GMR Infrastructure Ltd.

Transcription

1 INSTITUTIONAL RESEARCH Initiating Coverage March 14, 2011 GMR Infrastructure Ltd. Denil Savla, Analyst ( ) Keynote Capitals Institutional Research is also available on Bloomberg KNTE <GO>, Thomson One Analytics, Reuters Knowledge, Capital IQ, TheMarkets.com and securities.com Keynote Capitals Institutional Research - awarded India s Best IPO Analyst 2009" by MCX-Zee Business

2 GMR Infrastructure Ltd. An integrated infrastructure developer March 14, 2011 Key Stock Data Sector Infrastructure CMP ` wk High / Low `68.70/29.80 Market Cap `152.19bn ($3382.1mn) Avg 6m daily vol BSE Sensex Reco Buy TP `48.10 GMR Infrastructure Ltd. is a large conglomerate with presence across various business verticals in the infrastructure space like airports, power, road-highways and urban development. The company has excellent track record of execution across different segment and is in a sweet spot with the pick-up in airport passenger traffic and improving visibility for monetization of real estate at premium valuations. It has a strong pipeline of new power projects which will be operational over the period and would unlock value for the parent company. GMR owns and manages 3 airports - Delhi, Hyderabad and Sabiha (Turkey) and recently acquired the Male airport as well. It also has 6 operational and 3 under construction road projects with a project cost of `3000Cr and has 823MW of operating power assets, and an under construction portfolio of 4138MW. Time to reap the returns: Stock Codes Bloomberg Code GMRI.IN Reuters Code GMRI.BO BSE Code NSE Code GMRINFRA Face Value `1per share Shareholding Pattern (31st Dec, 2010) Completion of Delhi airport well ahead of Commonwealth games provides more evidence of GMR's execution capabilities. It is expected that the airport will begin FCF by FY12E and could also make net profit if management executes the plan to pay off debt with further real estate lease outs. Hyderabad airport has begun generating FCF in FY11 and there would be sharp rise in profits by FY12E led by higher capacity utilization. Power to provide the next growth leg: The Company has 823MW of operating power projects and 4138MW of under construction projects. Recent PE investment of US$3Mn in the power vertical would fund the growth through FY13E. Public 29.3% DIIs 8.3% FIIs 13.0% Promoters 70.7% 50% stake sale in Inter-Gen: The Company is going to sell its stake to China based Huaneng Group covering all the investment except the transaction cost. The cash could be used to fund its lined up power projects of 4138MW reducing the consolidated debt position to 2.58x from 2.98x. Price Performance (%) 1 Mth 3 Mths 6 Mths 1 Yr 11.1% -12.0% -32.3% -30.2% Price Performance (%) Stock Price Performance 15% 10% 5% 0% -5% -10% -15% Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 GMR Return Nifty Return We expect the company's revenue to grow at 10.2%, 12.5% and 14.8% for FY11E, FY12E & FY13E respectively. Based on the SOTP valuation, we recommend 'Buy' with the target price of `48.10 per share. Key Financials (`Cr) Particulars FY09 FY10 FY11E FY12E FY13E Net Revenues Growth (%) 75.1% 13.6% 10.2% 12.5% 14.8% EBITDA Growth (%) 62.9% 40.4% 34.7% 23.3% 8.0% Net Profit Growth (%) 30.8% 6.4% -29.7% 28.6% 50.0% Book Value Price to Book Value EBIDTA Margin % PAT Margin % RONW % Market Cap/Sales (E - Keynote Capitals Institutional Research Estimates) 2 Keynote Capitals Institutional Research

3 Company Background GMR Infra (subsidiary of GMR Group) is a Bangalore headquartered global infrastructure major with interests in the Airports, Energy, Highways and Urban infrastructure (including SEZ). The company has an exceptional track record of executing world-class infrastructural facilities within and outside India. The company currently has 3 airports, 3 power plants & 6 road projects which are operational. However Company's under construction and underdevelopment portfolio consisting of 1 international airport, 9 power project (7648MW), 3 road projects and SEZs. With its foray into the Airports sector, the Group has established itself as a front runner and pioneer in the core infrastructure areas of the country. Early entrant and a pioneer GMR started its power business in 1999, roads in 2004 and airports in 2006 GMR made its foray into infrastructure space with the commissioning of its first power plant (200MW, LSHS fuel) at Basin Bridge in Chennai during Feb-99. In fact, GMR was the first IPP in Tamil Nadu. Furthermore, GMR became India's pioneer airport developer in Dec-04, when it was awarded the contract to develop a green-field airport in Hyderabad. In May-06, the company bagged another landmark project-the development of Delhi Airport, which involved expansion and modernization of existing facilities, construction of a new runway and development of a brand new, integrated terminal T3, which at 37m annual passenger capacity, is set to be amongst the biggest in the world. Excluding power trading and EPC businesses, GMR currently has an equity interest in 35 assets/projects/investments, of which 15 are operational; the operational assets comprise: 3 airports, 3 power plants, 6 roads, DIAL real estate, InterGen and the Kendal coal mine (Homeland). GMR Holdings Pvt. Ltd % GMR Infrastructure Ltd. (GIL) GMR Energy Limited 98% 100% 100% 100% GMR Highways Holding Pvt. Ltd. GMR Airports Holding Limited GMR International Operating Companies: GMR Energy Ltd (100% GMR Power Corporation(51%) Vemagiri Power Generation(100%) Assets under development: GMR Badrinath Hydro Power(100%) GMR Kamalanga Energy (80%) GMR Chattisgarh Energy (100%) EMCO Energy Limited (100%) GMR Rajahmundry Energy (100%) Talong Hydro Power (100%) Holi Bajoli Hydro Power (100%) Himtal Hydro power Co. (80%) GMR Upper Karnali (73%) GMR Coastal Energy (100%) Island Power Singapore (100%) Operating Companies: GMR Tambaram Tindivanam (61%) GMR Tuni Anakapalli (61%) GMR Pochanpalli (100%) GMR Ambala Chandigarh (100%) GMR Jadcherla (100%) GMR Ulundurpet (100%) Assets under development: GMR Hyderabad Vijayawada (74%) Chennai Outer Ring Road (90%) Hungund-Hospet (51%) Operating Companies: GMR Hyderabad Intl. Airport (63%) Delhi International Airport (54%) Operating cum Development Companies : GMR Male International Airport Operating Co.: Sabiha Gokcen Intl. Airport (40%) Intergen N.V. (50%) Assets under development : - 2% with Employee Trust Keynote Capitals Institutional Research 3

