idirect_gvkpower_q4fy13

7/29/2019 IDirect_GVKPower_Q4FY13

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May 17, 2013

ICICI Securities Ltd|Retail Equity Research

Result Update

WHATS CHANGED

PRICE TARGET ........................................................................... Changed from | 17 to | 10

EPS (FY14E) ............................................................................. Changed from | 0.5 to | 0.1

EPS (FY14E) ............................................................................................ Introduced at | 1.6

RATING....................................................................................... Changed from Buy to Hold

Near term concerns heightenGVKs Q4FY13 losses were higher on account of revenue reversal ofpower plants of | 236.9 crore (| 165.8 crore for earlier quarters), whichthe company had started recognising at full capacity charges in earlierquarters on the basis of availability of alternative fuels. However, theairport segment reported healthy topline growth led by sequential toplinegrowth of 35.9% to | 472 crore at MIAL on the back of tariff revision by154%. Furthermore, GVKs Hancock project faced another roadblock asmedia reports indicated the Australian Government may review theenvironmental clearances given to the pit-to-port project being developedby the GVK Group.Power sector drags down bottomlineGVK reported a loss of | 171 crore in Q4FY13 crore (vs. our estimate of aloss of | 27.2 crore on account of a reversal of power revenuesrecognised in earlier quarters & interest airport acquisition debt (| 118crore out of total interest of | 165 crore) continued to eat away PAT.Revenues for Q4FY13 were at | 500.1 crore (I-direct estimate: | 675.4crore), impacted mainly by revenue reversal of power plants of | 236.9crore (| 165.8 crore for earlier quarters), at which GVK had startedrecognising full capacity charges in earlier quarters on the basis ofavailability of alternative fuels. Consequently, it reported operating losses.

Funding at MIAL remains key concernAccording to GVK, it is still awaiting real estate approval for MIAL as afinal leg of approval is pending. It indicated it is looking to sell 2 mn sqfeet real estate in MIAL in the first, which we believe will be key supportfor funding of the project. MIAL reported a sequential topline growth of35.9% to | 472 crore on the back of tariff revision at MIAL by 154%,However, we believe the delay in monetisation of MIAL real estate wouldbe detrimental to GVK as it would mean a huge funding gap at MIAL.

Funding gap; gas unavailability weigh on valuationsWhile valuations at 0.6x P/BV are attractive, the company faces a fundinggap at MIAL and transportation verticals, which could weigh onvaluations. In our view, the anticipated stake sale in the airport & roaddivision is the need of the hour on concerns over funding gap acrossairport & transportation verticals. We assign a HOLD recommendation andawait further development at MIAL real estate monetisation and Hancock.

Exhibit 1:Financial Performance(| Crore) Q4FY13 Q4FY13E Q4FY12 Q3FY13 QoQ (Chg %) YoY (Chg %)

Net Sales 500.1 675.4 657.6 648.7 -22.9 -24.0

EBITDA -22.9 272.4 189.8 235.9 -109.7 -112.1

EBITDA Margin (%) -4.6 40.3 28.9 36.4 -4094 bps -3345 bps

Depreciation 91.1 88.4 77.7 89.0 2.4 17.3

Interest 165.1 186.5 168.6 186.5 -11.5 -2.1

Other Income 35.0 32.0 35.0 31.9 9.8 0.1

Reported PAT -171.0 -27.2 -20.9 -57.0 NM NM

EPS (|) -1.1 -0.2 -0.1 -0.4 NM NM Source: Company, ICICIdirect.com Research

GVK Power (GVKPOW)

| 9.25

ting matrix

ing : Hold

get : | 10

get Period : 12-15 months

ential Upside : 8%

y Financials

Crore FY12 FY13 FY14E FY15E

et Sales 2,492 2,607.7 4,182.9 6,740.5

BITDA 694.1 645.1 1,968.0 2,813.2

et Profit 61.5 (336.0) 9.8 248.5

PS (|) 0.4 (2.1) 0.1 1.6

luation summary

FY12 FY13 FY14E FY15E

/E 30.7 - 193.0 7.6

arget P/E 25.3 (4.6) - 6.3

V / EBITDA 20.8 26.2 8.6 6.5

/BV 0.5 0.6 0.6 0.6

oNW 1.8 (10.7) 0.3 7.3

oCE 2.1 1.2 5.6 7.7

ock data

rket Capitalisation | 1,461 crore

bt | 17,085 crore

sh | 2,081 crore

| 16,465 crore

week H/L (|) 17/9

uity capital | 157.9 crore

ce value | 1

Holding (%) 3.6

Holding (%) 17.0

ce movement

0

5

10

15

20

25

30

May-13Feb-13Nov-12Aug-12May-12

3,100

3,875

4,650

5,425

6,200

Price (R.H.S) Nifty (L.H.S)

