Institutional Equities

GMR Infrastructure
5 March 2013 Reuters: GMRI.BO; Bloomberg: GMRI IN

70% Stake Sale In Singapore Arm - Move In Right Direction

GMR Infrastructure has signed a share purchase agreement to sell its entire 70% stake in GMR Energy (Singapore) Pte (GMRE) to FPM Power Holdings for an equity consideration of S$660mn (US$500mn - out of this S$60mn or US$49mn would be invested as balance equity in the project). The deal has valued GMRE at an enterprise value of S$1.6bn (US$1.3bn) on completion of the project, which is likely by the end of CY13, and would result in a profit of S$307mn (US$250mn, ~50% premium to our valuation of the project). We believe the company is in the right direction of repairing its balance sheet through the sale of assets. We have retained our Buy rating on GMR Infrastructure with a revised target price of Rs25 (from Rs24 earlier). GMRE project details: GMRE is developing an 800MW (2x400MW) gas-based power plant at Jurong Island, Singapore, at a total project cost of S$1.17bn. The project has achieved financial closure with debt of S$670mn, shareholders loan of S$375mn and equity of S$130mn. GMR Infrastructure, which held a 70% stake in the project, after hiving 30% stake earlier at a 25% premium to Petronas. Meanwhile, Petronas will continue to remain invested in the project. Stake sale at a significant premium: GMR Infrastructure received net equity capital of S$600mn and had equity investment (including shareholders loan) amounting to ~S$293mn till date in the project, which would result in a profit of S$307mn (Rs13.5bn). This is at a 50% premium to our valuation of the project. The deal would enable the company to reduce its debt by Rs23bn (~S$530mn) to Rs353bn as well as release capital of S$366mn (Rs16.1bn) which would be utilised to fund ongoing power projects. Outlook: GMR Infrastructure stock has under-performed the benchmark NSE Nifty over the past one year, primarily due to balance sheet concerns (high leverage) and funding constraints for its mega expansion plan. Over the past two months, the company sold two assets (one road project and one power project) at a premium and is in the process of selling some more assets. This has released equity as well as reduced debt. We believe the company is in the right direction of repairing its balance sheet as well as funding ongoing projects with the asset sale proceeds. Following these deals, we have revised our target price on the stock from Rs24 earlier to Rs25 and retained our Buy rating on it.
Y/E March (Rsmn) Net sales YoY (%) EBITDA EBITDAM (%) Adj. net profit (excl. E.O. items) Adj. EPS P/BV (x) EV/EBITDA RoE (%) RoCE (%) FY10 45,665 13.6 13,643 29.9 1,581 0.4 1.4 17.8 2.4 4.6 FY11 57,738 26.4 15,553 26.9 (1,313) (0.3) 1.0 17.8 (12.0) 4.3

BUY
Sector: Infrastructure CMP: Rs19 Target Price: Rs25 Upside: 32%
Amit Srivastava amit.srivastava@nirmalbang.com +91-22-3926 8116
Key Data Current Shares O/S (mn) Mkt Cap (Rsbn/US$bn) 52 Wk H / L (Rs) Daily Vol. (3M NSE Avg.) Price Performance (%) 1M GMR Infra Nifty Index Source: Bloomberg (3.1) (3.4) 6M (4.1) 10.2 1 Yr (32.7) 9.0 3,892.4 73.0/1.3 35/17 10,909,650

Company Update

FY12 76,421 32.4 17,582 23.0 (4,412) (1.1) 1.0 21.3 (8.0) 4.0

FY13E 83,509 9.3 23,381 28.0 (6,801) (1.75) 0.79 17.0 (9.9) 5.3

FY14E 95,835 14.8 37,610 39.2 1,630 0.42 0.78 11.0 2.3 8.2

Source: Company, Nirmal Bang Institutional Equities Research

Please refer to the disclaimer towards the end of the document.

Institutional Equities
Exhibit 1: Project details
Sources of funds Debt Shareholders equity Shareholders loans Total S$mn 670 127 378 1,175 Usage of funds Construction costs Pre-operative costs Financing costs Contingency DSRA funding Total project costs S$mn 849 172 95 44 15 1,175

Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 2: Financing structure

Term debt Amount Pricing Tenor Repayment profile S$670mnl SOR + 2.5% to 3.25% 17 years LC & working capital US$270mn including S$25mn (US$20mn) working capital sub-limit LCs: 2% p.a. Working capital : Same pricing as term debt 17 years

Semi-annual structured repayments from December 2014

Source: Company, Nirmal Bang Institutional Equities Research

Rating track
Date 26 September 2011 29 September 2011 11 November 2011 11 November 2011 18 November 2011 6 January 2012 12 January 2012 9 February 2012 10 April 2012 1 June 2012 17 July 2012 13 August 2012 4 October 2012 15 November 2012 7 January 2013 12 February 2013 Rating Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Market price (Rs) 28 27 26 23 21 23 28 31 29 21 24 21 25 20 20 18 Target price (Rs) 39 39 39 39 39 39 39 39 39 30 30 30 30 27 26 24

GMR Infrastructure

Institutional Equities
Disclaimer
Stock Ratings Absolute Returns
BUY > 15% HOLD 0-15% SELL < 0%
This report is published by Nirmal Bangs Institutional Equities Research desk. Nirmal Bang has other business units with ind ependent research teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. This report is for the personal information of the authorised recipient and is not for public distribution. This should not be reproduced or redistributed to any other person or in any form. This report is for the general information for the clients of Nirmal Bang Equities Pvt. Ltd., a division of Nirmal Bang, and should not be construed as an offer or solicitation of an offer to buy/sell any securities. We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates to current and historical information, but do not guarantee its accuracy or completeness. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. Nirmal Bang or any persons connected with it do not accept any liability arising from the use of this document or the information contained therein. The recipients of this material should rely on their own judgment and take their own professional advice before acting on this information. Nirmal Bang or any of its connected persons including its directors or subsidiaries or associates or employees or agents shall not be in any way responsible for any loss or damage that may arise to any person/s from any inadvertent error in the information contained, views and opinions expressed in this publication.

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Team Details:
Name Rahul Arora Hemindra Hazari Sales and Dealing: Neha Grover Ravi Jagtiani Sudhindar Rao Pradeep Kasat Michael Pillai AVP Sales Dealing Desk Dealing Desk Dealing Desk Dealing Desk neha.grover@nirmalbang.com ravi.jagtiani@nirmalbang.com sudhindar.rao@nirmalbang.com pradeep.kasat@nirmalbang.com michael.pillai@nirmalbang.com +91 22 3926 8093 +91 22 3926 8230, +91 22 6636 8833 +91 22 3926 8229, +91 22 6636 8832 +91 22 3926 8100/8101, +91 22 6636 8831 +91 22 3926 8102/8103, +91 22 6636 8830 CEO Head of Research Email Id rahul.arora@nirmalbang.com hemindra.hazari@nirmalbang.com Direct Line +91 22 3926 8098 / 99
+91 22 3926 8017 / 18

Nirmal Bang Equities Pvt. Ltd.

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GMR Infrastructure