GMR Infrastructure Ltd (GMRINF)

Transcription

1 December 8, 29 Power Initiating coverage GMR Infrastructure Ltd (GMRINF) Current Price Rs 7 Potential upside 6% Target Price Rs 74 Time Frame months Building mega structures GMR Infrastructure (GMR), a conglomerate with interests in airports, power, highways, mines and SEZ is a complete urban infrastructure play. The company has an exceptional track record of executing world-class infrastructural facilities within and outside India. GMR has an operational presence in high growth sectors like aviation where it is operating three airports in Delhi, Hyderabad and Turkey with an overall passenger (pax) base of ~33.5 million pax in FY9. It is building capacity to handle ~165 million pax by the end of the respective concession periods. In the power segment, GMR has been operating 823 MW of capacity. A huge pipeline of 7,628 MW is at various stages of development. GMR also has six operational road projects with an overall length of 421 km. The assets possess significant growth potential and we expect a CAGR revenue growth of 35% for the period FY8-FY12E from Rs 2,3 crore to Rs 7,7 crore. Thus, we are initiating coverage on the stock with an ADD rating. Superior airports In a sweet spot with ~27% market share in India With Delhi and Hyderabad airports, GMR is handling close to ~27% of the overall Indian passenger base. Delhi has shown reasonable stability in the depressing phase over FY9 and Hyderabad is one of the fastest growing airports with passenger traffic growing at a CAGR of ~23% over FY4-9 compared to overall India passenger traffic growth of ~17%. GMR has also forayed into Turkey and inaugurated a new terminal in November 29 with a capacity of 25 million pax. Improving visibility for merchant play to support operating profitability With the opening of the 2% merchant capacity at Vemagiri, GMR s overall merchant capacity is expected to increase from the existing 22 MW to ~31 MW in the next quarter. GMR is also planning to relocate the existing barge mounted plant from Mangalore to Kakinada and would convert the source of fuel from naphtha to natural gas. We believe it will commence operations in April 21 and lead to an overall incremental quarterly profit of ~Rs 8 crore from Q1FY11E. Valuations At the current market price of Rs 7, the stock is trading at P/BV of 4.x in FY1E and 3.8x in FY11E. We have adopted an SOTP based methodology to arrive at the fair value. Airport, along with real estate, will have Rs 25 per share, power segment will have Rs 25 per share while remaining Rs 24 per share comes from various other segments. Thus, we are initiating coverage on the stock with an ADD rating. Exhibit 1: Key Financials FY8 FY9 FY1E FY11E FY12E Net Sales 2, ,19.2 5, ,59.7 7,71.4 EBITDA ,67.1 1,56.7 2,82. 2,69.9 Net Profit * EPS (Rs).6.8 (.).8.8 EPS Growth (%). 33. NA NA (3.5) EBITDA margin (%) PER (x) NA P/BV (x) Price/sales (x) Dividend Yield (%)..... RoCE (%) RoNW(%) (.7) * Net profit is expected to decline significantly due to one time GEL relocation in Q4FY1E Analysts Name Jitesh Bhanot jitesh.bhanot@icicisecurities.com Sales & EPS trend 1, 8, 6, 4, 2, Stock Metrics 1. 7,74 6,56.8 5, ,19.4 2, (.2) FY8 FY9 FY1E FY11E FY12E Sales (Rs Cr - LHS) EPS (Rs - RHS) Bloomberg Code GMRI.IN Reuters Code GMRI.BO Face value (Rs) 1 Promoters Holding 74% Market Cap (Rs cr) 25, week H/L 92 / 25 Sensex 16,983 Average volumes 975,624 Comparative return metrics Stock return(%) 3M 6M 12M GMR Infra 2.4 (13.6) GVK Power Tata Power Lanco Infra Price Trend Price (Rs) Oct-8 Dec-8 Feb-9 Close Price Absolute Sell ADD Apr-9 Jun-9 Aug-9 Oct-9 Absolute Buy Target Price Dec-9 ICICIdirect.com, Research 1 Page

2 Company Background GMR Infrastructure is the holding entity with a major presence in verticals like energy, aviation infrastructure, transportation and urban infrastructure. GMR operates three power plants in India with an overall capacity of 823 MW and has a huge pipeline of 7628 MW in various stages of development. The company has a 63% stake in Hyderabad Airport, 54% stake in Delhi Airport and 4% stake in Sabiha Gokcen Airport (Turkey). In the transportation vertical, GMR has six operational road projects in their portfolio, three each on toll based concession agreements while the other three are on annuity based concession agreements. Two other road projects are under development. Exhibit 2: Company structure GMR Infrastructure (GMR) Power Airports SEZ & Real Estate 1 % 51 % 1 % 54% 63 % 1 % 63 % GEL - Karnataka (22 MW) GPCPL-Chennai (2 MW) Vemagiri - AP (388.5 MW) Delhi International Airport - DIAL Hyderabad International Airport - GHIAL Krishnagiri SEZ 3,3 acres Tamil Nadu Hyderabad - 1, acre commercial development 25 acres of Aviation SEZ 25 acres of Logistics SEZ Real Estate 54 % 25 acres of land development at DIAL Road 1 % 8 Road Projects 4- Toll based 4 -Annuity based India business International business Global Power - InterGen 5 % Assets in Operation -7,658MW UK -2,385MW Mexico -2,223MW Netherland -82MW Philippines -46MW Australia -1,77MW International Airport 4 % Sabiha Gokcen International Airport - Turkey 2 Page

