GMR Infra: Flying high

Revenues buoyant, but operating margins are under pressure.

After bagging the contract to build a new international terminal near the Sabiha Gokcen airport in Istanbul, GMR Infrastructure is believed to be in the race to privatise Russia’s third largest airport in St.Petersburg. GMR, which currently operates the Delhi and Hyderabad airports, has already seen revenues kicking in from the operations at Sabiha Gokcen.

That, together with the operations at the Hyderabad airport and an improved performance at its power plants, has driven the smart 86 per cent rise in GMR’s revenues to Rs 886 crore in the June 2008 quarter.

However, initial one-time expenses at Sabiha Gokcen as also licence fees to be paid to the Turkish government for operating at the airport, combined with higher employee costs for the Delhi airport, resulted in a fall in the operating margins by 270 basis points to 27 per cent.

Nevertheless, GMR’s operating profit increased by 72 per cent to Rs 240 crore and net profits were up 52 per cent. However, if forex losses are taken into account, the net profit has fallen by nearly 10 per cent to Rs 42 crore.

GMR’s power plants at Chennai and Mangalore operated at improved plant load factors during the quarter: the power division now accounts for 57 per cent of consolidated revenues. Airports, which bring in about a third of revenues, however posted a net loss thanks mainly to one-times expenses and fixed depreciation and interest costs.

The deposit-rental structure for developing the land at the Delhi airport has been finalised and the process should get under way shortly. The GMR stock had been under pressure pending the finalisation of the structure.

While a slowdown in air traffic in the wake of rising air fares and a weakening economy is likely to keep near term earnings under pressure, GMR’s power business continues to do fairly well and the company is well-placed to cash in on the growing need for infrastructure in the country.

Based on the values of the different businesses, analysts peg the fair value of the stock at Rs 135 which leaves significant upside from current levels of Rs 101.