Buy GVK Power; target of Rs 40: Motilal Oswal

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Buy GVK Power; target of Rs 40: Motilal Oswal

Motilal Oswal is bullish on GVK Power & Infrastructure and has recommended buy rating on the stock with a target of Rs 40 in its August 9, 2011 research report.

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Motilal Oswal is bullish on GVK Power & Infrastructure and has recommended buy rating on the stock with a target of Rs 40 in its August 9, 2011 research report.

"The management of GVK Power and Infrastructure (GVKP) said it was exploring funding options for planned expansion across verticals. Funding is comfortable in the power vertical (after a PE transaction of INR15b) and roads (option to securitize Jaipur-Kishangarh cash flow). However, the airport vertical is exposed to tight liquidity conditions, impacting fund availability, given Bangalore airport's outstanding acquisition debt (INR7.5b, refinanced recently), Mumbai airport's 13.5% planned stake acquisition debt (INR12b- 13b, to be financed through a three year LC) and delays in RE monetization/regulatory headwinds at Mumbai airport."

"GVKP plans to add 870MW capacity in FY13 (Alakananda hydro project and Goindwal Sahib project) and the Tokisud mine associated with the Goindwal Sahib project has land and major approvals. GVKP plans to award mine development contracts (MDO) and start mining by the end of FY12. The road vertical comprises two projects under construction Deoli-Kota and Badodara-Vasad, where construction has begun and GVKP infused INR600m as equity in the project, whose total equity commitment is INR5b. In MIAL, GVKP expects to monetize 3msf by the end of FY12 and in BIAL it has begun work on expanding the project."

"GVKP posted 1QFY12 consolidated PAT of INR589m (after minority interest and share of associates), though the quarter includes only 85% consolidation of its power business (15% dilution to PE investors at INR9.4b). PLFs of the power project were boosted due to a swap agreement affected by the Andhra Pradesh government (higher allocation of KG-D6 gas v/s payment of spot LNG to other regions). JKEL traffic grew 7.4% and passenger traffic at MIAL and BIAL grew 7% and 11%, respectively. GVKP's tax rate was ~20% as other income was ~50% of PBT in 1QFY12, which attracted a full tax rate. We expect GVKP to report consolidated net profit of INR2.1b in FY12 (up 34% YoY) and INR2.3b in FY13 (up 9% YoY). At a CMP of INR18, the stock trades at a PER of 13.7x FY12E and 12.6x FY13E. Maintain Buy," says Motilal Oswal research report.

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