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Jan 28, 2013, 07.49 PM IST | Source: Moneycontrol.com

What can drive GMR, GVK, Lanco, Adani Power, Tata Power?

Kotak Securities has shortlisted stocks from the infrastructure and utilities sectors where changes in (1) policy, (2) regulatory, (3) operating, (4) financial and (5) other parameters can lead to a significant upgrade in earnings and valuations.

Moneycontrol Bureau

Kotak Securities has shortlisted stocks from the infrastructure and utilities sectors where changes in (1) policy, (2) regulatory, (3) operating, (4) financial and (5) other parameters can lead to a significant upgrade in earnings and valuations.

"We believe meaningful changes will require significant concerted action by multiple stakeholders providing resolution of issues both within and outside India. In many cases, a company may be able to make certain changes on its own (if it were to find a market for its assets or financial partners, for example) while in some cases, regulators or governments may need to create the relevant policy framework," says the Kotak note.

Extracts from the Kotak shortlist:
 
GMR :  Availability of coal and gas to fire extant and upcoming power projects, (2) monetization of Mumbai airport’s real estate and (3) sale of some of its assets can help to meaningfully reduce leverage (Rs 15300 crore debt against Rs 13300 crore of equity in 1HFY13).

GVK Power & Infrastructure : Increased availability of gas could help to improve plant load factors (PLFs), revenues and profits of its power segment, (2) monetization of real estate at the Delhi airport and (3) entry of investment partners (or buyers) of some of the operating road projects can help GVK to reduce its consolidated debt burden of Rs 15500 crore (1HFY13) and increase its equity valuation

Adani Power : A small increase in average tariffs (Rs 0.25/kWh) across its projects can add 140% to our current estimated fair value of Rs 33. (2) pooling of coal prices can reduce costs by Rs 400 crore (and increase our estimated fair value to Rs 53) and (3) ramp up of Bunyu coal mine production to 10 mtpa can double the fair value estimate of APL.

Lanco Infratech : A sustainable merchant tariff of Rs 4.0/kWh could add Rs 6 to our fair value estimate of Rs 12. In addition, allowing cost-plus tariff at Amarkantak could add Rs 3 to fair value estimates; utilization of 90% at Kondapalli could add Rs 2 to our fair value estimate.

Tata Power :  A tariff hike of Rs 0.50/kWh to offset costs in the Mundra power plant could add Rs 37 to current estimated fair value of Rs 111. We do not think a review of the PPA may be feasible. Nonetheless, reduction in fuel costs by around 20% through higher blending of low-cost coal could accrue Rs 26 to our fair valuation.

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Lanco Infratech Tata Power

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