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Citi’s coverage on GMR + GVK

April 10, 2008

Citigroup in a report releases just a while ago is placing its bet on GMR Infrastructure and GVK Power and Infrastructure.

GMR Infrastructure:
GMR is one of the leading infrastructure developers in India with a portfolio of assets including three airports (Hyderabad, Delhi and Sabiha Gokcen International Airport in Turkey), 11 power plants, and six roads. Citi estimate airports and related real estate comprise 47% of GMR’s value, other real estate 19%, power plants 18%, and roads 5%. GMR also has ~$1bn cash.

GMR’s earnings is expected to grow at 51% CAGR over FY08E-11E on the back of a 37% growth in revenues. The company is expected to report an EPS of Rs 2.2. However Citi is valuing the scrip on the basis of SOTP and arrives at a figure of Rs 93 / share from Airports and other Construction operations + Assets under development and poer projects contribute Rs 72 / share while cash on books contribute Rs 22 / share thus leading to a target price of Rs 187.

GVK Power and Infrastructure
GVKPIL is one of the leading infrastructure developers in India with a portfolio of assets including the Mumbai Airport, Jaipur-Kishengarh Expressway, six power plants, one coal mine and one SEZ.

Mumbai Airport is the busiest in India, handling over 22% of India’s air traffic. With upside from aero revenues limited, non-aero revenues and real estate development of 20mn sqft are key value drivers for the airport.

GVK intends to upfront a portion of the real estate rentals on airport land in the form of deposits to fund airport capex. A similar structure at the Delhi Airport has come under some debate as AAI would lose revenue share on deposits. While it is still unclear as to what structure will be adopted, we assume that GVK would take 25% in the form of upfront deposits in line with our assumption for GMR.

Citi initiates coverage with a Buy / Medium Risk (1M) rating and a target price of Rs56. Post the ~54% correction from the peak, the stock offers an upside of 44% from current levels to our target price. Citi estimate Mumbai Airport forms 48% of value, power plants 23%, roads 14% and others 16%.

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