alysts name

eepak Purswani, CFA

[email protected]

hupendra Tiwary

[email protected]


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ICICI Securities Ltd|Retail Equity Research Page 2

Segmental performance

Power division Another dismal show The power segment performance continued to remain dismal on

account of restricted gas supply. While GAILs partial gas supply for JP I

ensured a decent enough PLF of 50% (still lower than 55% in Q3FY13),the PLF at JP II and Gautami were dismally low at 4% and 8%,respectively, in FY13 as supply from the KG Basin has completelystopped in Q4FY13

Apart from low PLF, the pain in the power sector was also accentuatedmainly by revenue reversal of a power plant, in which the company hadstarted recognising full capacity charges in earlier quarters on the basisof availability of alternative fuels. The AP Transco has refuted the same.Consequently, GVK has, meanwhile, deferred recognition of revenuesand recognised disincentives aggregating to | 236.9 crore (| 165.8 crorefor earlier quarters). The company has decided to contest it stating thatsuch a deduction is against the agreement as it has declared the plantavailable on alternative fuels such as high speed diesel

The Alaknanda Power Project is on track and commissioning of all fourunits is expected to be operational in H2FY14. The project haswitnessed a cost escalation and the revised cost now stands at | 4192crore. The company remains in the process of tying up debt for theincremental cost. Commissioning of the first unit of Goindwal SahibProject is expected by Q2FY14 and the second unit by Q3FY14

Road division acquisition debt continues to impact bottomline In the road division, revenues grew 11.8% YoY to | 65.7 crore in

Q4FY13. The EBITDA margin came at 70.8%. The PAT continued toremain lower at | 15.9 crore due to additional interest on debt raised by

securitisation of JKEL revenues to partly fund the additional stake buyin MIAL

Exhibit 2:Road division performance| crore Q4FY13 Q4FY12 Q3FY13 QoQ (Chg %) YoY (Chg %)

Revenue 65.7 58.8 64.2 2.3 11.8

EBITDA 46.6 40.7 46.1 0.9 14.3

Margin (%) 70.8% 69.3% 71.8%

PAT 15.9 10.5 7.9 100.1 50.9

Margin (%) 24.2% 17.9% 12.4% Source: Company, ICICIdirect.com Research

Airport division MIAL tariff hike boosts performance The passenger traffic continued to remain muted as traffic increased at

MIAL by 2% YoY and declined at BIAL by 0.4% YoY in Q4FY13. ForFY13, traffic at both MIAL and BIAL declined 2% YoY & 5.7% YoY,respectively, given the subdued global and Indian economic growth

MIAL reported a sequential topline growth of 35.9% to | 472 crore onthe back of tariff revision at MIAL by 151.6% while BIAL reported amuted 1.3% sequential rise in topline to | 155 crore. The company alsowrote off | 17.5 crore of dues of Kingfisher Airlines at BIAL and | 2.5crore at MIAL during Q4FY13. The company also paid | 40.7 crore asnon-agricultural tax for MIAL

Consequently, the bottomline at MIAL grew at 33.5% QoQ despitesuperior topline growth. The bottomline at BIAL grew 173.4%sequentially to | 58.8 crore in Q4FY13

PLF at JP II and Gautami were dismally low at 4% and 8%,

respectively, in FY13 as supply from the KG Basin has

completely stopped in Q4FY13

In the road division, revenues grew 11.8 % YoY to | 65.7

crore in Q4FY13


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Exhibit 3:MIALs performance| crore Q4FY13 Q4FY12 Q3FY13 QoQ (Chg %) YoY (Chg %)

