Recommendation From Electric Utilities Sector

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AVIATION GROWTH TO DRIVE GMR’S FORTUNES

GMR

HERE IS WHY
New airport order
Turnaround in energy business
Repayment of debt

The infrastructure sector is a key driver for any economy. The sector enjoys intense focus from the Indian government for creating world-class infrastructure in the country. In this sector, GMR Group is one of the fastest growing enterprises with an experience spanning three decades. 

Company Overview: GMR Infrastructure Limited (GIL) is a global infrastructure conglomerate with interests in airports, energy, highways and urban infrastructure sectors. It has been successful in employing the public-private partnership model to implement several iconic infrastructure projects in India. The company has 16 power generation assets of which five are operational and 11 are under implementation. It also has nine road assets, of which five are operational and four are under construction. GIL generates close to 60% of its revenues from the airport business. 

It has recently won a contract to develop and operate Goa’s greenfield airport at Mopa. Apart from being the largest private airport company in India, GMR Group is also the only Indian airport developer to have developed and operated airports outside India.

Robust Airport Sector : The Indian aviation sector has witnessed remarkable growth in the last decade and is likely to be the fastest growing aviation market in the world for the next 20 years. In the last one year, the traffic at GIL’s Delhi and Hyderabad airports has increased by 14% and 19% respectively.

Reducing Debt: GIL has monetised some of its hard assets like road, power, and others. In FY17, GIL reduced its gross debt significantly to Rs19,856 crore from Rs37,480 crore. Also, recently the Supreme Court extended benefits of the liberalised airport land monetisation policy to the existing developers as well. Among the companies in this space, GIL has got the largest land holding and this ruling comes as a big respite that will help GIL to reduce its debt further and improve cash flows. At the Delhi airport where GMR holds 64% stake, it has got close to 230 acres of land. It has already started commercial developments of this land with 45 acres completed and another 23 acres being awarded for development. Also, at the Hyderabad airport, which holds close to 1,500 acres of land, 90 acres has been used for commercial development.

Financials: GIL recorded a very positive performance in FY17. For the first time, the energy sector registered a turnaround – GMR Warora achieved net profit of Rs143 crore. Profits in the airport sector increased and both Delhi and Hyderabad airports declared dividends for the first time. The net debt to EBITDA for FY17 improved to 4.3 from 10.2 in FY16. In Q1FY18, GIL’s gross revenue from continuing operations improved by 41% to Rs3,159 crore as against Rs2,239 crore for Q1FY17. Its EBITDA improved by 11% to Rs845 crore from Rs759 crore. 

On the valuation front, GMR Infrastructure’s share price is currently trading at P/B multiple of 1.72x. The stock has climbed 32.7% in the last one year. With reducing debt, turnaround in its energy business, and receipt of a new airport order, GIL is ticking all the right boxes. At this juncture we recommend our readers to ‘buy’ the stock.