GMR's asset sale move to pare debt a big positive: Analysts

GMR hosted an analyst meet on Tuesday to discuss the outlook of its power projects and asset sale plan. The company has now shifted its focus from acquiring new assets with significant equity commitments to cash generation, reports CNBC-TV18's Pragya Bharadwaj.

Also read: Expect GMR Infra to touch Rs 24-25 in coming weeks: Bothra

This new shift in focus is called the asset light asset right model. Just in March the company divested stake in three of its assets. Two of its power plants now are close to commissioning. The company has Fuel Supply Agreements (FSA) in place for 50 percent of these assets and given the fact that these assets are now getting commissioned, there were some unconfirmed reports that they might look to exit and divest some of their stake in those power plants.

The management conducted an analyst meet just to highlight some of the recent initiatives of the company, like where they divested 74 percent stake in one of the road projects- Ireland Power. These steps have been able to bring down the debt of the company which will be apparent in this year’s annual results. The debt will come down by close to Rs 5,000 crore, so it will be a significant move.
Brokerages have turned positive on GMR now. There have been significant upgrades that have come on the stock as analysts have also rolled forward the targets to FY14 now.

Macquarie has said that they view GMR's initiative of asset monetisation as a significant positive. The power assets are moving closer to commissioning and GMR should be one of the key beneficiaries in case coal and gas price pooling come by. They maintain an outperform on the stock with an increase in the target price to Rs 28 because of higher valuation of the power projects.
Axis Capital has said that the management’s recent focus is a significant positive. Their entire recent initiatives would be able to bring down its debt by close to Rs 10,000 crore for the next year. This is what they have factored in their numbers. They have remained positive on GMR and these judicious asset sales and separate listing of business verticals could bode well for the company. They too have a price target in the vicinity of Rs 27-28 which is a significant upside of 20-25 percent as far as the stock price is concerned. They are recommending a buy recommendation on the stock.
JM Financial has indicated that the management incentives to divest further could bring down, including the preference shares,  the Rs 43,000 crore debt. However, excluding preference shares, the debt stands at Rs 37,000 crore as far as GMR is concerned. This particular asset sale is likely to bring down the short-term equity requirements of the company.
Just for FY14, the company has short-term equity commitments for various projects to the tune of Rs 2,000-2,500 crore. All of these three sales are doing well for the company. They also have a hotel they have put up as stake. Though there is no development on that, but the management focus is right. This is one of the few companies in the infrastructure space which is going forward in terms of deleveraging their balance sheet, and not making big promises. So, the asset monetisation move is going down well as far as the analyst community is concerned.