GMR Infra: Positive outlook in spite of debt overhang

For nearly a year, GMR Infrastructure has been in talks to sell a significant share of its cash cow, the airport business.

Bengaluru-based GMR is the operator of the Delhi and Hyderabad airports; it also runs the Mactan-Cebu International Airport in Philippines. It has a 64 per cent stake in Delhi International Airport Ltd, 63 per cent in GMR Hyderabad International Airport Ltd and 40 per cent in Mactan-Cebu.

These airports earned the company 39 per cent of its latest annual revenue of Rs 10,954 crore.

Last week, GMR quelled speculation of a majority stake sale in airport ventures to raise cash and repay its high debt load.

“Of the Rs 45,000 crore of debt, around Rs 35,000 crore is reasonably placed. These are dependent on projects that are moving and it can service the debt,” says an analyst at a Mumbai-based brokerage who did not want to be named. “The problem is with the corporate debt of Rs 6,400 crore. It is not backed by any cash flows, and depends on the parent company’s ability to monetise assets.”

GMR Infra had gone on a bidding spree for highways, dams, power and airport projects during the economic boom of 2006-2010. To fund these, the firm began accumulating debt , which rose to Rs 47,738 crore. As the economy turned downwards, servicing the debt became difficult.

It has since raised capital in the markets, shed assets and tried to improve performance at its projects. It raised Rs 4,900 crore through a share sale (qualified institutional placement issue), a rights issue and foreign loans (foreign currency convertible bonds). It divested seven assets to raise around Rs 4,000 crore, as part of an “asset light, asset right” strategy. And, opted for strategic debt refinancing under the Reserve Bank’s new guidelines, to reduce debt by Rs 3,600 crore.

Last month, GMR raised $300 million (Rs 2,000 crore) by selling stake in its energy business to Malaysia’s largest electricity utility, Tenaga Nasional Berhad.

As on March 31, consolidated debt stood at Rs 46,890 crore with a debt to equity ratio of 7.89. “Going forward, too, the company would continuously look to deleverage its balance sheet through capital raising initiatives of fund raising through primary markets and divestment,” said a GMR spokesperson.

GMR said consolidated debt was Rs 40,120 crore in end-March 2016, of which Rs 34,000 crore was to be serviced out of project cash flows. The steps it has taken so far have been yielding results. The ratio of net debt to operating earnings improved to 9.4 in FY16, as against 15.5 in FY15. The interest coverage ratio improved to 1.05 in FY16, from 0.72 in FY15, it said.

“The group is looking to consolidate its existing operational projects and improve cash flows from these. GMR has been able to improve the performance of its projects, assisted through the conducive macro economic environment. Lots of positive developments have happened on the regulatory front, enabling the company to improve its profitability,” the spokesperson said.

“Things are improving for the company. It will take some time to come out of the problems. They should focus on existing projects and drive their profitability, than expanding into new areas,” says the analyst. “They should not go after new projects.”