GVK: In need of fuel

That the Mumbai International Airport Ltd (MIAL), in which GVK Power and Infrastructure (GVK) has a 37 per cent stake, can charge passengers an airport development fee is good news.

The bad news is that fewer people are flying, these days, which is why, in the December 2008 quarter, domestic traffic at the Mumbai airport was 23 per cent lower compared with the same quarter a year earlier. Not surprisingly, that resulted in GVK’s share of the earnings before interest and tax (ebit), from the business falling 38 per cent. With the power business also turning in a lower ebit —down 76 per cent — the Rs 470 crore GVK’s net profit came off by as much as 45 per cent, to Rs 22 crore.

The aviation business may take a while to start looking up given the downturn in the economy. If that happens soon, the revenues from the development fee will help MIAL close the funding gap for developing the airport.

Meanwhile, GVK’s power business, which contributes 62 per cent to revenues, has been struggling because its plants are starved for gas. Of the total capacity of 900 mw, only 216 mw is operational and the company’s hoping gas supplies from the Reliance KG Basin will be available sometime in April this year. Revenues from the power division were down 10 per cent y-o-y during the December 2008 quarter, because the company produced less power and that led to a fall in consolidated revenues of 6 per cent, to Rs 104 crore.

However, with the fuel supply issues likely to be sorted soon, the company’s revenues should get a boost. What’s more, its operating margins should also improve, because the power plants will be fuelled by gas and not naphtha, as at present. That’s because it has an agreement to sell power to the Andhra Pradesh government. The GVK stock has been a big underperformer over the past year, losing 55 per cent to the Sensex’s 48 per cent.