3 Power assets GMR has three operational power plants with an overall capacity of 823 MW. One each is in Andhra Pradesh, Karnataka and Tamil Nadu. GMR is operating the 22 MW barge mounted power plant in Karnataka on naphtha. This is expected to be relocated to Andhra Pradesh in Q4FY1 and would commence operations on natural gas after relocation. Another MW plant in Vemagiri, located in Andhra Pradesh, has already achieved commissioning date (CoD) in 26. However, owing to non-availability of fuel, the company was operating at very low PLFs. The PLF in FY9 was ~2%. After the improvement of gas availability, the PLF has been ramped up to ~87% for April-October 29. For the Vemagiri plant, the government has also given a go-ahead for selling 2% of the power under merchant capacity. The requisite regulatory approval is expected shortly and the merchant power sale is expected to commence from December 29. The third operational plant of 2 MW is in Chennai and is based on low sulphur heavy stock (LSHS) as feedstock with an operational record since The company has a huge power portfolio lined up for operation in the coming years. The current generation capacity of the company stands at 823 MW and the company has planned capacities of ~6,813 MW (83% based on thermal and 17% based on hydro). The planned and operational plant details have been summarised below along with their expected CoD. Exhibit 3: Details of power assets Shareholding pattern (Q2FY1) Shareholder % holding Promoters 74.4 Institutional investors 8.1 Other investors 11.3 General public 6.2 * Data as on Sept 3, 29 Promoter & Institutional holding trend (%) 1% 8% 6% 4% 2% 74.1% 8.5% 74.9% 8.5% 74.4% 8.6% 74.4% 8.1% % Q3 Q4 Q1 Q2 Promoter Holding Institutional Holding * Data as on Sept 3, 29 Plant Capacity (MW) Fuel Type Status CoD/ Exp. CoD Offtake Arrangements % sold under merchant basis GEL, Tamil Nadu 2 LSHS Functional 1998 Regulated Barge Mounted, Karnataka GPCPL) 22 Naptha Functional 21 Merchant 1 Vermagiri Phase I, AP (VPGL) 388 Natural Gas Functional Feb-8 Regulated/ Merchant 2 Vemagiri Phase II, AP (VPGL) 768 Natural Gas Under Development FY12-13 Merchant 5 Kamlanga Dhenkamal Orissa 1,5 Coal Financial Closure FY12-13 Regulated/ Merchant 2 Emco Energy 6 Coal Financial Closure FY12-13 NA NA GMR energy Raipur Chattisgarh 1,2 Coal Under Development FY12-13 Regulated/ Merchant 3 Gujarat Coastal 1,32 Coal Under Development FY13-14 Regulated/ Merchant 35 AP Coastal 7 Coal Under Development FY13-14 Merchant 1 Alaknanda Hydro Uttarakhand 3 Hydro Under Development FY14-15 Merchant 1 Talong Hydro Arunanchal Pradesh 16 Hydro Under Development FY15-16 Merchant 1 Bajoli Holi Himachal Pradesh 18 Hydro Under Development FY16-17 Merchant 1 Karnali, Nepal 3 Hydro Under Development FY16-17 Merchant 1 Marsyangdi, Nepal 25 Hydro Under Development FY16-17 Merchant 1 Total 7,636 International power assets The company has acquired a 5% stake in InterGen NV, a Netherlands based leading power generation company, with operational assets to the tune of 7,658 MW and assets under construction of 428 MW. The assets have an 87:13 fuel mix of natural gas to coal. It operates 12 power plants based in four continents. GMR has also acquired a 1% stake in Island Power, Singapore, from InterGen, which has gas-based assets portfolio of 8 MW in the development stage. GMR also has a trading company in its kitty for accentuating trading revenues through the merchant power trade route. 3 Page