4 Investment Rationale 1. DIAL: One of the busiest airport in India under the portfolio The company handles one of the busiest airports (Delhi) which contribute 21% of the total passenger traffic of Indian Airports. Delhi and Mumbai airports are the busiest airport in India. Of which Delhi is likely to emerge as one of the biggest airport with a capacity of 60Mn expandable to 100Mn over the period, whereas Mumbai, due to airside constrain, will have peak capacity of 40Mn over the period, which is much lower than the current capacity of Delhi Airport. The company has completed the construction of the airport in the record time of 37months compare to the world standard of months, much ahead of schedule. Chart 1 Handled 26.13Mn PAX and 0.5Mn tons of cargo in DIAL Passenger & Cargo Growth FY04-05 FY05-06 FY06-07 FY07-08 FY08-09 FY09-10 Domestic PAX (RHS) International PAX (RHS) Domestic Cargo (LHS) International Cargo (LHS) (Source: Company & Keynote Capitals Institutional Research) Passenger traffic has grown at a CAGR of 15% where as cargo traffic at 8% CAGR from FY05 to FY10. We expect same growth in the passenger traffic and cargo traffic during next three years. 2. Early COD of Sabiha Gokcen airport in Turkey The company has completed the construction work 12months ahead of schedule. With this, the capacity of airport has increased to 25Mn passenger and it is located on the Asian side of Istanbul. Therefore company would be able to collect more revenues to that the extent which may increase the value of the airport. The annual traffic growth in 2009 grew more than double thereby indicating high growth area for the company. 3. HIAL: one of the fastest growing airport Hyderabad airport is Greenfield airport which was awarded to GMR Infra in Dec 2004 by ministry of civil aviation with concession for the period of 30 years. This airport is also commenced its operations 5 months ahead of schedule on March Keynote Capitals Institutional Research

5 Chart 2 HIAL Passenger & Cargo Growth FY04-05 FY05-06 FY06-07 FY07-08 FY08-09 FY09-10 Domestic PAX (LHS) International PAX (LHS) Domestic Cargo (RHS) International Cargo (RHS) (Source: Company & Keynote Capitals Institutional Research) 4. InterGen sale to improve liquidity GMR Infra acquired 50% stake in 'InterGen NV' in October 2008 for US$1135Mn. Additional transaction cost & fees on the deal was to the tune of US$110Mn (including island power). In addition to US$275Mn in the form of equity, GMR has injected additional funds of around US$130Mn and have received US$32Mn in the form of dividend. Particulars Deal Cost Transaction Cost Equity Debt Long term Purchased Additional Dividend 32.5 Sold (Source: Company & Keynote Capitals Institutional Research) Keynote Capitals Institutional Research 5 Short Term The company announced to sell their stake in InterGen NV (50%) to China based Huaneng Group, the largest power generation company in China for equity value of US$1232Mn. After the completion of the deal, it seems that the company could successfully pull out its investments except the transaction cost. This cash inflows of `1000Cr (US$220Mn) can be utilized for the energy vertical where it has plan of 5000MW under various stage of construction & development. The acquisition debt would have led to deterioration of company's leverage position, which this sale has averted. The company's current D/E stands at 2.3x which would otherwise have resulted into 2.5x on InterGen consolidation worsening the leverage. 5. Monetization of Prime real Estate - Value creator The company holds 250 acres of land adjacent to DIAL. Land parcels are located in heart of National Capital territory with Delhi & Gurgaon (Central Business Districts) less than 20kms away acres of land is near NH-8 and remaining is situated nearby airport terminals. Recently, the company manages to monetize 45 acres of land at NPV of `77Cr per acre including lease rentals & upfront fees. Considering remaining land at NPV of `60Cr per acre another `12,300Cr can be monetized adding value to the real estate.

