The GMR Infrastructure stock has lost 5 per cent in the last two trading sessions, even though its operating profit for the September 2009 quarter surged 54 per cent year-on-year, on the back of a strong top line growth of 41 per cent at Rs 1,194 crore. That’s because high interest and depreciation costs pulled down the pre-tax profit by 23 per cent. According to a report by Citi Investment Research, the traffic at GMR’s airports needs to pick up substantially to offset the impact of fixed costs and to make the projects viable.

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The company, which recently attempted placement of equity shares, is now planning to mop up Rs 1,000 crore through a redeemable preference share issue to fund its projects. A restructuring plan, announced in September, was accompanied by talk of mopping up about Rs 7,500 crore, including equity infusions of Rs 2,000-2,500 crore across projects.

Analysts have been concerned about the addition of debt worth $3 billion to the company’s balance sheet, following the consolidation of Intergen. The management says this would be paid back through dividends.

The losses at airports are also worrying industry watchers — while the Hyderabad airport is expected to turn profitable in 2010-11, losses at the Delhi airport, they say, may rise by about Rs 120 crore following a surge in fixed costs. Although, passenger traffic at GMR’s recently-opened integrated terminal in New Delhi and Hyderabad has seen an increase in the September quarter, compared with a decline in the past couple of quarters, it hasn’t been significant enough, say analysts.

Apart from better airport revenues, GMR’s top line for the September 2009 quarter was driven by the commencement of commercial operations for four road projects and also by better revenues from the power division.

GMR currently trades at Rs 66. While Kotak Securities has a target price of Rs 68, Citi maintains its sell recommendation on the stock.

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