GMR Infrastructure Analyst Meet Update

We attended GMR Infra’s Analyst Meet yesterday. Mr GM Rao address the analysts’ after a gap of about three years, i.e. the first time after the IPO. The key takeaways from the analyst meet are:

• Mr GM Rao gave the gathering a detailed view of the group from the beginning to date, and his idea of building a strong and long-lasting institution which could continually grow.
• He also mentioned that the group has an internal benchmark hurdle rate of at least 16% IRR for all their projects.

• The presentation mainly concentrated on a brief about the various operational and the under-development projects.

1. Airports – Delhi, Hyderabad and Turkey
2. Power – 823MW of operational power projects, 5,610MW of under development thermal power projects, and 1,190MW of under development hydro power projects. These include two hydro power projects (550MW) in Nepal. In addition, GMR Infra has acquired a 800MW under development gas-based power plant in Singapore.
3. GMR Infra’s parent company has acquired a 50% stake in InterGen which operates 8,086MW of power plants in various locations across the globe (UK, Netherlands, Mexico, Philippines and Australia).
4. Roads/Highways – six operational highway projects (three annuity-based and three toll-based), and two recently awarded under development projects.
5. Urban Infrastructure – this vertical mainly centres around developing SEZ’s. The group is developing a SEZ at the Delhi International Airport, two at the property around the Hyderabad Airport, and one near Chennai.

• The last few slides on the presentation detailed the present debt-equity position of the group. The presentation states that the present Networth is Rs84.25 bn, while its debt stands at Rs123.38 bn, indicating a debt-equity ratio of 1.5. It was further highlighted that on a standalone basis GMR Infra has a net cash position of Rs3.23 bn. The debt on the books of the various project SPV’s is Rs126.61 bn.
• To underscore the debt position, the management then highlighted the debt in each of the various project SPV’s and mentioned that the debt is largely on a non-recourse basis to GMR Infra, with the door-to-door tenor varying from 10 years to 17 years.
• Lastly, and in our view most importantly, the management indicated that they would be required to raise equity of Rs60.0 bn in the current fiscal, and another Rs15.0 bn within the next two years. This equity is planned to be raised as under:

It may be recalled that during the FY10Q1 results conference call the management has stated that they would not be raising any equity in the current fiscal and the funding requirement was not immediate (with the exception of small equity infusion required in the recently awarded road / highway projects). We, however, have estimated that the group would need to raise Rs45 bn in equity and another Rs182 bn as debt over the next three years.

Our estimate for the equity requirement is lower as it is based only on the existing projects at hand. We believe that the incremental equity issuance would partly take care of the funding requirements stemming for newer projects.

At current valuations, we do not believe the market factors in the risk associated with multiple projects, and execution issues therefrom. We find it difficult to justify the growth premium accorded by the market to the stock.

P.S.: The shareholder’s have approved a stock split from a face value of Rs2 per share to Rs1 per share. The record date for the stock split is 3rd Oct-09