6 DIAL real estate: Monetization Schedule and other key assumptions Particulars FY10 FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E Area Allocated (acres) Escalation in Land Value Refundable Deposit (`Cr/acre) Infrastructure Cost (`Cr/Acre) Total Deposits (`Cr/Acre) % incremental (`Cr/Acre) GPV per Acre (`Cr) Share of GMR in GPV Apart from Delhi, company also has land parcels of around 1500 acres near the Hyderabad International Airport. HIAL has already developed an airport hotel (Novotel) on about 5 acres of land which is operational since October According to HIAL management, the value of land itself is `2Cr per acre and post development, it cloud be worth more than `7-8Cr per acre. HIAL real estate: Monetization Schedule and other key assumptions Year Area Allocated Escalation in GPV per Acre (acres) Land Value (%) (`Cr) FY % 5 FY11E 0 5.0% 5.25 FY12E % 5.51 FY13E % 5.79 FY14E % 6.08 FY15E % 6.38 FY16E % 6.7 FY17E % 7.04 FY18E % 7.39 FY19E % 7.76 FY20E % 8.14 FY21E % 8.55 FY22E % Significant pipeline in Power portfolio 5508MW of additional thermal capacity planned of which 4138MW under construction and also 2140MW of hydro capacity under planning stages. The company is expecting to add 4138MW of capacity by Meanwhile, the company has extended its hands to acquire coal mining assets internationally, a step to mitigate coal-availability issues and fluctuating coal-price risks. GMR has acquired a 100% stake in PT Barasentoso Lestari, Indonesia, and a 38.5% stake in Homeland Energy Group (HEG). HEG, through its subsidiaries, holds a 75% stake in Kendal & Eloff mines in South Africa. We believe owning mining assets abroad is a big positive for the company, considering the visible shortage of coal in India. Moreover, we expect coal imports to rise in the next few years due to the supply shortfall of domestic coal and the potential increase in coal blending at the upcoming thermal power stations. 7. Mining (coal) assets to feed ambitious growth plan in power segment An Indonesian coal mine acquired by GMR Energy a subsidiary of GMR Infra holds 30 year 6 Keynote Capitals Institutional Research

7 mining authorization over 2 separate coal blocks. GMR will import the extracted coal from this coal mine to India for its coastal power project, thereby ensuring coal supply to scale up power business. Moreover, this acquisition would help to hedge against coal-price fluctuation risks. 8. Diversified player with proven execution record GMR's portfolio is well diversified in the terms of geographical presence, asset-type, revenue stream, fuel mix in power projects, etc. Geographically company has presence in 10 states in India and internationally in 6 countries including Indonesia, Turkey and South Africa. It has presence in airport, power, roads & urban infrastructure (including SEZ). Air Roads Ports Metro Power Oil & Real Estate/ ports Rail Gas SEZ GMR Infrastructure GVK Power & Infrastructure Lanco Infratech Reliance Infrastructure L&T Mundra Ports & SEZ Tata Power JP Associates IRB Infra Developers HCC (Source: Company & Keynote Capitals Institutional Research) 9. Revenue Streams With each segment, GMR earns a mix of regulated and market-linked returns as well as business. The company is well hedged against the downside risk due to the regulated market returns. Chart 3 Diversified Portfolio (FY10) 11% 15% 8% 8% 42% 42% 39% 35% Revenue Networth Airport Power Roads Others (Source: Company & Keynote Capitals Institutional Research) Keynote Capitals Institutional Research 7

8 Chart 4 Business Mix Returns (FY10) 27% 67% 71% 73% 33% 29% Airport Power Roads Regulated (Source: Company & Keynote Capitals Institutional Research) Market Linked Apart from the diversified revenue mix, company is well known for its timely execution of its projects. All the projects have been completed on or before time, mainly due to strategic alliance formed with global infra developers. Business Verticals Airport - offer significant growth potential The Indian aviation sector is emulating the growth story of the Chinese aviation sector. In India also the infrastructure of the aviation sector is all set for a revamp with major airports under development through the public private partnership model. Key Drivers that could lead to overall growth are: 1. Development of regulatory framework. 2. Infrastructural changes at major airports. 3. Allaying funding concerns after improvement in the credit and capital markets. 4. Levy of development fees by major airports will partly fund the infrastructure capex. Chart 5 Passenger Growth (CAGR of 13% FY02-FY10) (CAGR of 9%FY10-FY13E) FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E (Source: AAI & Keynote Capitals Institutional Research Estimates) 8 Keynote Capitals Institutional Research

9 It started witnessing growth in the double digit since It has been one of the fastest growing markets in the world with passenger traffic growth of 19.5% CAGR from FY02 onwards. The Ministry of Civil Aviation has also envisaged a vision to create infrastructure for handling 280 million passengers by Ministry of civil aviation has envisaged a capacity of 280Mn passenger by 2020 at CAGR of 9%. It is expected the airports to operate at 80% utilization. Ministry of civil aviation has identified the overall opportunity of `5.5Lac Cr. Out of which `4lac Cr to be used for new aircraft and balance `1.5lac Cr for development of new airports by Delhi International Airport (DIAL) GMR has been granted 60 years concession period in which it will modernize, develop & operate the airport to handle the 100Mn passenger capacity by the end of period. It is one of the busiest airports which currently handles 26Mn passengers in FY10. The bidding includes paying an upfront fee of `150Cr and 46% of its gross annual revenues to AAI during the concession period. It has also signed agreements with government, not to invite bids for another airport, within 150Km radius of Delhi airport, DIAL would be allowed to match the most competitive bid, provided its initial bid is within 10% range of the most competitive bidder. Airport Development Plan: Phases Completion PAX Capacity Cargo Capacity PTB Area (MN) (tones) (Sq.m) 1A March July B March March March March March (Source: Company & Keynote Capitals Institutional Research) Financing of Phase I: The total project cost for the Phase-I expansion is expected to be more than `10000Cr. Capex Funding `Cr Debt 4986 Equity + Shareholders Advances Internal Accruals 29 Deposits from Real Estate deals 882 ADF 1827 (Source: Company & Keynote Capitals Institutional Research) Phase I completion at opportune time Delhi airport contributes 21% of all India traffic is the second largest in India. In FY10, the passenger traffic grew by 14.5% mainly due to global recovery. The Delhi passenger traffic has grown at a CAGR of 12.6% from FY However we expect passenger traffic growth to remain sustainable. It is expected to grow at CAGR of 8% over the next decade driven by overall stability in economy. Keynote Capitals Institutional Research 9

