Power boost for GMR Infrastructure

Improvement likely in financials of power and airport segments but debt reduction is key if it is to post profits

On a day when the stock markets were tepid, an order passed by the Central Electricity Regulatory Commission (CERC) in favour of GMR Infrastructure, saw the stock gain sevenper cent on Wednesday to Rs 14.27.

CERC has revised the rate of supply from GMR Kamalanga Energy, a special purpose vehicle of GMR Energy, from Rs 2.75 a unit to Rs 3.97 until FY14 with retrospective effect and Rs 3.4 a unit thereafter. This could translate into a gain of Rs 115 crore for FY14, Rs 280 crore for FY15 and Rs 170 crore for the half-year ended FY16.

This hike in tariff could boost the revenues of the company by Rs 560 crore in FY16. At the current plant load factor (PLF) of 68 per cent, revenue from the division. going forward is estimated at Rs 890 crore. Any improvement on this PLF would boost the earnings.

The Kamalanga Energy unit generated 1,444 Mw in the September quarter. Compared to a year before, the generation was up 54 per cent. This, along with 20 per cent higher output from GMR Emco Energy, helped the power operations post a revenue of Rs 1,304 crore, up 22 per cent over a year. Earnings before interest and tax at Rs 65 crore turned positive after 12 quarters.

The power segment now accounts for 40 per cent of GMR Infra’s total revenue. This could significantly rise, once all its power projects become operational. Currently, GMR Infra has 2,150 Mw of operational capacity; 2,700 Mw are at different stages of development. The company is in the process of securing power purchase agreements for its 1,370 Mw Chhattisgarh coal-based power plant.

Overall, GMR Infra's September quarter performance was above the market estimate, with revenue up 15 per cent (at Rs 3,090 crore), and earnings before interest, tax, depreciation and amortisation (Ebitda) at Rs 912 crore, up 56 per cent over a year. The Ebitda margin also rose from 22 per cent in the same quarter a year before to 30 per cent, with a boost from the airports segment, whose Ebitda margin was 52 per cent.

That said, debt continues to be a pain point for the company. The interest cost of Rs 873 crore dragged GMR Infra to a quarterly loss of Rs 375 crore (against one of Rs 651 crore a year before. However, it managed a cash profit of Rs 134 crore, from a cash loss of Rs 206 crore a year before.

Going forward, some factors are expected to improve matters. Such as improvement in airport traffic (16 per cent growth in Delhi and 18 per cent in Hyderabad in the first half), along with the Directorate General of Civil Aviation restoring the User Development Fee (UDF) at GMR Hyderabad International Airport. IDFC Securities says the decision to restore UDF at Hyderabad will mean additional revenue of Rs 400 crore every year, based on current traffic.

However, reduction of debt is critical. Interest costs could, in the coming quarters, nullify any upward trend in profitability of the airport and power segments. The management has indicated a debt reduction of Rs 3,000-4,000 crore by the end of FY16, through stake sale and equity infusion. About half the analysts tracking the stock, according to Bloomberg, have a 'buy' recommendation, with a consensus target price of Rs 20.25.