GMR Infrastructure's Q2FY20 results (Outperformer) - Stake sale in Airport holding company in final stage
Q2FY20 result highlights
- GMR Infrastructure (GMR) revenues grew by 4% yoy to Rs15.3bn led by increase in rental (post Bharti Realty deal for Delhi Airport) and increase in base airport charges at Delhi pursuant to AERA order (for base airport and baggage X- ray charges) offset by muted passenger growth at Delhi and Hyderabad Airport. Airport revenues were up by 14% in Q2FY20 led by 8% yoy growth in non - aero and 138% yoy growth in rental revenues. EBITDA for airport business was Rs5.6bn, +16% yoy
- Warora and Kamalanga PLF for Q2FY20 was 68% (vs 55% in Q2FY19) and 50% (vs 69% in Q2FY19). As a result, power assets reported EBITDA of Rs2.8bn (Vs Rs3.1bn in Q2FY19). Note that there was restructuring of debt at Rajahmundry in Q1FY20 and divestment of GMR Chhattisgarh to Adani Power in Q2FY20 (no longer consolidated).
- Consolidated EBITDA was Rs6.4bn, +20% up yoy. As a result, GMR Infrastructure’s (GMR) Q2FY20 adjusted net loss came in at Rs4.0bn (vs loss of Rs3.7bn in Q2FY19) led by higher interest cost (due to rise in corporate debt)
- GMR had entered into agreement to sell 44% stake in airport business to Tata Sons, GIC and SSG at an EV of Rs225bn (Rs180bn base EV + Rs45bn earn outs). We understand that the inter-se shareholding between the investors will undergo change as Tata Sons effective stake in DIAL cannot be more than 10%. Net debt will halve after completion of deal.
- Post the investment by strategic investor, GMR is likely to restructure the business into two separate verticals a) airport business b) Power and urban infrastructure business
Key positives: Likely approval of stake sale in Airport holding company
Key negatives: High corporate debt of Rs47.1bn (ex-FCCBs of Rs20bn).
Impact on financials: Maintain our estimates for FY20E/FY21E
Valuations & view
GMR’s has entered into an agreement to sell 44% stake in airport business and a large part of proceeds utilise the money to repay corporate debt. Airport business is witnessing sustained business momentum with DIAL monetising a 5 mn sqft with Bharti Realty with an option to monetise further 5mn sqft at attractive valuation. GMR is looking to demerge its airport business which will create value for shareholders. Maintain Outperformer with a TP of Rs23
GMR Infrastructure is engaged in infrastructure management with interests in airports, energy, highways and urban infrastructure sectors. Co. operates India's busiest airport, the Indira Gandhi International Airport in New Delhi, where it has built a brand new integrated terminal T3. Co. has 15 power generation assets of which eight are operational and seven are under various stages of development. Co.'s highway business has eight road assets with seven operational highways. Four projects are on annuity model and four are toll based, with one project under development. In addition to property development and construction, Co. promotes a cricket team, the Delhi Daredevils.
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