10 Chart 6 Traffic at DIAL 30% 25% 20% 15% 10% 5% 0% -5% -10% FY07 FY08 FY09 FY10 FY11E FY12E FY13E PAX ATMs Cargo Regulated and Market linked growth driver: Revenues of DIAL could be broadly classified in to three types: aero, aero related and nonaero. Aero revenues are a composition of landing revenue, passenger service fee, aircraft parking charge and X-ray charge, all of which are regulated by the AAI. The aero-related and non-aero revenues comprise revenues mainly from ground handling, fuel farm, duty-free, food & beverages, advertising, and car parking and rentals, which are linked to rental and customer spends. Since the aeronautical revenues are capped by a fixed formula, we believe, going ahead, the contribution of non-aero revenue will increase in the revenue mix and drive growth. DIAL enjoys a guaranteed return of 11.7% on investments in aero assets, which should offer support to profitability after the implementation of the regulatory framework. At the same time, the non-aero segment is not regulated and will offer significant upside potential to the profitability of the airport venture. We expect the framework to be implemented from FY12E onwards. Particulars FY10 FY11E FY12E FY13E FY14E FY15E Aero Revenues Non Aero Revenues Cargo Revenues CPD Rentals Gross Revenue Less: Revenue Share Net Revenue Total Expenditure Gross Profit Depreciation EBIT Interest EBT Tax EAT Keynote Capitals Institutional Research

11 It is expected that DIAL's revenues will show a 14.2% CAGR during FY EBIDTA margins are expected to be stable from FY10 to FY15E. HIAL-India's first world-class Greenfield airport HIAL has been granted the concession to develop and operate the airport to handle a capacity of 40 million passengers for 60 years. Hyderabad Airport has been the fastest growing Indian airport with a CAGR of 19.7% over FY05-FY10. Being independent of the regulatory framework, the profitability of the aero segment is much more reliant on the growth in passenger traffic. It has same revenue stream as DIAL. However, HIAL has to share only 4% of the gross revenues to AAI from 11th year. Key Feature: Deferred revenue share of 4%: In accordance to the revenue-sharing arrangement, HIAL will pay 4% of the revenue to AAI. However, the revenue sharing has been deferred for the first 10 years of operations, and the accrued amount is payable in the subsequent 10 years in 20 equal half-yearly instalments. No competing airport within 150 km: The existing airport was shut down after the commissioning of the new airport. No airport will be allowed to function within 150 km of HIAL for 25 years from the commissioning of the airport. Concession period: The concession period is 30 years from the airport opening date and the same is extendable by another 30 years at the option of the airport. Land-lease agreement: HIAL received 1,500 acres of land on lease for commercial development. Financing of Phase I The total project cost for the Phase-I expansion is expected to be more than `2920Cr. Capex Funding `Cr Debt 4986 Equity 378 Interest Free Debt (From Govt. AP) 107 Non Refundable Grant from Govt. AP 315 (Source: Company & Keynote Capitals Institutional Research) UDF being key driver: There has been increased in UDF with effect from 1st November, The new UDF is `430/- + ST and `1700/- + ST for each domestic & international departing passenger respectively. This could help HIAL to cover its cost faster and could break even before the expected year during initial period. Increased in UDF coupled with the rise in passenger traffic due to higher capacity utilization will drive the revenue growth. Keynote Capitals Institutional Research 11

12 Chart 7 Traffic Growth in HIAL 25% 20% Increased in UDF and higher capacity utilization, the likely profit driver 15% 10% 5% 0% -5% FY08 FY09 FY10 FY11E FY12E FY13E -10% -15% PAX ATMs Cargo (Source: Company & Keynote Capitals Institutional Research) Particulars FY10 FY11E FY12E FY13E FY14E FY15E Aero Revenues Non Aero Revenue Cargo Revenues Gross Revenue Less: Revenue Share Net Revenue Total Expenditure Gross Profit Depreciation EBIT Interest EBT Tax EAT Sabiha Gokcen (Istanbul) Airport GMR owns 40% of Istanbul SGIA, the company that won the 20- year concession to operate and develop the Sabiha Gocken International Airport in Turkey. The development was completed on 31st Oct '09, almost a year ahead of schedule, at the budgeted cost of Euro451m (`31bn). Project Detail: Due to limited scope in domestic markets as the company is already having 27% stake, it has foray into international markets by bagging 2 airport projects The project involved expanding two existing terminals (one domestic, one international), and developing a brand new international terminal, thus increasing the total capacity to 25m from 5m passengers. By the end of the concession term in July 2028, the airport is likely to handle well over 30m passengers annually, in our view. The project is a 'landside' concession, i.e. limited to terminal building and does not include any runways or airfield operations. Total project cost of Euro451m has been funded by equity of Euro115m and debt of Euro336m. Concession fee of Euro1.93bn (US$2.9bn; `135bn) to be paid in annual instalments, starting from the 4th year onwards, i.e. no concession fee to be paid until the end of April Keynote Capitals Institutional Research