4 Airport assets The company has been conferred the responsibility of building airport passenger and cargo terminals, runways and refurbishing the existing operations at Delhi (Indira Gandhi International Airport [IGAI]) and Hyderabad (Rajiv Gandhi International airport [RGIA]) airports. Overall work at the airport has been segmented into four to five phases for IGIA and RGIA, respectively. Out of this, Phase 1A and Phase 1 for IGIA and RGIA are complete. The phase wise breakdown of the IGIA and RGIA has been summarised below: Exhibit 4: Different phases of development at Delhi & Hyderabad airports IGIA - Delhi Airport RGIA - Hyderabad Airport Phase Expected completion Passenger capacity (Px Million/annum) Cargo cap (' Tonnes) Runways Expected completion Passenger capacity (Px Million/annum) Cargo cap (' Tonnes) Runways Phase 1A Jul Mar Phase 1B Mar Mar Phase 2 Mar Mar Phase 3 Mar ,4 3 Mar Phase 4 Mar ,1 4 Mar Phase 5 Mar ,6 4 Not Applicable Along with its consortium members, GMR had also won the bid to develop Istanbul Sabiha Gokcen International Airport (ISGIA) in Turkey. The consortium has already completed the construction work and the new terminal was inaugurated on October With the inauguration of the new terminal, the capacity of the airport has increased to 25 million passengers. The ISGIA is located on the Asian side of Istanbul. Istanbul also has another airport (Ataturk) on the European side, which has already exceeded its handling capacity by 4%. The government of Turkey has already approved and sanctioned 1 million for land acquisition of the second runway at ISGIA. Real estate The company has interests in real estate development in and around the airports built/refurbished by them. GMR has been allocated land for development near the airport premises for lease after development. For Delhi airport, the land is ~25 acres while it is ~1, acres for Hyderabad airport. A hospitality district is also being planned near DIAL on the piece of land adjoining IGIA. 4 Page

5 SEZ GMR is also expected to develop several SEZs. Krishnagiri project is the first SEZ and is located on NH7 towards the Tamil Nadu-Bangalore border. Spanning across 3,3 acres to be operational by FY14, the target portfolio at the SEZ would constitute sunrise sectors such as solar and photo volt, biotechnology, IT, ITeS, electronics and engineering industries. The other projects include the 25 acres aviation specific development SEZ (aviation cluster) near Hyderabad airport and a 25-acre logistic hub as a multi-product SEZ. The SEZ is also expected to attract tax holidays and other benefits for the SEZ developer. Highways The company has been able to garner road projects dealing with the construction and refinement of road infrastructure for highway stretches in the country. GMR has completed six projects out of the total eight (623 km). Following are the projects that the company has worked on and the ones under development. Exhibit 5: Highways projects Highway State Distance (Kms) Year Type Status Tambaram Tindivanam - NH 45 (GTTEPL) Tamil Nadu Annuity Completed Tuni Anakapalli - NH 5 (GTAEPL) Andhra Pradesh Annuity Completed Ambala Chandigarh - NH 22,21 (GACEPL) Haryana Toll Completed Thondapalli Jadcherla - NH 7 (GJEPL) Andhra Pradesh Toll Completed Adloor Gundia Pochanpalli - NH 7 (GPEPL) Andhra Pradesh Annuity Completed Tindivanam Ulunderpet - NH 45 (GUEPL) Tamil Nadu Toll Completed Hyderabad Vijaywada - NH 9 (GHVEPL) Andhra Pradesh Toll Under Construction Chennai Outer Ring road (ORR) Tamil Nadu Annuity Bid Won Total Page

6 Segment wise mix of revenue & EBITDA skewed in favour of power With 823 MW of capacity under operation in the power segment and the aviation sector still nascent with respect to the potential that the segment offers, revenue and EBTDA numbers look skewed in favour of the power segment in the historical financials. Exhibit 6: Segment wise revenue and EBITDA contribution for FY9 3.8% 13.1% Revenue - Rs 4,19 Cr 16.8% EBITDA - Rs 1,67 Cr 11.8% 5.% 53.1% 3.% 21.3% Power Airports Highways Others Overall EBITDA margin dragged down by power segment Nearly 5% of the overall EBITDA is generated from the power segment while ~21% of the EBITDA comes from the airport segments. The EBITDA margin of the power segment was close to 25% while for the airport segment it was ~19%. This is dragging the overall margin picture of the company. Exhibit 7: Segment wise EBITDA margin for FY Power Airports Highways Others Overall 6 Page

