Valuation Report GMR Group

Valuation Report GMR Group

A Report submitted in partial fulfillment of the requirements for Corporate Finance Course under the instructions of Professor Pramod Yadav

Submission Date: February 18, 2012

Submitted by: Kumar Abhishek Rahul Rathi AIIM PGPIM Batch-4

Valuation Report GMR Group

HOLD
Sector: Infrastructure CMP: Rs19.34 Target Price: Rs20.2
Peer Group Analysis Valuation GMRINF ADAPOR JAYINF
Market Cap (Crores) PE (x) Price to Book Value (x) EV to Sales (x) EV to EBITDA (x) Dividend Yield (%) Book Value

Executive Summary
Despite current quarter consolidated loss of 217 crore (due to higher financial cost and power woes), situation is showing signs of improving.
L&T 20.87 3.13 5.3 8.5 1.11 477.13 Source: GMR Annual Report

7025.78
NM 0.94 4.5 21.9 0 19.37

13031.4
26.66 2.11 14.7 22.6 0.65 26.13

6132.1 91236.13
6.87 1.06 4 7.6 2.26 41.6

Source: Bloomberg Relative Price Chart

Delhi International Airport Private Limited (DIAL), a subsidiary of the Company, has started making profits from accumulated losses of Rs. 1,616.30 crore last year. This is due to Aeronautical tariff hike and UDF levy approval. But its airport in Turkey is still making losses. On November 27, 2012, the Maldives Government evicted GMR stating that the concession agreement was void ab initio. The matter is currently under arbitration and GMR is in the process of seeking remedies under the aforesaid concession agreement. We do not anticipate bad debt provision for this and think that company would be able to get compensation through legal course. As at December 31, 2012, DIAL and GMR Hyderabad International Airport Limited (GHIAL) have receivables from Air India aggregating to Rs. 115.37 crore. Considering the delays in realization of the dues from Air India and the uncertainty involved over the timing of the ultimate collection, we are making bad debt provisions for 20%. GHIAL has receivables from Kingfisher Airlines Limited aggregating to Rs. 16.13 crore. We do not expect GMR would be able to recover this payment. (Our Estimates) GMR terminated the agreement on 555 km long Kishangarh-Udaipur-Ahmedabad highway citing nonfulfillment of mandatory conditions precedent specified under the Concession Agreement within the due date. Although the company along with its subsidiary has made an investment of Rs. 700.00 crore in GKUAEL, which is primarily utilized towards payment of mobilization advance of Rs 590.00 crore to its EPC contractors and Rs 107.96 crore towards indirect expenditure attributable to the project and borrowing costs, the termination of contract is good for shareholders. We are of the opinion that GMR bid

Source: Bloomberg BSE INDEX L&T GMR INFRA ADANI POWER

Valuation Report GMR Group

aggressively with premium of Rs 636 crore which would have increased 5% every successive year. The winning bid had raised quite a few eyebrows with analysts speculating the financial viability of the project given the premium. The power segment companies have receivables (including unbilled revenue) from Tamil Nadu Electricity Board (TNEB) and TANGENDCO Limited (TANGENDCO') aggregating to Rs. 692.62 crore. Although the management is confident of recovery of such receivables and also TNEB has agreed for Centre's Rs 1.9-lakh-cr power discom debt restructuring, we are making a bad debt provision of 50% looking into the current financial health of Tamil Nadu Discom. The Group has an investment of Rs. 338.33 crore (including loans of Rs. 101.74 crore, share application money pending allotment of Rs. 20.00 crore and investment in equity / preference shares of Rs. 216.59 crore made by the Company and its subsidiaries) in GMR Ambala Chandigarh Expressways Private Limited (GACEPL), a subsidiary of the Company. GACEPL has been incurring losses since the commencement of commercial operations. These losses are primarily attributable to the loss of revenue arising as a result of diversion of partial traffic on parallel roads. So, in our opinion, this project will continue making losses. The Group is engaged in the business of generation and sale of electrical energy from its two gas based power plants of 220MW and 387.63MW situated at Kakinada and Vemagiri respectively. Further, the Group has investments in a subsidiary which is constructing a gas based power plant. In view of lower supplies/ availability of natural gas to the power generating companies in India, the Group is facing shortage of natural gas supply and delays in securing gas linkages. The Group is making representations with various government authorities to secure the natural gas linkage supply as the natural gas supplies from KG D6 basin have dropped significantly from September 2011 onwards. The Group, for its 768 MW gas based power plant, which is under construction

at Rajahmundry, has applied for allocation of gas and Ministry of Power and Natural Gas (MOPNG) is yet to allocate the gas linkage. Since the power reforms in India are not in pipeline for months to come, we are expecting that the situation will not improve and the company will continue making losses. The Comptroller and Auditor General of India (CAG) has conducted the performance audit of Public Private Partnership (PPP) project of Airport Authority of India ('AAI') at Delhi airport, which is operated by DIAL, for the period 2006 to 2012. CAG has presented its report before the Rajya Sabha on August 17, 2012 wherein they have made certain observations on DIAL. This will impact the brand image of GMR. Overall, we do not expect much improvement in the upcoming quarters. If there would have been any improvement, it would be marginal.
Key Financials (Crores) Revenues EBITDA PAT EPS DPS

2012 2013E 2014E 2015E 8,473.03 11279.44 15015.38 19988.73 1,740.82 2184.20 3313.70 3989.20 -1058.4 -1409.4 -1806.2 1443 -1.9 -1.6 -0.4 0.5 -