13 As per the World Bank, Turkey is 16th largest economy on the world with GDP nearly $1 trillion. The Turkish economy is expected to grow at 4.5%. SGIA is one of the two airports in Istanbul, and is situated on the Asian side; the Ataturk airport on the European side is 55kms away from the SGIA. Ataturk airport has already exceeded its capacity by 35-40%. SGIA is therefore uniquely positioned to capture the spill-over traffic. The company has part of the revenue from the sale of fuel. We have included on net revenue (Gross - fuel cost) from sale of fuel for our analysis. Particulars FY10 FY11E FY12E FY13E FY14E FY15E Aero Revenues Non Aero Revenues Fuel Revenue (Net) Net Revenue Total Expenditure Gross Profit Depreciation EBIT Interest EBT Tax EAT Maldives International Airport (MIAL): In Jan-11, company bagged this project where the total estimated cost is US$511Mn. GMR holds 77% stake and remaining is held by Malaysia Airports Authority. Key Project Details The concession period is for 25 years extendable for another 10 years on mutual consent. PAX capacity added to 5.2Mn from 2.6Mn and Cargo to sq mts. To receive ADC of US$25 per departing passenger from 1st Jan, Concession upfront fees paid US$ 78Mn to the authorities for the project with fixed annual contribution of US$1.2Mn. Power sector landscape in India: Energy sector reforms have evolved over time and created an environment for private players to capture significant value from the huge power demand in India. As on 31st December 2010, India has an installed capacity of MW. The focus over the coming five years has been tilting towards private sector players. At present, ~16.8% of the installed capacity is with the private sector, which is expected to rise to 24.5% by Keynote Capitals Institutional Research 13

14 Chart 8 Plan wise installed capacity in India th Plan th Plan th Plan th Plan th Plan 2012E 11th Plan 2017E 12th Plan (Source: Planning Commission) Particulars FY11E FY12E FY13E FY14E FY15E Aero Revenues Non Aero Revenues Fuel Revenues (Net) Gross Revenue Less: Revenue Share Net Revenue Total Expenditure Gross Profit Depreciation EBIT Interest EBT Tax EAT Growth in deficit to support merchant market rates A continuous increase in the demand supply gap is providing support to the merchant power market. Erratic rainfall in several parts of the country is also supporting the favourable merchant rates in the near term. The merchant market is still at a nascent stage in India and is likely to behave in a volatile matter in the initial stages. With a view to curb volatility in the short-term market, CERC has capped the rates at `8. We expect the short-term merchant market to stabilise at `4. Even then, the players are expected to enjoy a premium to the players operating under the regulated regime. 14 Keynote Capitals Institutional Research

15 Chart 9 Demand-Supply scenario MW % 20% 15% 10% 5% 0% FY01-02 FY02-03 FY03-04 FY04-05 FY05-06 FY06-07 FY07-08 FY08-09 FY09-10 Supply (RHS) Demand (RHS) Deficit (LHS) (Source: CEA & Keynote Capitals Institutional Research) GMR Infrastructure has three operational power generation plants in India, with a total capacity of 823 MW currently. Moreover, it is planning to add another 7648MW of generation capacity in India. The pipeline includes 4138MW of projects under construction and 3510MW of identified projects. Meanwhile, the company has extended its hands to acquire coal mining assets internationally, a step to mitigate coal-availability issues and fluctuating coal-price risks. GMR has acquired a 100% stake in PT Barasentoso Lestari, Indonesia, and a 38.5% stake in Homeland Energy Group (HEG). HEG, through its subsidiaries, holds a 75% stake in Kendal & Eloff mines in South Africa. GMR has built a significant pipeline of power projects, which is likely to result in strong operational / financial growth over the medium-to-long term. PE deals to fund equity requirement through FY13E The company completed `1390 in Q1Fy11 through PE (Temasek & IDFC) in GMR Energy. The convertible preference shares are to be converted into equity at the time of IPO of GMR energy, slated in next months. 7648MW projects under various stages of construction and development It has 10 projects in hand totalling 7648MW, out of which 4138MW is under construction and 3510MW is under development. Management expects under construction portfolio to be completed by FY15. It consist proper mix of coal and gas. Keynote Capitals Institutional Research 15

16 Plant Size GMR s Project Cost Estimated Off-take arrangements Fuel (MW) Stake `Cr COD Kamalanga % 6040 Unit1: Mar 12 Unit 2: Jun 12 Unit 3: Sep 12 Unit 4: Dec 12 25% to be sold at regulated rates with an additional 7% at variable rates to Orissa. Case 1 bid signed for 300MW with Haryana. Target to maintain max. 15% (210MW) at merchant rates. Balance yet to be tied up Allotted the Rampia Dip captive coal block which is est. to start production by Mar-12. The project also has a tapering linkage for 1,050MW over 3.5 years in case production doesn t commence. EMCO % 3480 Unit 1: Aug-12 Unit 2: Nov-12 Vemagiri % 3290 Single cycle: Dec-11 Combined cycle: Mar-12 Chhattisgarh % 8290 FY14 Total Tied up 200MW with the Mahararshtra Govt. at a levelized tariff of `2.88/unit. 200MW yet to be tied and balance to be on merchant basis. PPA not yet signed. Mgt. expects to take benefit of merchant rates in the near term. We model a 40:60 PPA: merchant split in the long term. Mgt. plans to keep ~30% of capacity open while balance to be tied up on regulated/ppa basis. Signed L0A for with Coal India. Applied for KG-D6 gas allocation. Mgt. expects to top the EGoM s priority list given progress made on the project. Applied for linkage coal. Plan to fuel ~30% from e-auction and/or imported coal. Existing power capacities GMR has three operational power plants with a total generation capacity of 823 MW. These three plants are: (1) low sulphur heavy stock (LSHS) based 200 MW plant in Chennai, Tamil Nadu; (2) naptha-based 220 MWplant in Mangalore, Karnataka; and (3) natural gas-based MW plant in Vemagiri, Andhra Pradesh. GMR Power Corporation Pvt Ltd (Chennai plant) GMR's oldest plant (200 MW) is in Chennai, operating since 1999 on low sulphur heavy stock (LSHS). GMR Infra holds a 51% stake in GMR Power Corporation Pvt. Ltd. The plant is operating currently above a PLF of 70% and selling ~188Cr units of energy (kwh) annually. This plant sells its entire power at a regulated price with Tamil Nadu State Electricity Board under a 15-year Power Purchase Agreement (PPA) valid until Key Features GPC is guaranteed recovery of fixed charge (O&M, depreciation, interest and a 16% post-tax RoE), based on a minimum 68.5% plant availability factor (PAF); the fixed charge per unit at the targeted 68.5% PLF, has historically been in the range of ` Recovery of variable cost i.e. fuel cost and cost of lubricants is guaranteed, based on certain assumptions about the station heat rate and oil consumption norms GPC gets an incentive income of `0.25 for each additional unit, if actual generation exceeds a PLF of 68.5% State Govt. Guarantee is in place, in case of any default by TNEB on its dues to GPC 16 Keynote Capitals Institutional Research