7 Investment Rationale Airport Segment GMR s portfolio consists of two of India s busiest airports (Delhi and Hyderabad). Together both airports handle ~27% of the overall Indian passenger traffic. Taking into account the overall growth prospects of the Indian aviation sector, we believe the portfolio is significantly important in the overall airport infrastructure segment. GMR also has an international airport in its portfolio. The company has inaugurated the new terminal at Sabiha Gokcen airport in Turkey nearly 12 months ahead of schedule. With the inauguration of the new terminal, the capacity of the airport has increased to 25 million passengers. The ISGIA is located on the Asian side of Istanbul. Istanbul also has another airport (Ataturk) on the European side that has already exceeded its handling capacity by 4%. Exhibit 8: Market share of combined Delhi and Hyderabad Airport (Montly Passengers - Lakhs) Apr-4 Jul-4 Oct-4 Jan-5 Apr-5 Jul-5 Oct-5 Jan-6 Apr-6 Jul-6 Oct-6 Jan-7 Apr-7 Jul-7 Oct-7 Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Paxs Traffic - India (LHS) Market share (Delhi & Hyderabad) (RHS) Paxs Traffic - Delhi & Hyderabad (LHS) (%) 62.7 Per share value of Airport Segment 11.6 Airports Airports to offer significant growth potential The Indian aviation sector is emulating the growth story of the Chinese aviation sector. The Chinese aviation sector started growing in the early part of last decade and has revamped the infrastructure supporting the 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. Although de-growth of overall passengers in FY9 has raised several questions on the outlook of the entire aviation sector, we believe the concerns are being overplayed and the sector is expected to be back to the growth trajectory in the years to come. Key drivers that lead us to believe in the overall growth story are: (i) The development of regulatory framework (ii) Infrastructural changes at major airports (iii) Declining ATF prices compared to last year will improve the operating profile of the airline carriers and reduce the cost of travel for passengers (iv) Allaying funding concerns after improvement in the credit markets and capital markets (v) Levy of development fees by major airports will help fund the infrastructure capex partly The growth in the aviation sector has been skewed in favour of the Asian region in the last decade. We believe India and China will dominate the growth over the next decade as well 7 Page

8 A major difference between the Indian and Chinese aviation sector is that the growth in the Chinese aviation sector started trending upwards four years prior to the uptrend in the Indian aviation sector. The first bout of correction in the Chinese aviation sector was witnessed in 23. It lasted for approximately eight months. Subsequent to the correction, the Chinese aviation sector again picked up sharply and witnessed a CAGR of 15% from FY3-9. It has achieved a monthly passenger (pax) traffic volume of ~23 million in August 29. The Indian aviation sector started witnessing growth in the high double digits since 22. However, it still has a significant way to go before it can catch up with the volumes in the Chinese market. After witnessing a CAGR of 16% for passenger traffic from FY3-9, India as of August 29, boasts of an overall monthly passenger base of ~9.9 million. With signs of revival in economic growth, we expect the overall passenger (pax) traffic to start picking up again. Exhibit 9: Comparison between passenger traffic growth in China and India Million Passengers Advent of Low cost carriers & advent of Open Skies policy initiated the growth Meltdown in the global markets led to the degrowth in volumes Apr- Feb-1 Dec-1 Oct-2 Aug-3 Jun-4 Apr-5 Feb-6 Dec-6 Oct-7 Aug-8 Jun-9 Monthly China Pax Traffic Monthly India Pax Traffic India Pax Growth (RHS) China Pax Growth (RHS) (%) Opening up of the international skies for low cost carriers is also expected to add to overall growth Source: CMIE, Bloomberg, ICICIdirect.com Research Apprehensions overplayed The Indian air transport sector has been one of the fastest growing markets in the world with passenger traffic growth of 19.5% CAGR from FY2-FY8. It has witnessed de-growth of 6.9% in FY9. Even after witnessing a purple patch from FY2-FY8 in the past decade, air commutation continues to suffer from under penetration. Indian airports handled total traffic of 18 million passengers and 1.69 million tonnes of cargo in FY9 registering YoY de-growth of 6.9% and 1% in passenger traffic and cargo handled, respectively. We believe the concerns of a slowdown in the sector are overplayed by market participants. With an improvement in overall sentiments in the economy, the sector is again showing signs of revival. We expect the overall compounded growth in passenger traffic to be around 9% till 22. The Ministry of Civil Aviation has also envisaged a vision to create infrastructure for handling 28 million passengers by 22. (Please refer Exhibit 1) Even after witnessing a purple patch from FY2-FY8 in the past decade, air commutation continues to suffer from under penetration. Indian airports handled total traffic of 18 million passengers and 1.69 million tonnes of cargo in FY9 8 Page

9 Exhibit 1: Passengers growth, percentage of traffic handled by top five airports Million Passengers FY9 FY8 FY7 FY6 FY5 FY4 FY FY2 44 FY3 49 FY4 59 FY5 73 FY6 96 FY7 117 FY8 19 FY9 FY2* FY2 % 2% 4% 6% 8% 1% Delhi Pax Hyderabad Pax Mumbai Pax Chennai Pax Kolkatta Pax Others Source: CMIE, ICICIdirect.com Research * Ministry of Civil aviation has envisaged a capacity of 28 million passengers by 22. We expect the airports to operate at 8% utilization. The consumer market in India is a multi-layered pyramid. In FY8, the apex strata (sheer rich and super rich) consisted of.25 million households and witnessed a CAGR of 26% from FY96 to FY8. The middle class (seekers, strivers, near rich and clear rich) stood at millions, 98x the size of the apex strata and has witnessed a CAGR of 15% from FY96 to FY8. This will lead to an aggregate addressable base of ~24.6 million. In FY8, the overall passenger traffic base was 117 million. This seems to signify an average number of trips per household of 2.4 per year. Even if we estimate a conservative outlook at a CAGR of 5% for the addressable base over the next 12 years then India should be able to achieve a 224 million passenger base by 22. Huge opportunity on the anvil in airport segment The Ministry of Civil Aviation has envisaged an overall opportunity of US$11 billion (Rs 5,5, crore). Out of this, US$8 billion is for new aircraft while US$3 billion (Rs 1,5, crore) is for development of new airports by 22. With a burgeoning need for funds in infrastructure projects, companies are increasingly turning towards domestic banks. Easing of the international credit markets has also reduced the funding concerns for major players. Some of the major initiatives under way are: 1. Airports Authority of India s measure of upgrading and modernising 35 non-metro airports in the country in a time bound manner 2. Development of airports in the north-eastern region is being taken up on a priority basis 3. Request for qualification (RFQ) for Amritsar and Udaipur has already been issued 4. Development work at additional 13 non-metro airports is being undertaken. These airports are Akola, Belgaum, Calicut, Cooch Behar, Dibrugarh (Mohanbari), Gondia, Hubli, Kullu (Bhuntar), Mysore, Rajahmundry, Surat, Srinagar and Vijaywada 9 Page

