GVK Power - Another quarter of disappointing numbers - PhillipCapital

GVK Power reported a disappointing set of numbers, with a topline of Rs6.4bn (against our estimate of Rs7.3bn) primarily driven by extremely low PLFs at power plants and muted growth in traffic at airports.

The topline fell by 22% QoQ, mainly due to low PLFs at power plants. JP-2 and Gautami operated at PLFs of 27% and 26% respectively, due to non-availability of natural gas from the KG-D6 basin. The topline was also impacted by decline in traffic at Mumbai airport (-8% YoY passenger traffic; -4% YoY cargo). Bangalore airport too reported decline in traffic (-10% YoY passenger traffic; -0.3% YoY cargo). The only silver lining was 8% YoY growth in top-line at Jaipur-Kishengarh expressway, driven by 2% traffic growth.

The consolidated operating margins improved to 37.8% (+760bp YoY) which was primarily due to write-back of major maintenance expenditure on JP-2 and Gautami. In 1QFY13, the company had made provision of Rs320mn, for major maintenance to be carried out on JP-2 and Gautami power plants in FY13. However, the company has now postponed the same to FY14, and hence has reversed the expenditure booked earlier (Rs210mn in this quarter).

High interest expense (Rs1.76bn; +123% YoY) continued to keep the bottom-line under pressure. The company paid additional interest expense of Rs1.18bn, on the loan borrowed for increase in stakes in the two airports. PAT loss of Rs437mn was lower than our estimate (-Rs687mn), mainly due to reversal of the maintenance expenditure on the power plants.

GVK was able to report 90% PAF (Plant Availability Factor) at Gautami Power plant, as it can run on alternate fuel (High speed diesel). As per the PPA, if the plant is available for production, the SEB will have to pay fixed charges commensurate to the PAF, and the variable charges would be paid according to the PLF. The company plans to tweak the configuration of JP-2 also, so as to enable it to run on high speed diesel, and claim higher fixed charges for that plant too. In our opinion, this is a positive development as these higher fixed charges will be able to reduce the losses (marginally) at the two power plants. For being profitable however, the plants will still have to operate at higher PLFs.

Execution on the three energy projects (330MW ALaknanda HEP, 540MW Goindwal Sahib TPP and 2mtpa Tokisud coal mine) is on track and the company expects all three to be commissioned in 1QFY13. Work on the two road projects (Deoli-Kota and Bagodara-Vasad) is also on track, while Shivpuri-Dewas road project is awaiting financial closure.

We have made significant revisions to our FY13 & FY14 estimates on the back of the postponement of major maintenance expenditure and muted traffic growth at the airports. We have also incorporated 151% tariff hike in aero charges at the Mumbai airport in FY14, assuming that the same will be approved by AERA. We maintain NEUTRAL rating on the stock, with the price target of Rs12.

Source : Equity Bulls

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