17 Particulars E 2012E 2013E 2014E PLF 62.50% 68.50% 68.50% 68.50% 68.50% Production (Cr units) Total Sales Total Cost of Generation EBIDTA Depreciation EBIT Interest EBT Tax EAT GMR Energy Ltd (Mangalore plant) GMR's second plant in operations is currently located in Mangalore, Karnataka. The company has relocated this plant from Mangalore to the east coast, near Kakinada, Andhra Pradesh, in Q4FY10, and converted the plant from the current naptha-based to gas-based. Also, the existing capacity of the plant is likely to improve from 220 MW to 235 MW. The relocation of the plant near Kakinada (closer to the Krishna-Godavari basin) and the change in fuel base to natural gas is a strategic move made by the company, considering the gas availability in the Krishna-Godavari (KG) basin. The seven-year PPA got over in 2008, and the plant is currently operating on merchant basis. Due to the relocation exercise, PLF remained low in FY10; however, it touched to 46% in Q2FY11 and is expected to be at 75% from Q4FY11. This relocation has not only improved its efficiency but also hedge fuel supply and price fluctuation risks, given the adequate availability of natural gas in the new location. Significant value from merchant operations, post-conversion to natural gas The plant is being operating on a short term merchant basis, realizing anywhere between `4 to `4.5 per unit. However, the plant operated on lower PLF in FY10 due shifting of plant and change in fuel system. It showed comparatively better in 9MFY11 to 50% and will go up to 70% in FY12 and forward. Particulars E 2012E 2013E 2014E 2015E 2030E Installed Capacity PLF 28.0% 50.0% 70.0% 70.0% 70.0% 70.0% 70.0% Production Total Sales Total Cost EBIDTA Less: Depreciation EBIT Less: Interest EBT Tax EAT Keynote Capitals Institutional Research 17

18 Cost of Equity 12% Gross PV Debt 1000 NPV No of Shares NPV per Share 1.2 Power Generation Ltd (Andhra Pradesh plant) The third and latest (operational since 2008) operational power plant is located in Vemagiri, Andhra Pradesh. This plant is natural gas-based, with a capacity of MW. In FY09, the PLF of this plant was quite low due to gas unavailability. However, it has improved significantly in recent times with gas supply coming in from the KG basin. However, PLF improved significantly and it was ~86% in FY10. This plant is proposed to have a mix of PPA and merchant, wherein 20% of the capacity could be sold on a merchant basis. GMR is planning to expand capacity in the same location by adding another 768 MW, which is likely to be operational in FY12. VPGL's original 15-year PPA with AP Transco entails: (1) Fixed charge recovery of approx. `0.98/unit at 80% PAF; this consists of an INR component of `0.699 and a foreign currency component of US0.6cents per unit for FX debt servicing; and (2) full recovery of variable (fuel) cost, based on certain normative parameters. The original PPA has been extended by further eight years to 2029.Furthermore, to recoup the losses incurred in the initial years, VPGL has renegotiated the PPA to sell 20% (74MW) of the original contracted capacity (370MW) on merchant basis; this would take the total merchant capacity to ~92MW. Profits to surge in FY11: It had generated losses of `2bn at the net level, during FY08 and FY09. In fact, it has had to rely on `1.92bn loan from parent GMR to meet interest payments. However, things have turned around with increased gas availability, and VPGL has been generating profits since 1QFY10. We expect profits to surge further in FY11, driven by: (1) Higher PLF thanks to increased gas availability; (2) higher merchant sale; and (3) income from carbon credits, for which the plant is eligible, and has already applied for with the UNFCCC. Particulars E 2012E 2013E 2014E 2015E 2029E Installed Capacity PLF 86.0% 80.0% 80.0% 80.0% 80.0% 80.0% 75.0% Production Total Sales Total Cost EBIDTA Depreciation EBIT Interest EBT Tax EAT Keynote Capitals Institutional Research

