GVK Power & Infra: Traffic coming in

As projects fructify and economic activity picks up, the company can look to good times ahead.

The company’s announcement regarding the power purchase agreement between its step-down subsidiary, GVK Ratle Hydro Electric Project, and Jammu & Kashmir on June 30 and the news that it will raise around Rs 1,500 crore through issue of convertibles are seen as positives. Operations now seem to fall in place, reckon analysts.

The Jagrapadu-II and Gautami power plants have seen an impressive plant load factor of 90 per cent. Revenue from the road segment rose 10 per cent year-on-year in the June quarter due to growth of 7.3 per cent in traffic. Earnings before interest, depreciation, tax and amortisation (Ebitda) grew 34 per cent to Rs 120 crore in the quarter. However, Ebitda margins were 260 basis points lower on a year-on-year basis.

Maintenance at Jagrupadu-I took its toll. But, rise in traffic at airports helped in offsetting higher interest outflow (up 122 per cent year-on-year). Net earnings (adjusting for shares from associates and minority) also increased by around two per cent year-on-year during the quarter.

The traffic levels have grown around 18.2 per cent for international traffic and 12.2 per cent for domestic travellers in FY10. This has been a strong driver of earnings. Expect Ebitda margins to indicate a positive trend, if the traffic numbers are sustained in the coming months, reckon analysts. The Street will watch out for some regulatory developments before a strong re-rating of the stock. One of these is the clarity on recovery of cost over runs caused by gas unavailability in Andhra Pradesh.

There is some visibility on fund raising from the land monetisation at Mumbai. The development of 1.04 msf planned at the Mumbai Airport is in its initial phase and will have a huge bearing, as the company has more expansion plans that need funds.