GMR' asset-light strategy falling in place

Company could rein in leverage mainly due to its strategy of sweating its assets more, even as it shed three assets during past one year

The asset-light - asset-right strategy of GMR Infrastructure, the Bangalore-based publicly held infrastructure developer, seems to be falling in place more than a year after the company articulated this move in an effort to optimise its operations. It is a move to make the Group more leaner and importantly keep the gearing, which was creating an increased stress on the balance sheet,  under control.

The company’s gearing by end of June 2013, is at 3.3 times on a net debt of Rs 35,847 crore, up 6 per cent from the corresponding period in the previous year, even as the company aggressively went after commissioning its major coal-based power projects which has a potential to generate upto 1,500 Mw over a period of time. Despite drawing down equity and debt for its coal-based power projects, GMR Infrastructure could rein in the leverage mainly due to its strategy of sweating its assets more, even as it shed three assets during the past one year. The company exited its overseas power project, divested significant majority stake in an highway project and also sold off its stake at a loss-making coal mine in South Africa, which all resulted in as much as Rs 1,500 crore equity being released to be used in its system.

G M Rao, chairman, GMR Infrastructure told shareholders that given the background of worsening current account deficit and constrained liquidity in the domestic and global financial markets, they evolved a new approach of raising capital. GMR adopted this strategy after an exhaustive analysis of the trends in the infrastructure sector which indicated that there is a need for pro-active focus on operating cash flows and to develop a capital recycling mechanism. “We, then embarked on the principle of “develop - build - create value - divest - reinvest “ which will improve profitability and free cash flows by sweating of existing assets, to achieve better operating efficiencies by increasing revenues and reducing cost,” Rao added.

The stock price of GMR Infrastructure has been hovering between the Rs 18-24 levels over the past year, despite hitting an all time low of Rs 10.65 during mid August 2013.  Industry analysts tracking the infrastructure sector and GMR Infrastructure added that the stock can be accumulated given the fact that asset sale  in FY13 has eased off some pressure on financials. “However, the company will have generated operational cash flows, going forward,” a senior analyst with Prabhudas Lilladher said. Despite, an increased uptick in revenues from its highways and airport verticals, the availability of gas to fire two of its power plant on the eastern coast of India is still an Achilles heel for the company.

According to information available from senior management officials of GMR Group, the company is close to divesting its stake in atleast three more highway projects besides also looking at how it can partly monetise its holding in an operational airport asset. GMR is also understood to be in the final stages of deciding on a public offer through which it can raise potentially Rs 1,500 crore for its energy arm.