19 Under construction power project: Currently, GMR is adding significant capacities, which are under different stages of construction. In India and Nepal, GMR is planning to add 8,307MW by FY16. Of these upcoming projects, 5,370 MW (~65% of total) are thermal, 2,140 MW (~26%) hydro, and 783 MW (9%) gasbased projects. Effectively, over the next 5-6years, GMR is likely to catapult its total generation capacity by more than 10x, to 9,116 MW compared to the current 823MW. Of the planned capacity addition of 8,307 MW, projects worth 4138MW are under different stages of construction, while the remaining (mostly hydro projects) are in planning stages currently. Chart 10 Anticipated Capacity Addition Year wise FY11E FY12E FY13E FY14E FY15E FY16E GMR Kamalanga Energy: The company is development 1050MW plant pursuant to an MOU with the Orissa government signed in June-06. This will be the company's first coal based power plant to achieve COD (by Mar-12). This project achieved financial closure in May-09, but the EPC order was already place with SEPCO of China in Sep-08. It also had already signed off-take agreements with 60% of the capacity-25% with GRID company of Orissa and 35% with Haryana government through PTC. The company would be selling atleast 20% of the capacity on merchant basis and balance if any could be sold through long term power sale agreements. It has secured 100% of the fuel supply through a coal-linkage; coal supply from the linkage will taper down, once GMR is able to access coal from the two coal blocks (Rampia, Dip side of Rampia in Orissa), being developed simultaneously by a six-member JV. Fuel Coal Coal block has been allocated Capacity (MW) 1400 COD Jun-12 Project Cost (`Cr) 6040 Capex per MW of `4.3Cr Equity 1510 Debt % of total project cost EMCO Energy: In July-09, GMR acquired 100% of Emco Energy (EEL) from EMCO Ltd, at a premium of `1.20bn over EEL's book value. EEL is developing a 600MW coal-based plant (in two phases: 2x300MW) in Chandrapur district of Maharashtra. The acquisition marks GMR's foray into the power deficit Western Region (19% peak power deficit in FY09, v/s all India level of 12%). The company has financial tie-up with consortium of banks of which Axis bank is being a lead banker. Keynote Capitals Institutional Research 19

20 Key Project Details: Fuel Coal Coal linkage Capacity (MW) 600 Project acquired at a premium (over book value) of `1.2bn from Emco Ltd. COD July-12 Project Cost (`Cr) 3480 Capex per MW of `5.6Cr Equity 870 Debt % of total project cost Vemagiri Expansion: GMR is developing a 768MW plant at the existing Vemagiri plant site, encouraged by availability of higher gas from KG basin and adequate land at the site. The expected CoD is Jan-12, and the company has already awarded an EPC contract to L&T worth over `20bn. Financial Closure was done in Sep-10. Key Project Details: Fuel Gas Allocation from KG Basin Capacity (MW) 768 COD Mar-12 Project Cost (`Cr) 3290 Capex per MW of `4.3Cr Equity 822 Debt % of total project cost Chhattisgarh Project: 1370MW project is GMR's first coal project using super critical technology at Raipur district, MoU signed with the state government of Chhatisgarh. The long term PPA has already been signed with CSEB for 35% of capacity. It is expected that another 35% would be tied up and remaining 30% could be sold on merchant basis. Key Project Details: Fuel Coal Capacity (MW) 1370 COD Mar-14 Project Cost (`Cr) 8290 Capex per MW of `6.1Cr Equity 2072 Debt % of total project cost InterGen NV An international Acquisition: GMR extended its global presence further through the acquisition of 50% stake in InterGen, a leading global power generation company situated at UK. InterGen N.V., has 8088 MW of gross operating capacity (6254 net equity MW) across five countries and about 5500 MW capacity under development. This acquisition is the largest ever acquisition of a global energy utility by an Indian company. With this acquisition GMR Group has graduated as one of the largest private Independent Power Producers (IPPs) in India. Key Features: 89% of capacity is gas based and remaining is coal based. 78% of capacity is contracted on long term basis deriving secured cash flow All the power projects are around 6years old and still it has average remaining life of years. It has presence in 5 countries 20 Keynote Capitals Institutional Research

21 However, GMR has announced the sale of its 50% stake in InterGen NV. The confirmation of the deal would bring 3 positives to the company. 1. After repayment of acquisition debt of US$1B, it leaves GMR with equity surplus of US$225M, which the management intends to use for infrastructure privatization opportunities in India 2. The acquisition debt would have led to a deterioration of GMR's leverage ratios, which this sale has averted. GMR's current consolidated DER stands at 2.46x, and a potential consolidation of InterGen would have resulted in this ratio worsening to 2.98x. 3. Better investor perception. Road Segment: India has one of the largest road networks (3rd largest) in the world, aggregating 3.3Mn km and around 5% of world's total road network consists of 68.93Mn km, it stands third after United States and China, aggregating 6.46Mn km and 3.58Mn km respectively. Chart 10 World Road Network USA China India Brazil Japan Canada France Russia Australia In Million km % of total road Network (Source: CIA world fact book, Keynote Institutional Research) Road network consist of national highways & expressways (2%), state highways (4%), major district roads (14%) and rural including other roads (80%). Although national highways contribute only 2% to Indian road network, it plays a vital role in handling traffic on Indian roads which handles 40% of traffic compared to rural roads, which consist 80% of total road network and handle only 20% traffic. State roads and major district roads, together handle the remaining 40% of traffic. India will require US$70bn investment over the next three years to realize plans to build 20km of road per day to ensure future growth. For this NHAI is required to award at least 21000km over next 3 years so as to achieve the objective of constructing 7000km per year (equal to 20km per day). NHDP program comprises about 54000km, out of which, about 11000kms have already been 4-laned and another 6000km are under different stages of implementation. Thus, around 37000km is yet to be awarded for construction. However, these projects will be awarded over the next 3.5 to 4 years, assuming a construction period of 3 years. Keynote Capitals Institutional Research 21

