GMR Infra: Concerns about dilution

The stock could remain subdued with the company planning to raise equity.

GMR Infrastructure plans to restructure itself into four companies, running different businesses — power, airports, roads and infrastructure, and international — operating under a parent company. The idea is to list these to raise funds over the next couple of years; the amount being talked about is about Rs 7,500 crore. Of this, Rs 2,700-2800 crore will be needed to fund the equity component of projects in hand, specifically the energy ventures; equity investments for airport projects have pretty much been taken care of. Some equity will also be raised at the parent company-level to maintain a reasonable debt-equity ratio once Intergen, a power generation firm that GMR acquired last year, is consolidated.

The equity at the level of the parent could keep the stock subdued, though it would be possible to create value by listing the other four entities. Analysts are nevertheless concerned about the addition of around $3 billion worth of debt to the company’s balance sheet following the consolidation of Intergen, though the management hopes to repay the debt through dividends.

Analysts are concerned about the rising losses at airports — they believe losses at the Delhi airport could rise by about Rs 120 crore due to the rise in fixed costs on account of the new integrated terminal being commissioned. While passenger traffic should pick up with the economy reviving, the Hyderabad airport is expected to turn profitable only in 2010-11. GMR hopes to tie up finances for power projects with total capacity of 2,500 Mw in the next four or five months.

In the current year, GMR’s revenues are expected to come be Rs 4,500 crore, an increase of around 12 per cent over the Rs 4,019 crore reported last year. However, it’s possible that the net profit may be slightly lower than the Rs 280 crore posted in 2008-09. The GMR stock has outperformed the market between March and now but hasn’t done too much over the past month. Merrill Lynch has a sum-of-the-parts valuation for the stock of Rs 126. The stock currently trades at 140.