Buy GMR Infrastructure; target Rs 25: Nirmal Bang
Nirmal Bang is bullish on GMR Infrastructure and has recommended buy rating on the stock with a target price of Rs 25, in its March 05, 2013 research report.
March 06, 2013 / 11:40 IST
Nirmal Bang is bullish on GMR Infrastructure and has recommended buy rating on the stock with a target price of Rs 25, in its March 05, 2013 research report.
"GMR Infrastructure has signed a share purchase agreement to sell its entire 70% stake in GMR Energy (Singapore) Pte (GMRE) to FPM Power Holdings for an equity consideration of S$660mn (US$500mn - out of this S$60mn or US$49mn would be invested as balance equity in the project). The deal has valued GMRE at an enterprise value of S$1.6bn (US$1.3bn) on completion of the project, which is likely by the end of CY13, and would result in a profit of S$307mn (US$250mn, ~50% premium to our valuation of the project). We believe the company is in the right direction of repairing its balance sheet through the sale of assets. We have retained our Buy rating on GMR Infrastructure with a revised target price of Rs25 (from Rs 24 earlier).GMRE project details: GMRE is developing an 800MW (2x400MW) gas-based power plant at Jurong Island, Singapore, at a total project cost of S$1.17bn. The project has achieved financial closure with debt of S$670mn, shareholders’ loan of S$375mn and equity of S$130mn. GMR Infrastructure, which held a 70% stake in the project, after hiving 30% stake earlier at a 25% premium to Petronas. Meanwhile, Petronas will continue to remain invested in the project. Stake sale at a significant premium: GMR Infrastructure received net equity capital of S$600mn and had equity investment (including shareholders’ loan) amounting to ~S$293mn till date in the project, which would result in a profit of S$307mn (Rs13.5bn). This is at a 50% premium to our valuation of the project. The deal would enable the company to reduce its debt by Rs23bn (~S$530mn) to Rs353bn as well as release capital of S$366mn (Rs16.1bn) which would be utilised to fund ongoing power projects.Outlook: GMR Infrastructure stock has under-performed the benchmark NSE Nifty over the past one year, primarily due to balance sheet concerns (high leverage) and funding constraints for its mega expansion plan. Over the past two months, the company sold two assets (one road project and one power project) at a premium and is in the process of selling some more assets. This has released equity as well as reduced debt. We believe the company is in the right direction of repairing its balance sheet as well as funding ongoing projects with the asset sale proceeds. Following these deals, we have revised our target price on the stock from Rs 24 earlier to Rs 25 and retained our Buy rating on it," says Nirmal Bang research report.FIIs holding more than 30% 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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