22 NHDP & Other NHAI Projects Total Length (km) Already 4-Lanned (km) Under Implement. (km) Contract Under Implement (km) Balance Under Forward (km) (Source: NHAI) Particulars GQ NSE W Ph. I&II Relatively shorter gestation of road projects balances the longer gestation period of power/airport projects NHDP Ph. III Ph. V Ph. VI Ph. VII Real Estate & SEZ Segment: Land adjoining airports - A prized possession GMR has acquired a land bank of 250 acres at Delhi. At Delhi Airport, despite the challenging environment in the real estate market over the past year, GMR has been able to sell 45 acres raising ~`4300Cr GMR will sell the balance in several parcels over the coming seven to eight years. Considering the initial 45 acres as benchmark, we believe, DIAL will be able to realise on similar lines. Total ~80% of the land bank at DIAL is located next to NH-8, which would enhance the access to the land bank. The scope of development of the land has been enhanced to allow additional 18 usages catering to commercial, office to residential, which is incidental and supplemental to the airport usage. Land adjoining Hyderabad Airport SARDP NE NHDP IV Total NHDP Port Connect Others GMR portfolio currently has 6 operational projects (421kms) and 3 under construction projects (309kms). The government's renewed focus on road infrastructure development augurs well for BOT operators and meant for long term & steady growth. Looking at factors like the government thrust on road development, strong political commitment, and easing liquidity with expected revision in framework for projects, we believe that road development projects are on a steep growth trajectory and would offer immense opportunity for GMR. Balanced portfolio mix GMR's portfolio of operational road assets comprises three annuity and three toll roads. The company's first two road assets were both annuitybased, and they commenced commercial operations during Oct-Dec '04. The next four projects achieved CoD during Nov-08 to Jul- 09. GMR has already won 3 more road projects, of which 2 are toll-based (Hyd- Vijaywada & Hungund-Hospet) and the other is annuity-based (Chennai Outer Ring Road). These 3 assets are currently under construction, and are expected to achieve CoD during Apr-Aug Project Length Project COD Concession Concession Status cost Period Type Tuni-Anakpalli (GTAEPL) 59Kms 304 Oct Annuity Operational Tambaram-Tindivanam (GTTEPL) 93Kms 390 Oct Annuity Operational Pochanpalli (GPEPL) 103Kms 690 Mar Annuity Operational Ambala-Chandigarh (GACEPL) 35Kms 499 Nov Toll Operational Faruknagar-Jadcherla (GJEPL) 58Kms 516 Feb Toll Operational Tindivanam-Ulundurpet (GUEPL) 73Kms 882 Jul Toll Operational Hyderabad-Vijaywada (GHVEPL) 181Kms 2193 Jul Toll Under Construction Hungud-Hospet (GHHEPL) 99Kms 1701 Dec Toll Under Construction Chennai Outer Ring Road 29Kms 1167 Jun Annuity Under Construction (Source: Company) Total GMR has acquired land of 1,500 acres adjoining the Hyderabad Airport. GMR plans to develop 22 Keynote Capitals Institutional Research

23 an aerotropolis on 1,000 acres. The aerotropolis will include commercial, retail and convention cum entertainment spaces. It also includes a health corridor spanning across 25 acres, which will include multi speciality hospital & research and trial facilities. The thematic development of infrastructure surrounding the airport will receive a significant boost on account of the increased air traffic. Aviation & logistic SEZ Out of the remaining land of 500 acres at the Hyderabad Airport, GMR plans to develop a logistics and aviation SEZ spanning 250 acres each. GMR has signed a JV agreement with Malaysian Airlines to set up a maintenance repair & overhauling (MRO) facility spanning across 25 acres. GMR has also signed an agreement with CFM, a French multinational, to set up an aviation training school. The increase in fleet utilisation by existing carriers and the probable expansion of aircraft fleets with the growing traffic augurs well for the proposed MRO facility in Hyderabad. GMR is also looking at setting up a 250- acre multi-produce SEZ of logistics. Krishnagiri SEZ GMR has entered into an MoU with Tamil Nadu Industrial Development Corporation (TIDCO) for development of a multi-product SEZ. GMR plans to develop 3,300 acres focusing on biotechnology, IT & ITeS, electronic and engineering industries. The proximity of Krishnagiri district to Bangalore (IT hub) and Hosur (automobile industry hub) will support the overall demand for the SEZ. About 70% of the private land has been procured. Mining assets GMR has acquired a 100% stake in PT Barasentoso Lestari (Indonesian mine). These mines are believed to have an overall 108 million tonnes of mineable coal reserves. The annual production capacity is believed to be around 6 million tonnes and the mine is expected to commence operations by FY13. The said mines are expected to export coal to India for the coastal power projects of GMR. By taking stakes in mining assets abroad, GMR has mitigated the risk of rising fuel prices for their thermal power plants. GMR has also acquired a 38.5% stake in Homeland Energy Group (HEG). HEG, via its subsidiaries, is holding a 75% stake in Kendal & Eloff mines in South Africa. Both mines combined are expected to have a mineable reserve of ~300 MT and is expected to have an annual production capacity of ~14 MT. Concerns: Adverse regulatory developments may impact operations: GMR has interests in several business sectors that are regulated in nature. Any disappointing amendment of the regulatory framework may impact the operating performance of the company. The regulations of the aviation sector are at the formulation stage. The delay in implementation of the new regulatory framework may adversely impact the revenues of the airport segment. Passenger traffic risk at airports: Any slowdown in passenger traffic will hurt financial performance of the airports. We have assumed passenger traffic to grow at a CAGR of 10% over next three years at Delhi airport and 15% at Hyderabad Airport. Traffic risk at toll based BOT projects: Vehicle traffic is the source of revenue for toll-based projects so any slowdown or change in our vehicle estimates would have an adverse impact on the overall profitability of the projects. Keynote Capitals Institutional Research 23