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HSBC Underweight on GMR Infra

October 24, 2007

GMR reported 2Q FY08 results, with revenue up 26%, to INR3.95bn against estimate of INR4.2bn. The revenue growth has been predominately due to the additional contribution from the airport business (INR753mn) and higher PLF of the two power plants (INR223mn). However, the net profit has been down 7.5% yoy, to INR495mn , due to INR343mn loss of Vemagiri power project (VPGL). VPGL has been non-operational since September 2006, due to the non-availability of gas and this will remain a drag on profitability for the full year.

DIAL reported 49% growth in revenue on 24% passenger traffic growth and revenue contribution from a new concession agreement. The development of Phase I capacity is on underway and the project cost is now pegged at INR89bn. Hyderabad [HIAL] airport is expected to be operational by March 2008 (85% of the construction completed). HIAL has indicated that the two SEZ (of 250acres each) are not a part of the earlier 1000 acres of commercial development.

GMR’s projects are conducted over fixed durations of 15-60 years. After the concession period, the assets are handed back to the government at no cost. DCF is the most suitable approach to value the company. GMR’s entire current business is valued at INR197.1bn, translating into INR119 per share, 25.5% below the current share price level.

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