Buy GVK Power; target of Rs 32: ICICIdirect.com

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Buy GVK Power; target of Rs 32: ICICIdirect.com

ICICIdirect.com is bullish on GVK Power & Infrastructure and has recommended buy rating on the stock with a target of Rs 32 in its August 9, 2011 research report.

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ICICIdirect.com is bullish on GVK Power & Infrastructure and has recommended buy rating on the stock with a target of Rs 32 in its August 9, 2011 research report.

"GVK Power (GVK) Q1FY12 results were sharply ahead of our expectation with the interim availability of RLNG, which led to strong performance in power division. However, with the discontinuance of RLNG from July onwards, the power plant PLF is expected to come down in the coming quarters. We believe the uncertainty over AERA guidelines for airports, lack of clarity on Hancock deal, delay in the monetisation of real estate would keep the stock sideway in the near term. However, most of the negative is already seems to be discounted in the price."

"With the availability of RLNG, the PLF for all three power plants showed marked improvement in Q1 FY12. Consequently, the power division's revenues grew 37% sequentially to Rs 559.3 crore. However, RLNG has been discontinued from June onwards and the power plants PLF is expected to come down in the coming quarters. Furthermore, GVK has in the interim suspended its expansion plans for JP & Gautami power plants due to lack of gas supply. This may lead to write off Rs 130 crore in the GVK books (on account of advance given to EPC contract) and could also lead to increase in PE stake in GVK Energy to ~30% stake compared to ~25% negotiated at the time of the deal. GVK's JKEL road project revenues grew 14% yoy to Rs49.9 crore (volume - +7.5% & higher realisation due to favourable traffic mix - ~7%). Additionally, the toll rate has been also increased by ~10% from July 01, 2011 onwards, which would further contribute to growth in the coming quarters. Furthermore, GVK has emerged as H1 bidder for Shivpuri Dewas Road project worth Rs 2,815 crore recently. To funds its equity commitment towards all the road projects (~Rs 1200 crore), the company is exploring option such as securitisation of JKEL receivables & private equity deal in transportation division."

"At the CMP, the stock is trading at 0.7x FY12 P/BV. We recommend BUY rating with SOTP price target of Rs 32 with a horizon of 24 months," says ICICIdirect.com research report.  

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To read the full report click on the attachment