10 Delhi Airport DIAL GMR has been granted a concession of 6 years beginning 26 in which it will modernise, develop and operate the airport to handle a capacity of ~1 million passengers by the end of the concession period. DIAL is one of the busiest airports in India with a passenger base of ~23 million in FY9. Despite the lull in FY9, the passenger traffic at Delhi Airport has witnessed a CAGR of 15.2% from FY2-9. We expect the passenger traffic at DIAL to grow at a CAGR of 8% over the next decade at a rate slightly muted compared to the overall industry growth rate of 9% due to higher growth at the smaller airports on account of base effect. Exhibit 11: Positive momentum in monthly traffic augurs well for DIAL Consortium Partners - DIAL Investors % Stake GMR Infra 54. AAI - Govt of India 26. Fraport 1. Malaysia Airport 1. Total 1. (Montly Passengers - Lakhs) Apr-4 Oct-4 Apr-5 Oct-5 Apr-6 Oct-6 Monthly Passengers - (LHS) Apr-7 Oct-7 Apr-8 Oct-8 Apr (5) (15) Passenger Growth - YoY (RHS) (%) (Montly Passengers - Lakhs) Apr-4 Oct-4 Apr-5 Oct-5 Apr-6 Oct-6 Apr-7 International Passenger - (LHS) Domestic as % of overall traffic - (RHS) Oct-7 Apr-8 Oct-8 Apr (%) Domestic Passenger - (LHS) Source: Company, CMIE, ICICIdirect.com Research With sentiments in international travel picking up gradually, domestic passenger traffic has been gaining share in the overall traffic. Cargo traffic at DIAL has witnessed a CAGR of 1% over FY2-FY9 while aircraft traffic movement growth has witnessed 14.1% CAGR for the same period. Exhibit 12: Growth pattern for cargo traffic and ATMs at DIAL (Cargo traffic - Tonne) 5, 4, 3, 2, 1, Apr-4 Oct-4 Apr-5 Oct-5 Apr-6 Oct-6 Apr-7 Oct-7 Apr-8 Oct-8 Apr (5) (15) (25) (%) (No of Aircraft movement) 25, 2, 15, 1, 5, Apr-4 Oct-4 Apr-5 Oct-5 Apr-6 Oct-6 Apr-7 Oct-7 Apr-8 Oct-8 Apr (5) (15) (%) Cargo Traffic Monthly (') Cargo Traffic Monthly - YoY Aircraft Traffic Aircraft Traffic - YoY Source: Company, CMIE, ICICIdirect.com Research 1 Page

11 Profitability protected once regulatory framework is implemented 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. Policy implementation & inauguration of new terminal to boost revenue Non-aero revenues are expected to receive a significant boost from the additional space available for different concessionaires. Aero revenues are also expected to receive a boost due to the implementation of the WACC based return guaranteed on the aero segment. Exhibit 13: Non-aero revenues to get bolstered with additional 2.7 lakh sq m of terminal area 1,2. Rs Crore 1, ,87.8 Non aero revenues receiving significant fillip after the commissioning of Terminal T3 in April 21 along with the anticipated Commonwealth Games in Delhi in October 21. FY8 FY9 FY1E FY11E FY12E Aero Revenue Non Aero Revenue The new greenfield terminal (T3) is ~8% complete and is expected to be operational by April 21 in time for the Commonwealth Games in 21. With the completion of terminal T3, DIAL is believed to have an overall passenger capacity of 46 million per annum. Also, the terminal area is expected to increase from the present 1.51 lakh square metre to 5.15 lakh square metre. Exhibit 14: Project cost of DIAL (Phase 1) Rs Crore Particulars Total Cost + Internal Accrual 1,25 Debt 4,986 Airport Development Fees - ADF 1,827 Interest Free Deposits 912 Total 8975 * * Project cost likely to be revised upwards by 1,25 crores 11 Page

