New lease of life for Gayatri Projects

The divestment of stake in NCC Power Projects (NCCPPL) to Singapore's Sembcorp Utilities has come as a big relief for Gayatri Projects, facing problems on the liquidity and financing fronts for its existing and ongoing projects. Notably, it will also help the firm and its shareholders in the form of better valuations, depressed as analysts were not according significant value to some of these assets and investments.

While NCC holds a 63 per cent stake in NCC Power Projects (NCCPPL), executing a 1,320-Mw coal-based power project, Gayatri Projects holds 37 per cent stake. However, since Sembcorp will be buying a 45 per cent stake in NCCPPL for Rs 848 crore, the holding of NCC and Gayatri will decline. The remaining 55 per cent will be held by a holding company NCCIHL, wherein NCC will hold 55 per cent and Gayatri Projects the remaining 45 per cent. Simply put, Gayatri Projects' effective stake will come down to 24.75 per cent in the NCCPPL and NCC's to 30.25 per cent.

Importantly, the deal values the 1,320-Mw power project at Rs 1,884 crore (equity value). This means the effective value for Gayatri Projects' stake stands at Rs 470 crore, which is not fully reflecting in its current market capitalisation of Rs 179 crore.

"This deal has created a lot of value for Gayatri Projects. Earlier, the market was not ascribing any value to this project because of the issues and funding (shortfall). Today, the entry of Sembcorp not only resolves the issue of funding but also brings hope about the viability of the project considering expertise of Sembcorp," said Ronald Siyoni Research, who is tracking the company at Sharekhan.

With this deal, the project will now not suffer any funding issue as analysts believe this will be more than sufficient to fund the equity part for the project. Also, considering that earlier, Gayatri Projects was supposed to bring its part of equity to the tune of about Rs 350 crore, it stands resolved as now it will not have to contribute the same. "I think, post (after) this deal and accounting for its remaining stake, Gayatri Projects' valuations would be in the region of about Rs 200-250 a share based on the sum of part valuations as against the current price of Rs 60 per share," said Ronald Siyoni.

Analysts also assign value to its stand-alone construction business, which made Rs 63 crore profit in FY13. That apart, the company is also having a 51 per cent stake in another power plant with a capacity of about 1,300 Mw and 71 per cent stake in a subsidiary, which has seven road projects. In road projects, the company has invested over Rs 400 crore. Even at 71 per cent, the value of these assets could be in the region of Rs 280-300 crore at one-time book value.

To sum up, while there is value in its business, considering the nature of the projects, sector headwinds and the company's huge debt (Rs 1,400 crore on a stand-alone basis), investors should be cautious as the gains will not come in a hurry, at least till the headwinds subside.