Buy GMR Infrastructure; target Rs 39: Nirmal Bang

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Buy GMR Infrastructure; target Rs 39: Nirmal Bang

Nirmal Bang is bullish on GMR Infrastructure and has recommended buy rating on the stock with a target price of Rs 39 in its January 6, 2012 research report.

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Nirmal Bang is bullish on GMR Infrastructure and has recommended buy rating on the stock with a target price of Rs 39 in its January 6, 2012 research report.

"A consultation paper on the framework for determining the tariff for DIAL (Delhi International Airport) released by the Airports Economic Regulatory Authority (AERA) has proposed the shared-till method for revenue calculation, weighted average cost of capital (WACC) of 10.33%, cost of equity of 16%, project cost of Rs 12.5bn and disallowance of refundable interest-free security deposit (RSD) as equity. The airports regulator has also recommended tariff hike by 148% in FY13 and FY14 each at DIAL, effective from 1 April 2012 to 31 March 2014. We believe this is a positive development that will eliminate the overhang on DIAL's valuation."

"AERA has proposed that the first regulatory period may be taken as 1 April 2009 to 31 March 2014 and recovery of the revised tariff may be contemplated during 1 April 2012 to 31 March 2014. The regulator has proposed WACC of 10.33% as compared to bid WACC of 11.6% for the purpose of calculation of the returns on regulatory asset base (RAB). The reduction in WACC is primarily because of lower CoE of 16% against the projected CoE of 22%. AERA has proposed that the targeted revenue be calculated on the basis of the shared-till method, which includes reduction of 30% of non-aeronautical revenue. The regulator has proposed allowable project cost of Rs 125bn, which is as per its order in respect of the development fee. Proposed average RAB for the first regulatory period would be lower by Rs 12.7bn than what was submitted by DIAL because of lower hypothetical asset base and disallowance of future capex. AERA has proposed that refundable interest-free security deposit (RSD) of Rs 14.5bn, which was used for financing of the project, should not be considered as equity. AERA has not clarified on the issue of monetisation of remaining land bank at DIAL and usage of the funds generated. We believe this uncertainty would keep the hangover on valuation of DIAL's land parcel."

"We have not revised our earnings estimates for DIAL based on the consultation paper and prefer to wait for the final order which is due in 4QFY12. However, we believe that based on the revised tariff the DIAL project is likely to report net profit of Rs 0.6bn in FY13 and Rs 7bn in FY13. Clarity on land monetisation and usage of the funds raised from it would be the next trigger for the GMR Infrastructure stock. We maintain our Buy rating on it with a SOTP-based target price of Rs 39," says Nirmal Bang research report.

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