You are here: Home » Companies » News
Business Standard

Male Airport uncertainty clouds GMR's prospects

Analysts see there will not be much impact on stock valuations even if the airport development contract is cancelled

Jitendra Kumar Gupta  |  Mumbai 

After dropping to its all-time low of Rs 16.75 last Thursday post the Maldives’ government cancelling the airport contract with GMR Infrastructure, the latter’s share price has recovered 17.3%, including the 5.4% rise seen on Monday. The gains are consequent to the company getting a stay order against the cancellation of the contract from the High court of Singapore. Secondly, post the event, the promoters have also bought shares from the open market. While most analysts believe that there would not be much impact on stock valuations even if the airport development contract is cancelled, they see potential loss in revenues and profits which could mean some pressure on the stock in the interim as it would come at a time when some of GMR’s domestic businesses are under pressure.

GMR has so far has invested about Rs 126 crore in the airport through its 77% subsidiary, GMR Male’ International Airport Private Ltd (23% is held by Malaysia Airports Holding Berhad). This investment is equal to 1.4% of GMR’s consolidated shareholders’ funds of Rs 9,161 crore (as on end-September 2012) and 1.7% of its market capitalisation of Rs 7,648 crore. This explains that even if the investments are required to be written off (worst case scenario) the valuations may not change drastically. Secondly, GMR’s stock is currently trading near historically low levels and analysts believe that most of the negatives are reflecting in the price.

GMR holds various infrastructure assets, including two prestigious Delhi and Hyderabad airports (almost a third of revenues), several road and power projects. In these segments, the company has invested equity capital of about Rs 9,500 crore, which make up for most of its stock valuation. In comparison, the Maldives project is small.

Deepak Purswani, who is tracking the company at ICICI Securities, has valued GMR’s stock at Rs 20 per share. He says, "In terms of valuation, Maldives Airport was contributing Rs 0.6 per share in our valuation. Hence, we are removing that from our valuation now". Consequent to the uncertainty, analysts at Nirmal Bang have also excluded the project in their valuation estimates and accordingly lowered their target price for GMR from Rs 27 to Rs 26.

However, there is one more dimension to the Male airport episode. Analysts were expecting the airport to contribute about 10-12% to the company's consolidated revenues and about Rs 150 crore in annual profits in FY13 and FY14. Including the Male airport, analysts were expecting GMR to report a turnaround (profit of over Rs 350 crore) in FY14. Given that the contract involves building and operating the airport for a period of 25 years (extendable by another 10 years), the company would lose out on future revenues and profits as well, if the contract is terminated.

Nevertheless, the Maldives project cannot be written off today, as the company has taken legal action to protect its interests. On this front, the Singapore court has given a stay order. Recently, Axis Bank has also sent notice to Maldives government for the recovery of its $350 million loan given to GMR Infrastructure. Besides, there is also pressure from India's foreign ministry (as the reports suggest) which could impact the bilateral ties between the two countries (if the matter is not dealt with lawfully).

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Mon, December 03 2012. 18:44 IST