GMR Infrastructure Ltd

The long term story remains intact

All those familiar with this website, would know that this has been one of the stocks which we have been recommending steadfastedly. The stock price has come down, keeping in tandem with the stock indices, which have also slipped down considerably. Yet despite the fall in the stock price and the current Q1 results, which have not exactly been trailblazing, we stand by our recommendation. This is a stock, which should not be viewed on a QoQ basis, GMR Infra is more of a long term stock and its real value would get recognized only on a long term basis.

For the first quarter ended 30th June 2008, the consolidated performance of the company has been good when one looks at the improvement in the sales but the forex losses, higher fuel charges, depreciation and interest outgo, plus the not-so-good performance of some of its subsidiaries have dented the profit margins. YoY, net sales was up 86% at Rs.885.47 crore. Operating expenses rose by a whopping 91% and of this, over 59% constituted of the fuel cost. EBITDA was up 55% at Rs.244.92 crore.

The interest outgo rose from Rs.37.53 crore to Rs.68.91 crore. Depreciation was up from Rs.40.64 crore to Rs.80.16 crore. This higher interest and depreciation outgo is on account of the starting of its Hyderabad airport.

Profit before tax and exceptional item was at Rs.96.57 crore as against Rs.79.58 crore in Q1FY08, a rise of 21%. Its subsidiaries, Vemagiri Power Generation Ltd (VPGL) and GMR Hyderabad International Airport Ltd (GHAIL) together have accounted for a notional foreign exchange translation loss of Rs.45.59 crore as against an exchange gain of Rs.9.33 crore in previous quarter. This loss/gain is with reference to their project loans. However, both these subsidiaries have adequate foreign currency revenues to provide hedge against any currency fluctuation risks that may arise as and when the interest payments and principal repayments of these loans are made. Also, GHIAL has not been able to levy the User Development Fee (UDF) on overseas passengers for three weeks in April 2008 and on domestic passengers for the entire current quarter, pending approval from the Government of India.

After maintaining its tax at almost the same levels, the PAT was down 9.72% at Rs.41.90 crore.

These consolidated results include the accounts of GMR Infrastructure Ltd, its subsidiaries, joint ventures and associates. The overseas joint venture entity, being ´Istanbul Sabiha Gocken Uluslarasi Havalimani Yatirim Yapum Ve Isletme Sirketi (SGIA)´ has been accounted as per Accounting Standard 27 on Financial Reporting of Interests in Joint Venture based on 40% shareholding.

VPGL has now suspended its power generation activities due to non-availability of natural gas and it has also incurred an operating loss of Rs.27.52 crore in current Q1. This too has dented GMR’s margins.

Following the expiry of the seven year Power Purchase Agreement, GMR Energy Ltd´s 220 MW plant at Tanir Bavi near Mangalore in Karnataka ceased to operate. Work has been undertaken to relocate the plant to KG Basin, near Kakinada in Andhra Pradesh to operate it as merchant plant after changes to run the plant with natural gas as fuel. This will take some time to generate income and by next fiscal, this unit too should be able to contribute to the margins.

Also through its step-down subsidiary, GMR Energy Global, has entered into necessary arrangements to acquire 50% equity stake in a Dutch company - InterGen NV by means of compulsory convertible debentures. It has also given a corporate guarantee up to a maximum of US$1.3 billion to the mandated lead arrangers on behalf of a fellow subsidiary to enable it to raise debt for financing the aforesaid acquisition.

This blip in the performance is just that, just a blip. GMR Infra is a great infrastructure story - its presence in the airport, in the road project, in the power generation, SEZ, property development all still makes it a great stock. Things will only get better once its realty development begins at Delhi and Hyderabad. The stock price is just a reflection of all the infrastructure and realty stocks listed on the bourses.
One must take a long term call in GMR Infra because all these infrastructure projects would start giving profits in one year’s time. There is no point in taking a day to day call. Keep some patience and the returns would come, stay invested.
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