GMR Infrastructure's Q2FY19 results (Outperformer) - Improved visibility in airports business

Q2FY19 result highlights

• GMR Infrastructure (GMR) reported a largely in line performance in Q2FY19 with robust airports segment performance making up for lower than expected energy segment performance. Q2FY19 net loss came in at Rs2.6bn, lower than our estimate of net loss of Rs2.9bn. 
• Consolidated net revenue (net of revenue share) remained flat yoy at Rs14.7bn and was above estimate of Rs12.9bn. EBITDA grew 20.3%yoy to Rs5.3bn, above estimate of Rs4.2bn, led mainly strong performance in DIAL. EBITDA margin grew 600bp yoy to 36.3% (est: 32.8%). Other income grew 12.5%yoy to Rs1.2bn and interest costs grew 14.5%yoy to Rs6.8bn due to higher interest costs in the airports and energy segment. Net debt (ex-FCCBs) grew Rs3.2bn qoq to Rs154bn (8.3x TTM EBITDA) as on Sept-18.
• Passenger traffic at airports remained strong and grew 11.6%yoy in DIAL, 21.8%yoy in GHIAL and 14.8%yoy in Cebu. PLF at Kamalanga grew yoy from 59% to 69% but dropped sharply from 83% in Q1FY19 due to lower coal supply. Warora PLF too dropped yoy from 65.1% to 54.6% due to coal shortage.
• PT GEMS reported a PAT of Rs1.3bn (100% basis, Rs1.4bn in Q2FY18), with profitability impacted by increase in stripping ratio and higher fuel costs. Sales volume grew 51%yoy to 4.8mt with realizations remaining flat at USD43/MT.  

Key positives: Strong performance in the airports business.

Key negatives: High corporate debt of ~Rs40bn (ex-FCCBs of Rs20bn).

Impact on financials: Increase in FY19E/20E net loss to Rs13.7bn/14.2bn from Rs10.9bn/Rs11.3bn due to increase in interest costs towards debt/NCDs assumed for settlement with the PE investors in airports.

Valuations & view

GMR’s Airport business continues to witness significant strength and TDSAT order granting DIAL return on RSD is an added positive. Further AERA has granted Base Airport Charges (Original BAC + 10%) for DIAL, which establishes DIAL’s long term economic viability. GMR’s settlement with PE investors in GMR Airports paves way for a value unlocking in the airports business besides potentially reducing the corporate debt levels. The twin operating plants of Warora and Kamalanga have operationally turned around led by tariff hikes and improved fuel supplies. The stock trades at 2.8x FY19E P/B. Maintain Outperformer with a TP of Rs25.