GVK Power and Infrastructure
Set to take off
While availability of gas supply will boost its power business in the short-term, long-term prospects of its airports and other infrastructure business remain exciting
| Buy | GVK Power & Infrastructure |
| BSE Code | 532708 |
| NSE Code | GVKPIL |
| Bloomberg | GVKP@IN |
| Reuter | GVKP.BO |
| 52-week High/Low | Rs 94 / Rs 33 |
| Current Price | Rs 53 (as on 14th May 2008) |
GVK Power & Infrastructure (GVK) is a holding company of its infrastructure business. The company has interest in various types of Power Generation viz., Gas, Hydel and Thermal, Roads & Expressways, Airports, Aviation, Ports, SEZ, etc. The company is a listed entity which operates in the above said sectors through its Subsidiary / Associate Companies.
GVK’s portfolio of assets includes the Mumbai International Airport, a toll road, six power plants, one coal mine and one Special Economic Zone. With an increasing proportion of India's infrastructure capex now happening via the Public/Private Sector Participation route, the opportunity landscape for the infrastructure developers is expanding. GVKPIL looks well placed to capitalize on this opportunity.
GVKPIL presently owns 53.96% stake in GVK Industries, which operates the 216 MW gas based Jegurupaddu CCPP I in AP and 220 MW Jegurupaddu CCPP II which is ready for commercial operations. It also owns 51% in Gautami Power, which is setting up a 464 MW CCPP Plant, which is also ready for commissioning. The commencement of operation of 220 MW Jegurupadu CCPP and 464 MW Gautami Power Project was delayed due to non availability of gas. The road business of the company consists of Jaipur–Kishangarh BOT road project, part of Goldel Quadrilateral of NHAI. The company in consortium with Airports Company of South Africa and Bidvest has been mandated to modernize Chhatrapati Shivaji International Airport at Mumbai. The company holds 74% stake in the SPV formed for this purpose.
Availability of Natural Gas is a major booster
The most critical input required by its power generation plants to generate electricity is fuel (Natural Gas). Reliance Industries is expected to start the supply of KG Basin gas during the second half of calendar year 2008 which will be initially of 40 mmscmd of gas which can be increased to 80 mmscmd at peak level (thus doubling the gas production in India from around 80 mmscmd in FY 2008 to around 160 mmscmd by FY 2010), within one year from the date of commercial production.
Among listed companies GVK Power and Infrastructure should benefit once the gas is made available to them. The availability of the natural gas had been a matter of concern for GVK in the past. GVK’s Jegurupadu 1 power plant of 217 MW is operating at 70% PLF factor instead of 95% because of un-availability of gas. Presently the company is getting gas to the extent of 0.65 mcm (million cubic meter) instead of the total requirement of 1.1 mcm for the power plant. Further Jegurupadu 2 power plant with 220 MW is ready for commissioning and Gautami Power plant (wherein the company holds 51% stake) of 464 MW is expected to commission by early June 2008. Howerver all these plants are awaiting for gas (combined requirement of gas for all the three plants stands 4.16mcm) as without which they cannot operate and the company cannot recover even its fixed cost of the investments made in these power plants. However, the company is optimistic about the supply of gas from KG Basin. Andhra Pradesh Government is also trying very hard to get the gas from KG Basin (which is in Andhra Pradesh) for its State electricity and other requirements. The GVK plants at efficient PLF level can generate 14% Post Tax return on investments on all these power plants which comes to around Rs 3600 crore (the company has around 50% share in it).
Mumbai Airport is a jewel in the crown
The top 7 airports in India handle more than 75% of passenger and freight traffic. Of these, Mumbai is the busiest, handling ~25% of India’s air passenger traffic. Mumbai is the commercial capital of India and serves as an important destination and transit point for both domestic and international passengers and freight traffic.
In January 2006, a consortium led by GVK was awarded the mandate to modernize the Mumbai Airport. Mumbai International Airport Pvt. Ltd. (MIAL), a joint venture company owned by the GVK-led consortium (74%) and Airports Authority of India (26%) was formed in March 2006 to manage and develop the airport.
MIAL is structured on the build–own–operate (BOO) basis with an initial concession term of 30 years with an option of an extension of 30 years at the option of MIAL.
GVK holds 37% in the Mumbai Airport. The airport is now being upgraded to handle 40mn passengers and 1mn tonnes of cargo.
At present, the Mumbai Airport caters to 25mn passengers and handles around 520,000 tonnes of cargo annually. The master plan has been designed to expand and upgrade the infrastructure at CSIA to cater to traffic of 40mn passengers per year and 1mn metric tonnes of cargo per year.