Revenue 472.0 321.6 347.4 35.9 46.8

EBITDA 122.5 103.1 114.5 7.0 18.8

Margin (%) 26.0 32.1 33.0

PAT 55.7 32.9 41.7 33.5 69.2

Margin (%) 11.8 10.2 12.0 Source: Company, ICICIdirect.com Research

Exhibit 4:BIALs performance| crore Q4FY13 Q4FY12 Q3FY13 QoQ (Chg %) YoY (Chg %)

Revenue 155.0 151.8 153.1 1.3 2.1

EBITDA 78.0 107.5 79.1 -1.4 -27.5

Margin (%) 50.3 70.8 51.7

Adj. PAT 58.8 33.2 21.5 173.4 77.0

Margin (%) 37.9 21.9 14.0 Source: Company, ICICIdirect.com Research

Exhibit 5:Operational highlights of airport divisionQ4FY13 Q4FY12 Q3FY13 QoQ (Chg %) YoY (Chg %) Q4FY13 Q4FY12 Q3FY13 QoQ (Chg %) YoY (Chg %)

Aircraft Movements per Day 299 315 300 -0.3 -5.1 670 686 674 -0.5 -2.3

Passenger Movements (Mn) 3.1 3.1 3.0 0.4 -0.6 8.0 7.8 7.8 1.6 2.0

BIAL MIAL

Source: Company, ICICIdirect.com Research

Exhibit 6:Key AssumptionsFY13 FY14E FY15E

Roads - Traffic growth (%)JKEL 3.8 5.0 5.0

Power - PLF (%)

JP I 60 60 60

JP II 34 5 50

Gautami 27 5 50

Airports - Passenger growth (%)

MIAL -2.0 9.3 7.4

BIAL -5.7 9.6 7.6


Passenger traffic continued to remain muted as traffic

increased at MIAL by 2% YoY and declined at BIAL by 0.4%

YoY in Q4FY13


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Valuation

We have now incorporated the tariff hike of MIAL in our estimates andalso built in minimal PLF at JPII and Gautami on account of gasunavailability.

While valuations at 0.6x FY14 P/BV are attractive, the company faces afunding gap at MIAL and transportation verticals, which could weigh onvaluations. In our view, the anticipated stake sale in the airport & roaddivision is the need of the hour on concerns over funding gap acrossairport & transportation verticals. We assign a HOLD recommendation andawait further development at MIAL real estate monetisation and Hancockmines.

Exhibit 7:SOTP valuation

Basis CoE

Equity Value

(| crore) GVK's stake (%)

Stake Value (|

crore) Per share (|)

