GMR Infrastructure - Operating Performance Improves, But Losses Swell - Nirmal Bang

GMR Infrastructure (GIL)'s EBITDA of Rs5.5bn (up 23% YoY, ~2% above our estimate) and improvement in EBITDA margin by 560bps to 28.1%, primarily driven by robust performance of Delhi International Airport (DIAL) post tariff revision. However, the company suffered a net loss of Rs2.2bn (above our/Bloomberg consensus estimates of net loss of Rs1.4bn/Rs1.1bn, respectively) primarily due to high interest costs and rising net loss in the power segment. We have revised our earnings estimates to factor in poor performance of the power segment and exclusion of Male airport from our earnings estimates. Consequently, we expect net loss in FY13E at Rs6.8bn (earlier, we had estimated net loss at Rs3.5bn). We have cut our FY14E net profit estimate by 53% to Rs1.6bn and reduced target price on GIL from Rs26 to Rs24, but retained our Buy rating on it.

Net sales remain flat: The company reported a 2% YoY decline in net sales at Rs19.6bn, (2%/10% below our/Bloomberg consensus estimates, respectively) primarily due to decline in the power segment's revenue by 4% YoY following lower plant load factor (PLF). We believe the power segment would continue to face gas shortage in the near future but higher tariff at DIAL, commissioning of two road projects recently and likely commissioning of two coal-based power projects over the next three quarters would drive revenue growth.

Robust operating performance: Despite negative operating profit of the power segment, EBITDA increased 23% to Rs5.5bn and EBITDA margin improved 560bps to 28.1%, primarily driven by a 93% YoY growth in EBITDA of the airport segment following DIAL tariff revision.

Net losses rise to Rs2.2bn: For the quarter, the company's net loss expanded to Rs2.2bn primarily due to the power segment's net loss of Rs1.5bn as against a net loss of Rs886mn a year ago. Interest costs rose 24% YoY to Rs5.25bn due to commercialisation of two road projects. DIAL reported a net profit of Rs47mn, primarily because of tariff revision.

Retain Buy rating: Going forward, we believe the company's operating performance would continue to improve driven by revised DIAL tariff, commissioning of two road projects recently and likely completion of two coal-based power projects. However, regulatory uncertainty related to fuel availability for gas-based power plants and delay in monetisation of DIAL real estate parcel remains, but these concerns have been largely factored in the current market price and clarity on these matters will be positive for GIL. We have retained our Buy rating on GIL with a revised target price of Rs24 based on SOTP valuation (from Rs26 earlier).

Source : Equity Bulls

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