Buy GVK Power; target of Rs 18: ICICIdirect.com

ICICIdirect.com is bullish on GVK Power & Infrastructure and has recommended buy rating on the stock with a target of Rs 18 in its August 09, 2012 research report.

“GVK’s Q1FY13 results were dismal led by poor PLF across power plants, MMR expenses at JP-II and Gautami, muted show at airports, one time expenditure (~Rs30 crore) at MIAL and higher interest cost for additional stake acquisition of MIAL and BIAL. While, the near term pain on earnings is likely in terms of poor power segment performance and high interest cost, GVK is looking for PE deal at Airport and Road division, which could partially allay investors concern over funding gap across the business verticals. Furthermore, land monetisation at MIAL and environmental clearance for Hancock would be the key catalysts for the stock.”
“GVK’s Q1FY13 results were dismal led by poor PLF across power plants, MMR expenses at JP-II and Gautami (~Rs33 crore), muted show at airports, one time expenditure at MIAL (~Rs30 crore) and higher interest cost for additional stake acquisition of MIAL and BIAL. Consequently, the company reported a loss of Rs 64.3 crore. The company also indicated that restricted gas supply will continue to impact power vertical performance till a solution is found. Alternately, GVK is also looking to provide viability declaration based on alternative fuels such as naptha, RLNG and highspeed diesel, though it seems unviable. GVK is looking for private equity deal in the airport segment to raise ~Rs 3000 crore to repay the debts raised for acquisition of stake. Additionally, to funds its equity commitment towards road projects, the company is exploring option of private equity deal in transportation division for ~Rs 1000-1300 crore. We believe that these deals would hold key for GVK’s performance as it would help to reduce interest cost on borrowing for acquisition of stake in MIAL and BIAL as well as meet the funding gap for road vertical.”
“We highlight that unavailability of gas supply at its power plants as well as interest burden to fund additional stake in MIAL & BIAL will weigh on bottomline. However, in our view, PE deal in Airport & Road division holds the key for stock price performance, going ahead as this would partially allay investors concerns over funding gap across airport & transportation verticals. Furthermore, land monetisation at MIAL and environmental clearance for Hancock would be the key near term trigger for the stock. We maintain BUY purely on attractive valuation,” says ICICIdirect.com research report.    Institutional holding more than 40% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment  

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