stock valuations even if the airport development contract is cancelled, they
see potential loss in revenues and profits which could mean some pressure on
the stock in the interim as it would come at a time when some of GMR’s domestic
businesses are under pressure.
GMR has so far has invested about Rs 126 crore in
the airport through its 77 per cent subsidiary, GMR Male’ International Airport
Private Ltd (23 per cent is held by Malaysia Airports Holding Berhad). This
investment is equal to 1.4 per cent of GMR’s consolidated shareholders’ funds
of Rs 9,161 crore (as of end-September) and 1.7 per cent of its market
capitalisation of Rs 7,648 crore. This explains that even if the investments
are required to be written off (worst case scenario) the valuations may not
change drastically. Secondly, GMR’s stock is currently trading near
historically low levels and analysts believe that most of the negatives are
reflecting in the price.
GMR holds
various infrastructure assets, including two prestigious Delhi and Hyderabad
airports (almost a third of revenues), several road and power projects. In
these segments, the company has invested equity capital of about Rs 9,500
crore, which make up for most of its stock valuation. In comparison, the
Maldives project is small.
TURNAROUND IN FY14
|
|||
In Rs crore
|
FY 12
|
FY13E
|
FY14E
|
Net sales
|
7,642.1
|
9,471.8
|
11,728.6
|
Ebitda
|
1,758.2
|
2,759.1
|
4,134.1
|
Ebitda (%)
|
23.0
|
29.1
|
35.2
|
Net profit/(loss)
|
-441.2
|
-353.6
|
348.5
|
EPS (Rs)
|
-1.1
|
-0.9
|
0.9
|
PE (x)
|
NA
|
NA
|
21.8
|
E:
Estimates
Includes Male Airport financials
Source: Nirmal Bang Institutional Equities Research |
KEY STATISTICS
|
|
|
In Rs crore
|
Maldives airport project size
|
2,810.50
|
Investment so far
(equity+debt)
|
1,265.00
|
Total equity investment
|
165.00
|
GMR’s equity contribution
|
126.50
|
GMR’s total shareholder's
funds
|
9,161.00
|
GMR’s equity in male/total
equity
|
0.01
|
Market cap of GMR
|
7,648.00
|
GMR’s equity in Male/Market
cap
|
0.02
|
However,
there is one more dimension to the Male airport episode. Analysts were
expecting the airport to contribute about 10-12 per cent to the company’s
consolidated revenues and about Rs 150 crore in annual profits in FY13 and
FY14. Including the Male airport, analysts were expecting GMR to report a
turnaround (profit of over Rs 350 crore) in FY14. Given that the contract
involves building and operating the airport for a period of 25 years
(extendable by another 10 years), the company would lose out on future revenues
and profits as well, if the contract is terminated.
Nevertheless,
the Maldives project cannot be written off today, as the company has taken
legal action to protect its interests. On this front, the Singapore court has
given a stay order. Recently, Axis Bank has also sent notice to Maldives government for the recovery of its $350
million loan given to GMR Infrastructure. Besides, there is also pressure from
India’s foreign ministry (as the news reports suggest) which could impact the
bilateral ties between the two countries (if the matter is not dealt with
lawfully).
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