Power 1422 897.1 6

GVK Industries FCFE 13.0 -77 75.0 -57.5 0

Gautami FCFE 13.0 621 47.8 296.7 2

Goindwal Sahib FCFE 14.0 510 75.0 382.7 2

Alaknanda FCFE 14.0 367 75.0 275.2 2

Transport -188 -188.5 -1

JKEL FCFE 12.0 626 100.0 626.2 4

Deoli Kota FCFE 14.0 9 100.0 8.7 0

Shivpuri Dewas FCFE 14.0 -823 100.0 -823.3 -5

Airport 8698 4249.2 27

MIAL-Airport FCFE 14.0 450 50.5 227.4 1

MIAL-Real Estate NAV 15.0 6335 50.5 3199.0 20

BIAL-Airport FCFE 14.0 1914 43.0 822.8 5

Total 9932 4957.8 31

Less: Net Debt 3400.1 22

Target 1557.7 10 Source: Company, ICICIdirect.com Research

We recommend HOLD on the stock with an SOTP basedprice target of | 10


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Financial summary

Profit and loss statement

(| Crore) FY12 FY13 FY14E FY15E

Net Sales 2,491.8 2,607.7 4,182.9 6,740.5

Growth (%) 30.1 4.6 60.4 61.1

Total Operating Expenditure 1,797.8 1,962.6 2,214.9 3,927.2

EBITDA 694.1 645.1 1,968.0 2,813.2

Growth (%) 35.0 -7.1 205.1 42.9

Interest 467.3 707.9 1,159.9 1,704.1

Depreciation 248.9 351.2 584.3 915.8

Other Income 88.9 136.1 75.4 176.9

PBT 66.7 -277.9 299.2 370.2

Total Tax 67.8 128.7 241.3 110.1

PAT before MI -1.1 -406.6 57.9 260.1

Minority Interest 43.9 -19.7 78.8 41.4

Profit from Associates 106.4 50.9 30.7 29.7

Less: Prior Period Items 0.0 0.0 0.0 0.0

PAT 61.5 -336.0 9.8 248.5

Growth (%) -60.3 LP PL 2,440.6EPS 0.4 -2.1 0.1 1.6


Cash flow statement


Profit after Tax 61.5 -336.0 9.8 248.5

Depreciation 248.9 351.2 584.3 915.8

Cash Flow before WC changes 310.4 15.2 594.1 1,164.3

Net Increase in Current Assets -1,313.1 -183.4 -1,435.1 -229.2

Net Increase in Current Liabilities 1,175.6 2,275.0 1,779.5 -31.1

Net cash flow from op. activities 172.9 2,106.8 938.6 903.9

(Purchase)/Sale of Investment 369.7 -122.5 0.0 0.0

(Purchase)/Sale of Fixed Assets -9,159.4 -4,682.0 -1,072.4 -2,364.4

Net Cash flow from Investing Activities -7,517.0 -4,579.5 -993.7 -2,323.0

Inc / (Dec) in Equity Capital 0.0 0.0 0.0 0.0

Inc / (Dec) in Secured loan 7,745.3 2,827.8 1,272.0 -623.7

Inc / (Dec) in Unsecured loans 963.7 0.0 0.0 0.0

Net Cash f low from Financing Activities 8,742.2 2,827.7 1,272.0 -623.7

Net Cash flow 1,398.1 354.9 1,216.9 -2,042.8

Opening Cash/Cash Equivalent 328.2 1,726.3 2,081.2 3,298.1Closing Cash/ Cash Equivalent 1,726.3 2,081.2 3,298.1 1,255.2


Balance Sheet


Liabilities

Equity Capital 157.9 157.9 157.9 157.9

Reserve and Surplus 3,323.4 2,987.4 2,997.2 3,245.6

Total Debt 14,257.4 17,085.2 18,357.2 17,733.5

Deferred Tax Liability 300.8 330.7 330.7 330.7

Minority Interest 3,116.8 3,318.8 3,397.6 3,439.0Deferred Income 164.3 157.3 157.3 157.3

Sources of Funds 21,320.6 24,037.3 25,397.9 25,064.0

Assets

Total Gross Block 6,405.0 7,905.0 17,353.8 24,100.5

Less Accumulated Depreciati 1,462.1 1,813.3 2,397.6 3,313.4

Net Block 4,942.9 6,091.7 14,956.2 20,787.1

Capital WIP 9,632.3 12,814.3 4,438.0 55.6

Net Intangible Assets 970.3 970.3 970.3 970.3

Goodwill on Consolidation 1,161.6 1,161.6 1,161.6 1,161.6

Investments 2,132.0 2,254.5 2,254.5 2,254.5

Inventory 75.4 97.6 179.9 267.3

Debtors 456.2 423.3 687.6 923.3Loans and Advances 1,569.3 1,665.8 2,517.1 2,201.2

Other Current Assets 228.3 325.9 563.0 785.1

Cash 1,726.3 2,081.2 3,298.1 1,255.2

Total Current Assets 4,055.4 4,593.8 7,245.7 5,432.1

Total Current Liabilities 1,573.8 3,848.8 5,628.3 5,597.2

Net Current Assets 2,481.6 744.9 1,617.4 -165.1

Application of funds 21,320.6 24,037.3 25,397.8 25,064.0


Key ratios

FY12 FY13 FY14E FY15E

Per share data (|)

EPS 0.4 (2.1) 0.1 1.6

Cash EPS 2.0 0.1 3.8 7.4

BV 22.0 19.9 20.0 21.6

Operating profit per share 4.4 4.1 12.5 17.8

Operating Ratios (%)

EBITDA Margin 27.9 24.7 47.0 41.7

PBT / Net Sales 2.7 (10.7) 7.2 5.5

PAT Margin 2.5 (12.9) 0.2 3.7

Inventory days 7.8 12.1 12.1 12.1

Debtor days 66.8 59.3 60.0 50.0

Creditor days 62.8 111.5 115.0 115.0

Return Ratios (%)