Source: Self Calculation

Profitability & Valuation EBITDA margin (%) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)

2012 2013E 2014E 2015E 20 22.4 25.2 25.8 -9.6 -9.1 -2.6 3.2 -0.3 0.9 2.9 3.2 4.4 4.6 2.9 2.3 21.9 22.5 15.6 14

Source: Self Calculation

Valuation Report GMR Group

Company Overview
GMR Infrastructure Limited carries on its business through various subsidiaries and joint ventures being special purpose vehicles exclusively formed to build and operate various infrastructure projects. The business segments of the Group comprise of the following: Segment Description of Activity Airports Power Roads EPC Others Development and operation of airports Generation of power, mining and exploration and provision of related services Development and operation of roadways Handling of engineering, procurement and construction solutions in the infrastructure sector Urban infrastructure and other residual activities

Source: GMR Annual Report

Valuation Report GMR Group

Companys Performance
The companys performance for previous and this financial year is as below:

Source: GMR Annual Report

Shareholding Pattern

Source: GMR Annual Report

Valuation Report GMR Group

PROFIT & LOSS PROJECTIONS

Profit & Loss Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalized Total Expenses PBDIT Interest PBDT Depreciation Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit GMR INFRASTRUCTURE Consolidated P&L FY15E FY14E FY13E Mar '12 19988.73 15015.38 11279.44 8473.03 0 0 0 0 19988.73 15015.38 11279.44 8473.03 191.7949 144.0749 108.2279 81.3 0 0 0 0 20180.52 15159.46 11387.67 8554.33 2439.543 2858.636 1218.93 4610.555 1229.313 2093.959 0 14450.94 5729.588 1653.13 4076.458 1245.766 2830.692 55.91 2886.602 865.9805 2020.621 2439.543 2858.636 1218.93 3463.414 1229.313 2093.959 0 13303.8 1855.661 1653.13 202.5312 1245.766 -1043.23 55.91 -987.325 -296.197 -691.127 1832.566 2147.386 915.6509 2601.69 923.4503 1572.966 0 9993.71 1393.959 1653.13 -259.171 1245.766 -1504.94 37.16 -1467.78 -440.333 -1027.44 1376.61 1613.1 687.83 1954.37 0 1181.6 0 6813.51 1740.82 1653.13 87.69 935.81 -848.12 -0.3 -848.42 210.42 -1058.84

BALANCE SHEET PROJECTIONS

Consolidated Balance Sheet of GMR Infrastructure in Crores Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Init. Contribution Settler 2369.37 994.98 0 0 0 2369.37 727.70 0 0 0 2369.37 532.21 0 0 0 2,369.37 389.24 0 1,980.13 0

FY15E

FY14E

FY13E

Mar '12

Valuation Report GMR Group

Preference Share Application Money Employee Stock Opiton Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Minority Interest Policy Holders Funds Group Share in Joint Venture Total Liabilities

0 0 18,273.25 0 24,329.89 75110.60 8432.51 83543.12 4580.03 0.00 0.00 112453.04 78228.53 10519.92 67,708.61 39713.20 1844.57 663.21 4696.67 10879.64 16,239.52 18225.83 0 34,465.35 0 30431.82 846.88 31,278.69 3,186.66 856.05 0 0 0 112,453.04

0 0 13,364.41 0 17,794.01 54933.23 6167.24 61100.47 3349.67 0.00 0.00 82244.15 57213.57 7693.90 49,519.67 29044.82 1349.05 485.05 3434.98 7956.98 11,877.01 13329.73 0 25,206.73 0 22256.75 619.38 22,876.12 2,330.61 626.09 0 0 0 82,244.15

0 0 9,774.25 0 13,013.91 40176.21 4510.50 44686.71 2449.83 0.00 0.00 60150.45 41843.97 5627.04 36,216.92 21242.35 986.65 354.75 2512.22 5819.45 8,686.42 9748.89 0 18,435.31 0 16277.79 452.99 16,730.78 1,704.53 457.90 0 0 0 60,150.45

0 0 7,148.54 0 9,517.91 29,383.45 3,298.82 32,682.27 1,791.72 0 0 43,991.90 30,603.19 4,115.42 26,487.77 15,535.90 721.6 259.45 1,837.35 4,256.14 6,352.94 7,129.99 0 13,482.93 0 11,905.00 331.3 12,236.30 1,246.63 -779.28 0 0 0 43,991.90

Application Of Funds
Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets (NWC) Minority Interest Group Share in Joint Venture Miscellaneous Expenses Total Assets

Valuation Report GMR Group

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This report has been written by MBA students at Adani Institutte of Infrastructure Management in partial fulfillment of their course requirements. The report is a student and not a professional report. It is intended solely to serve as an example of student work at Adani Institute of Infrastructure Management. It is not intended as investment advice. It is based on publicly available information and may not be complete analyses of all relevant data. If you use this report for any purpose, you do so at your own risk. ADANI INSTITUTE, AND ADANI INSTITUTES OFFICERS, FELLOWS, FACULTY, STAFF, AND STUDENTS MAKE NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, ABOUT THE ACCURACY OR SUITABILITY FOR ANY USE OF THESE REPORTS, AND EXPRESSLY DISCLAIM RESPONSIBIITY FOR ANY LOSS OR DAMAGE, DIRECT OR INDIRECT, CAUSED BY USE OF OR RELIANCE ON THESE REPORTS.