12 Hyderabad Airport GHIAL GMR Hyderabad international Airport (GHIAL) is a greenfield international Airport. GHIAL has been granted the concession to develop and operate the airport to handle a capacity of 4 million passengers for 6 years. Hyderabad Airport has been the fastest growing Indian airport with a CAGR of 2.6% over FY2-FY7. Being independent of the regulatory framework, the profitability of the aero segment is much more reliant on the growth in passenger traffic. We have forecasted an at par industry growth of 9% over the next 1 years for determining the value of GHIAL asset. Consortium Partners - GHIAL Investors % Stake GMR Infra 63. AAI - Govt of India 13. Govt of AP 13. Malaysia Airport 11. Total 1. Exhibit 15: Positive momentum in monthly traffic augurs well for DIAL (Montly Passengers - Lakhs) Apr-4 Oct-4 Apr-5 Oct-5 Apr-6 Oct-6 Apr-7 Oct-7 Apr-8 Oct-8 Apr (%) (Montly Passengers - Lakhs) Apr-4 Oct-4 Apr-5 Oct-5 Apr-6 Oct-6 Apr-7 Oct-7 Apr-8 Oct-8 Apr (1) (3) (%) International Pax - (LHS) Domestic as % of overall traffic - (RHS) Domestic Pax - (LHS) Passenger Traffic Monthly (') Passenger Traffic - YoY (RHS) Source: Company, CMIE, ICICIdirect.com Research The falling mix of domestic passengers as a percentage of overall traffic suggests a change of mix of international passengers who are moving directly to the destination city rather than commuting through the main international airports (Delhi and Mumbai). Cargo traffic at GHIAL has witnessed a CAGR of 18% over FY2-FY9 while aircraft traffic movement growth has witnessed 21.2% CAGR for the same period. Exhibit 16: Growth pattern for cargo traffic and ATMs at GHIAL (Cargo traffic - Tonne) 8, 7, 6, 5, 4, 3, 2, 1, Apr-4 Oct-4 Apr-5 Oct-5 Apr-6 Oct-6 Apr-7 Oct-7 Apr-8 Oct-8 Apr (1) (2) (%) (No of Aircraft movement) 12, 9, 6, 3, Apr-4 Oct-4 Apr-5 Oct-5 Apr-6 Oct-6 Apr-7 Oct-7 Apr-8 Oct-8 Apr (1) (2) (%) Cargo Traffic Monthly (') Cargo Traffic Monthly - YoY Aircraft Traffic Aircraft Traffic - YoY Source: Company, CMIE, ICICIdirect.com Research 12 Page

13 Growth in non-aero revenue picking pace Aero and non-aero revenues are growing gradually over the coming period with the underlying growth in passenger traffic. Unlike Delhi, GHIAL does not promise GMR any guaranteed RoE on aero assets. Based on the strategic location of the Hyderabad airport and continued momentum driven by the service sector, we expect an overall CAGR of ~17% in FY9-FY12E from Rs 386 crore to Rs 623 crore. Non-aero revenues will take the limelight with a topline growth of ~2% CAGR for FY9-FY12E from Rs 18.2 crores to Rs 39.2 crores. A Five Star hotel (Novotel) has also commenced operation in Hyderabad airport since October 28. The airport hotel has an overall room base of 38. Exhibit 17: Trend of aero and non-aero revenues at GHIAL 35. Rs Crore FY9 FY1E FY11E FY12E Aero Revenue Non Aero Revenue 13 Page

14 Istanbul Airport (Turkey) - ISGIA GMR Infrastructure has also made its international foray by bidding for the development and operation of Sabiha Gokcen International Airport. GMR assumed the operation, development and management control of the ISGIA airport in May 28. The inauguration of the new terminal on October has resulted in a significant increase in the handling capacity. At the end of the concession agreement, it is forecasted to be handling an installed capacity of 42 million passengers per annum. The GMR-led consortium has a concession agreement of 2 years for fees of 1.93 billion (Rs 13,5 crore). Consortium Partners - ISGIA Investors % Stake GMR Infra 4. Limak 4. Malaysia Airport 2. Total 1. ISGIA is located on the Asian side of Istanbul, which has two airports one each on the Asian and the European side. Ataturk airport on the European side has already exceeded the handling capacity. Within one year, ISGIA has increased its domestic and international network. It has now reached 51 international destinations by adding 25 new destinations and 19 domestic destinations by adding 1 new destinations. We expect the overall passenger traffic to rise substantially to 9.1 million passengers in FY11E. Exhibit 18: YoY growth in overall passenger traffic to remain in double digit FY9 FY1E FY11E FY12E Domestic pax International Pax Growth in total paxs Exhibit 19: Total cost of ISGIA project Particulars Total Cost EUR Cr Total Cost Rs Cr* Estimated Capex , Airport Development Fees - ADF ,184. * Converted at the exchange rate of Rs 65 per Euro Exhibit 2: Plan layout of ISGIA & Salient features of the Airport Particulars International Terminal Domestic Terminal Capacity Cargo Terminal Enclosed Area Capacity Apron Parking capacity 2, Sqm 3,5 Sqm 6. Mn 7,5 Sqm 145, tons 44 planes 14 Page