While the aero revenues of the airport are regulated by a price cap formula, Non-aero revenues comprising duty free, advertising and retail revenues are value drivers for the airport. The biggest contributor to the value of the airport is the proposed nearby real estate development of 20mn sqft, which is allowed as a part of the concession.
Navi-Mumbai Airport is another huge potential opportunity
The proposed greenfield airport at Navi Mumbai would come up by 2012 and have a capacity to handle nearly 55mn passengers annually. It is proposed to be developed with 74% equity participation by the private sector. The Airports Authority of India, the Government of Maharashtra and CIDCO will hold the remainder.
The central government has already given its in-principle approval to the project, which is expected to ease overcrowding at the existing Mumbai Airport.
GVK has a right of first refusal over the proposed Navi Mumbai Airport. GVK has the right to match the highest bidder, provided it bids within a 10% range of the highest bid. Winning the Navi Mumbai Airport would be vital for GVK since it would remove any threat of competition for the Mumbai traffic.
Non-aeronautical activities of the airport will generate further revenues
The Airports Authority of India which managed the Mumbai International Airport earlier did not focus on developing the non-aeronautical activities of the airport. Once the handover of the airport to MIAL was completed, MIAL has explored various means to increase the non-aeronautical revenues of the airport. These are:
Duty-free revenues: MIAL had earlier awarded a concession to a consortium of ITDC and Aldeasa, Spain, for setting up retail duty free outlets at the Mumbai Airport, with a minimum guarantee of Rs 549 crore in concession fees. However, the concession agreement was mutually terminated by both parties and MIAL has subsequently, in November 2007, awarded the duty free concession to DFS Ventures Singapore (Pte) Ltd., with a minimum guaranteed concession fee of Rs 260 crore over the three-year term of the concession.
Advertising revenues: MIAL awarded the contract for advertisement rights at the airport to Times Innovative Media (P) Ltd (TIMPL) in March 2007. Times Innovative Media will design, develop and maintain all advertisement locations inside the terminals and in the outdoor premises of CSIA for the next three years. The contract, which covers static advertising sites, aerobridges, baggage trolleys, plasma and LCD screens, is expected to generate Rs 240 crore for MIAL.
Opportunities by way of real estate projects on Mumbai Airport land is mindblogging
The Mumbai International Airport is located on land measuring 1,976 acres, of which land to the extent of 10%, i.e. 197 acres, can be utilized for commercial development. MIAL plans to build 20mn square feet of commercial property on these 197 acres. The land has been given on a long-term lease of 30 years extendable by another 30 years contiguous to the concession agreement for the airport.
About 276 acres of land out of the total 1,976 acres of Mumbai Airport land is encroached by slums. This poses a significant obstacle to the upgrading of the airport as well as blocks of prime real estate. MIAL has recently awarded the slum rehabilitation contract to HDIL. This contract would entail no cash outflow for MIAL.
MIAL has around 100 acres of land under its control that it can use immediately for commercial development. Further, it has around 52 acres of land which is leased out that can be brought under development. So to develop the 197 acres of land, MIAL only needs ~45.6 acres of land to be freed from slums out of a total of 65 acres that it will get post rehabilitation.
Setting up another thermal power plant costing Rs 12,000-14,000 crore
GVK, which is setting up a 660 Mw thermal power project at Goindwal Sahib, Amritsar, at a project cost of about Rs 3,000 crore, has also plans to set up a thermal power plant at Talwandi Sabo (1,800 Mw) and another coal-based thermal power plant near Rajpura (1,200 Mw). These projects are likely to attract an investment of Rs 12,000-14,000 crore.
Good consolidated FY 2008
For the fiscal ended Mar ’08, the consolidated net revenue of GVKPIL increased 18% to Rs 469.99 crore. Revenue of power segment stood at Rs 320.49 crore, a rise of 17% and account for 69% of total sales. The revenue from roads was higher by 18% to Rs 136.86 crore (or 29% of sales) and that of others which includes the revenue from airports, investments and SEZ stood at Rs 12.63 crore (or 2% of total sales).