RoE 1.8 (10.7) 0.3 7.3

RoCE 2.1 1.2 5.6 7.7

RoIC 3.3 2.4 8.0 10.4

Valuation Ratios (x)

P/E 30.7 - 193.0 7.6

EV / EBITDA 20.8 26.2 8.6 6.5EV / Net Sales 5.8 6.5 4.1 2.7

Market Cap / Sales 0.8 0.7 0.5 0.3

Price to Book Value 0.5 0.6 0.6 0.6

Solvency Ratios (x)

Debt / EBITDA 20.5 26.5 9.3 6.3

Debt / Equity 4.1 5.4 5.8 5.2

Current Ratio 2.6 1.2 1.3 1.0

Quick Ratio 1.5 0.7 0.7 0.7



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Company Description

GVK is a leading Indian conglomerate with diversified interests acrossvarious sectors including energy, resources, airports, transportation,hospitality and life sciences. It has over 900 MW operational power plantsand around 5000 MW projects under various stages of construction and

development. GVK's coal mines at the Tokisud North Sub-Block andSeregarah Block in Jharkhand are being developed to cater to therequirements of Goindwal Sahib Thermal Power Project, Punjab.

It is also developing and managing two of the busiest airports at Mumbaiand Bengaluru handling 44 million passengers per annum (mppa). It alsohas road projects of over 2200 lane km under construction anddevelopment apart from the 542.4 lane km Jaipur-Kishangarh Expresswayunder operation.

GVK (10% stake along with promoter) has acquired the Hancock CoalMines in Australia with 8 billion tonne reserves and a capacity of morethan 80 million tonne per annum for US$1.26 billion. It will also set up a

500 km rail line and an 80 MTPA port as part of the 'pit-to-port' logisticssolution. The project envisages a total investment of US$10 billion.

Exhibit 8:Recommendation History

0

10

20

30

40

May-13Mar-13Feb-13Jan-13Nov-12Oct-12Aug-12Jul-12May-12

Price Target Price

Source: Reuters, ICICIdirect.com Research

Exhibit 9:Recent ReleasesDate Event CMP Target Price Rating

10-May-12 Q4FY12 Result Update 12 18 Buy

9-Aug-12 Q1FY13 Result Update 13 18 Buy

25-Sep-12 Event Update 15 18 Buy

16-Oct-12 Event Update 14 18 Buy

12-Nov-12 Q2FY13 Result Update 12 18 Buy

15-Feb-13 Q3FY13 Result Update 12 17 Buy



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ICICIdirect.com coverage universe (Infrastructure)CMP M Cap

(|) TP(|) Rating (| Cr) FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E

GMR Infra (GMRINF) 24 20 Hold 9,283 -1.1 -1.5 -0.3 NA NA NA 25.7 21.0 10.0 1.0 1.0 1.1 -4.6 -6.6 -1.1

GVK Power (GVKPOW) 9 10 Hold 1,461 0.4 -2.1 0.1 30.7 NA 193.0 20.8 26.2 8.6 0.5 0.6 0.6 1.8 -10.7 0.3

IRB Infra (IRBINF) 130 157 Buy 4,304 14.9 16.7 11.6 8.8 7.9 11.3 7.0 7.0 7.4 1.5 1.3 1.3 17.4 17.1 11.1JP Associates (JAIASS) 82 80 Hold 17,681 3.6 4.8 3.0 21.5 15.9 25.7 12.0 10.9 9.8 1.7 1.3 1.3 8.5 9.4 5.1

Sadbhav Engg. (SADENG) 113 135 Buy 1,696 9.3 5.2 5.9 12.2 22.1 19.3 7.2 15.6 10.0 2.2 2.1 1.9 18.4 9.3 9.7


Sector / Company

RoE (%)EPS (|) P/E (x) EV/EBITDA (x) P/B (x)


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ICICI Securities Ltd Retail Equity Research Page 8

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them

as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional

target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey Head Research [email protected] Research Desk,ICICI Securities Limited,1st Floor, Akruti Trade Centre,Road No. 7, MIDC,Andheri (East)

Mumbai 400 093

[email protected]

We /I, Deepak Purswani CFA, PGDM (FINANCE) Bhupendra Tiwary MBA (FINANCE) research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in

this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly

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idirect_gvkpower_q4fy13

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