15 Power segments Significant opportunity in power segment Per share value of Power Segment GMR has 14 power projects out of which three are operational and the other 11 are at various stages of implementation. The operational capacity of GMR is 823 MW and 7,636 MW of capacity is at various stages of implementation. The capacities are expected to be implemented from Exhibit 21: Significant addition lined up in power segment in FY13E Power ,5 6 1, MW GEL (2MW), Tamil Nadu Barge Mounted, Karnataka GPCPL) Vermagiri Phase I, AP (VPGL) Vemagiri Phase II, AP (VPGL) Kamlanga Dhenkamal Orissa Emco Energy GMR energy Raipur Chattisgarh 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 August 31 29, India has an installed capacity of 1,52,148 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 217. Exhibit 22: Pattern of installed capacity at the end of Five Year Plans Gigawatts Combined Private & Public Private Central & State Installed Capacity - 1,53,694 MW Thermal, 99,379, 64% Nuclear, 4,12, 3% Hydro, 36,885, 24% th plan 199-7th plan th Plan 22-9th Plan 27-1th Plan Mar. 28 Oct th Plan th Plan Others, 13,31, 9% Source: CEA, ICICIdirect.com Research 15 Page

16 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 Rs 8. We expect the short-term merchant market to stabilise at Rs 4. Even then, the players are expected to enjoy a premium to the players operating under the regulated regime. Exhibit 23: Rising spreads between demand, price cap on merchant market tariff 9, 8, 7, 6, 5, 4, 3, Deficit (%) - RHS Demand MU - LHS Supply MU - LHS Price (Rs/Kwh) Aug-8 21-Oct-8 21-Dec-8 21-Feb-9 Peak merchant rates at IEX 21-Apr-9 21-Jun-9 21-Aug-9 Price cap 21-Oct-9 Source: CEA, IEX, ICICIdirect.com Research Significant visibility of growth in profitability in short-term At present, GMR is running the barge mounted 22 MW plant under the merchant route. However, the plant is using naphtha as fuel. The variable cost of fuel for operating the plant on naphtha is close to Rs 5.2 per unit. GEL is expected to relocate to Andhra Pradesh in Q4FY1E. After relocation, the plant is expected to commence operation on gas allocation from the KG-D6 block. This will lead to a substanital reduction in fuel cost for the barge mounted project. Also, regarding the Vemagiri Power Generation Ltd (VPGL) of 388 MW, the government has given a green signal for opening up of ~2% of merchant capacity. Overall merchant capacity of GMR Infra on KG-D6 gas is expected to rise to ~31 MW by Q1FY11 fetching an annual profit of ~Rs 342 crore at 85% PLF. We have taken 85% PLF as our base case. The merchant realisation is believed to fetch around Rs 4.25/Kwh in FY11. Exhibit 24: Annual profitability from ~31 MW of merchant capacity Rs Crores Operating PLF (%) After the relocation of the barge mounted plant, variable cost per unit is expected to reduce from Rs 5.2 per unit to Rs 1.7 Total 78 MW of merchant capacity is expected to commence operations from January 21 while the other 235 MW of capacity is expected to go on stream from April Page

17 GMR unlocking value in the power segment over the next year GMR Infra has a significant pipeline in various stages of implementation and has progressively hedged its exposure to coal price fluctuations. We believe the company will look to raise funds by tapping the capital market through the IPO route in FY11E. This may result in a further upside to our valuation case. Inorganic route to offer additional opportunity for growth GMR has been aggressive in the market and has already acquired full stake in EMCO Energy, which is setting up a 6 MW coal-based plant. The project has already achieved financial closure and is expected to commence construction by Q4FY1. The project is expected to witness commissioning in FY InterGen Dark horse in the overall portfolio InterGen is the overseas subsidiary of GMR. GMR acquired a 5% equity stake in InterGen while the balance 5% is held by Ontario Teachers Pension Plan. GMR has invested US$135 million as equity and an additional debt of US$1.1 billion to acquire InterGen. InterGen is a global power generating company having 12 power plants located across the UK, Netherlands, Mexico, Australia and Philippines with assets worth ~7,66 MW under operation and 428 MW of plant is under construction. The average age of InterGen s portfolio is six years and 87% of the plants are fired on natural gas while the other portfolio is based on coal. Significant debt of US$1.1 billion at the SPV level and another US$4.2 billion of debt at InterGen level make it a highly levered asset. Improvement in operating parameters will lead to significant upside potential Exhibit 25: InterGen s Portfolio Plant Capacity (MW) Country Intergen's Stake Fuel Type Cash Flow Currency Coryton 779 UK 1 Gas Pound Sterling Rocksavage 748 UK 1 Gas Pound Sterling Spalding 86 UK 1 Gas Pound Sterling Rijnmond 82 Netherland 1 Gas Euro MaasStroom ( 428 Netherland 1 Gas Euro Millmerran 85 Australia 29.4 Coal AUS Dollar Callide C 92 Australia 25 Coal AUS Dollar Quezon 46 Philippines 45.9 Coal US Dollar Bajio 6 Mexico 51 Gas US Dollar La Rosita 1,1 Mexico 1 Gas US Dollar Compeche 252 Mexico 1 Gas US Dollar Chihuahua 271 Mexico 1 Gas US Dollar Total 8,88 InterGen has 7% of the capacity tied up on a long-term basis and the other capacity is on a merchant basis ensuring adequate cash flow to support the debt repayment. InterGen has an additional debt of US$4.3 billion as on June 29 spread across various assets. In CY8, InterGen delivered a topline of US$2.1 billion with an overall EBITDA of US$.6 billion. GMR Infra is not consolidating the financials of InterGen and hence this will only reflect as an investment in the books of GMR Infra. For H1CY9, the company was able to deliver a topline of US$.9 billion witnessing de growth of 9.5% over the same period last year and an overall EBITDA of US$.23 billion, witnessing de growth of 21%. 17 Page

