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GMR Infra – Fund raising post QIP failure a surprise

September 12, 2009

GMR Infra shared its vision to grow at a rapid pace and with a hurdle rate of 16-18% IRR from new projects. The management believes dividends from InterGen would be sufficient to pay off acquisition debt.

GMR Infra revealed plans to raise a whopping INR75bn over FY10-12 even as medium-term requirement for projects under development is only INR28.5bn as per GMRI’s estimates.

The plan envisages a separate listing of segment holding companies with a view to unlock value. We see this as a negative for the parent as one would now attribute a holding discount to GMR Infra since investors can pick and choose segments in which they would want to invest.

We recommend a REDUCE rating on GMR Infrastructure given what we deem to be its expensive valuation and our expectation of several disappointments relating to growth
opportunities and in the airports segment.

With expected earnings of mere Rs 2.2 for FY10, the stock is extremely expensive at Rs 135. SELL GMR Infrastructure

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