Operating profit stood declined by 7% to Rs 186.10 crore as the segment margin of power business shrunk by whopping 900 basis points to 11.2% (due to gas supply cosntraints)
Other income was higher by 152% to Rs 62.16 crore and PBIDT was higher by 10% to Rs 248.26 crore. The interest cost was lower by 34% to Rs 41.37 crore and similarly the depreciation was lower by 4% to Rs 77.57 crore. EO income was Rs 58 lakh compared to Rs 40 lakh in the corresponding previous period. Thus the PBT after EO was higher by 57% to Rs 128.74 crore. The taxation was higher by 4% to Rs 23.85 crore thus leaving the PAT before minority interest and share on P/L from associates at Rs 104.89 crore, a rise of 84%. Share of profits from associates was higher by 21% to Rs 40.67 crore and minority interest was lower by 69% to Rs 10.09 crore. Finally the net profit was higher by 134% to Rs 135.47 crore.
Increasing stake in subsidaries
GVKPIL has increased its stake in the following subsidiaries thus making all of them as its wholly owned subsidiaries effective Feb 1, ’08. They are - 1.Alaknanda Hydro Power Company - Previous Holding: 99.97% - Current Holding: 100% 2. Name of the Subsidiary: GVK Power (Goindwal Sahib) - Previous Holding: 98.60% - Current Holding: 100% 3. Name of the Subsidiary: GVK Coal (Tokisud) Company - Previous Holding: 99.00% - Current Holding: 100% 4. Name of the Subsidiary: GVK Airport Developers - Previous Holding: 99.00% - Current Holding: 100% 5. Name of the Subsidiary: Goriganga Hydro Power - Previous Holding: 99.00% - Current Holding: 100% 6. Name of the Subsidiary: GVK Aviation - Previous Holding: 99.50% - Current Holding: 100% 7. Name of the Subsidiary: GVK Infratech - Previous Holding: 99.00% Current Holding: 100%.
The company has incorporated GVK Energy effective Feb 18, ’08. The name of the company was subsequently changed into GVK Oil & Gas.
Valuation
In FY 2009 we expect the company to register sales and net profit of Rs 950.65 crore and Rs 221.20 crore respectively. On equity of Rs 140.58 crore and face value of Re 1 per share, EPS works out to Rs 1.6. The share price trades at Rs 53. P/E works out to 33.
| | 0703 (12) | 0803 (12) | 0903 (12P) |
| Sales | 398.60 | 469.99 | 950.65 |
| OPM (%) | 50.4 | 39.6 | 30.0 |
| OP | 201.06 | 186.10 | 285.20 |
| Other inc. | 24.68 | 62.16 | 84.45 |
| PBIDT | 225.74 | 248.26 | 369.65 |
| Interest | 62.70 | 41.37 | 49.95 |
| PBDT | 163.04 | 206.89 | 319.70 |
| Dep. | 80.55 | 77.57 | 100.00 |
| PBT before EO | 82.49 | 129.32 | 219.70 |
| EO | 0.40 | 0.58 | 0.00 |
| PBT After EO | 82.09 | 128.74 | 219.70 |
| Tax | 24.96 | 23.85 | 39.55 |
| PAT | 57.13 | 104.89 | 180.15 |
| Share of profit from Assoc. | 33.64 | 40.67 | 51.15 |
| Minority Interest | 32.76 | 10.09 | 10.1 |
| Net Profit | 58.01 | 135.47 | 221.20 |
| EPS (Rs)* | 0.4 | 1.0 | 1.6 |
| * Annualised on current equity of Rs 140.58 crore. | |||
| GVK Power & Infrastructure: Segment results |
| Segment Revenue | 0803 (12) | 0703 (12) | Var. (%) | % to total |
| Power | 320.49 | 273.83 | 17 | 69 |
| Roads | 136.86 | 115.8 | 18 | 29 |
| Others | 12.63 | 9.04 | 40 | 2 |
| Total | 469.98 | 398.67 | 18 | 100 |
| Add: Unallocable sales | 0 | 0 | | |
| Net sales | 469.98 | 398.67 | | |
| PBIT | | | | |
| Power | 35.88 | 55.26 | -35 | 43 |
| Roads | 82.42 | 67.49 | 22 | 53 |
| Others | 10.3 | 4.75 | 117 | 4 |
| Total | 128.6 | 127.5 | | 100 |
| Less: Interest | 29.6 | 59.35 | | |
| Add: unallocable income (net) | 29.75 | 13.96 | | |
| PBT | 128.75 | 82.11 | | |
| Capital Employed | | | | |
| Power | 1827.15 | 1450.23 | 26 | 185 |
| Roads | 570.25 | 604.39 | -6 | 77 |
| Others | 157.75 | 5.34 | 2854 | 0.68 |
| Unallocable | -192.7 | -1276.84 | -85 | -163 |
| Total CE | 2362.45 | 783.12 | 202 | 100 |
| Figures in Rs crore | ||||
BigGains !!
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