GMR Infrastructure rating: Buy; Performance in quarter was a mixed bag

GMR Infrastructure’s (GMR’s) Q1FY20 adjusted loss of Rs 3.4 bn came in line with our estimate. Delhi Airport’s (DIAL) traffic continued to moderate due to the Jet Airways issue; Hyderabad Airport’s (HIAL) traffic grew 8% y-o-y. In the power segment, PLF improved y-o-y in Warora, but fell in Kamalanga due to major maintenance undertaken during the quarter. Receivables from SEBs have started to dip. Timely completion of the stake sale in the airports arm will reduce leverage and be a key monitorable. Maintain Buy with SOTP based target price of Rs 24 as we roll over the valuation to December 2020e.

Jet Airways issue singes DIAL traffic

The Jet Airways issue continued to roil traffic in DIAL, which declined 10% y-o-y and ~7% q-o-q. HIAL performed better with traffic rising 8% y-o-y (flat q-o-q), though the pace of traffic growth has moderated due to high base. Despite moderation in traffic, non-aero revenues in DIAL and HIAL grew 9% and 20% y-o-y, respectively, aided by robust spurt in the retail segment. Management indicated that other airlines have begun filling the gap created by Jet Airways and traffic growth should pick up going ahead.

Energy assets continue to generate strong cash profit

Major maintenance work led to PLF declining y-o-y at Kamalanga plant to 77%. On the other hand, PLF improved in Warora plant to 88%. Cash profit generation improved marginally in the Kamalanga plant (Rs436 mn versus Rs 431 mn in Q1FY19), but declined in the EMCO project (Rs 382 mn versus Rs 434 mn in Q1FY19). While both these projects continue to face delays in payment from discoms, the quantum of receivables has declined q-o-q, which is a positive. The government’s new payment security mechanism is expected to address the issue of delayed payments.

Outlook and valuation

The stake sale in the airport vertical along with favourable policy/regulatory actions reinforce our view that GMR is the most exciting play on the fast-growing Indian airport sector. Favourable tariff orders and progress on the deleveraging front continue to be key monitorables, in our view. We maintain ‘BUY/SO’ with SOTP-based TP of Rs 24.

GMR Group