18 Island Power Corporation The GMR Group acquired a 1% stake in Island Power Singapore in May 29 for ~US$1 million. On completion, the gas-based power plant will have an operational capacity of 8 MW. The company expects low cost gas linkage from Indonesia. Construction of the power plant is expected to commence in the fourth quarter of Page

19 Road segment India has the second largest road network in the world stretching 3.3 million km spread over several categories. However, the effectiveness is weighed down by several deficiencies. Roads continue to form the most common mode of transportation carrying nearly 65% of the freight and 8% of the passenger traffic. The private sector has a significant opportunity to develop and operate several infrastructure projects in the Eleventh Five Year Plan. Exhibit 26: Profile of Indian road sector & investments planned in several infrastructure initiatives Valuation of Road Segment Roads Indian Road Network Existing Kms Expressways 2 National Highways 66,59 State Highways 128, Major District Highways 47, Rural and other roads 2,65, Total Length 3,34, Rs Billion Power Airport Road Port Xth plan XIth plan Source: NHAI, Planning commission of India, ICICIdirect.com Research The national highway, which accounts for only 2% of the total road network in India, carries nearly 4% of the road traffic. The first and foremost task mandated to the NHAI is the implementation of NHDP consisting of the Golden Quadrilateral and North-South & East-West Corridors. NHDP involves seven phases entailing development and upgradation of approximately 48, km. This is expected to offer immense opportunities to private players. Road segment gaining momentum GMR is the leading developer and operator of road projects and commenced this business in October 24. GMR has commenced realising revenues according to the concession agreement for six road-based projects. These projects have a balanced mix of three toll based projects and three annuity projects. A consortium led by GMR has also been awarded 25 years concession to develop the km toll road between Hyderabad and Vijaywada. GMR has also emerged as the lowest bidder for the Chennai outer ring road project in Tamil Nadu under the annuity model for a concession period of 2 years. With several road projects commencing operations in FY1E the revenues and EBITDA are expected to receive a significant fillip Exhibit 27: Trends of vehicle movement and operating performance of the road segment FY12E FY12E FY11E FY11E FY1E FY1E FY FY FY FY Revenue - Rs Cr EBITDA - Rs Cr GTTEPL GTAEPL GPEPL GACEPL GJEPL GUEPL 19 Page

20 Real estate segment Land adjoining airports A prized possession GMR has acquired a land bank of 25 acres and 15 acres at Delhi and Hyderabad, respectively. At Delhi Airport, despite the challenging environment in the real estate market over the past year, GMR has been able to sell 29.3 acre of the scheduled Phase-I raising Rs 864 crore as upfront deposit and Rs 422 crore as infrastructure deposit. GMR is likely to realise NPV (lease rental) of Rs 981 crore over the next 57 years from the sale of 29.3 acres. GMR will sell the balance in several parcels over the coming seven to eight years. Considering the initial 29 acre as benchmark, we believe, DIAL will be able to realise the upfront deposit on similar lines. The rent and infrastructure deposit will grow at 5% per annum. Total ~8% 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. Valuation of Real Estate Segment Land bank at Delhi and Hyderabad holds significant value unlocking potential over the coming years Real Estate Exhibit 28: Proposed Phase I of Delhi Aero city Land adjoining Hyderabad Airport GMR has acquired land of 1,5 acres adjoining the Hyderabad Airport. GMR plans to develop an aerotropolis on 1, 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. 2 Page

21 Aviation & logistic SEZ Out of the remaining land of 5 acres at the Hyderabad Airport, GMR plans to develop a logistics and aviation SEZ spanning 25 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 25- acre multi-produce SEZ of logistics. Valuation of SEZ Segment SEZ 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 3,3 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. Mining assets GMR has acquired a 1% stake in PT Barasentoso Lestari (Indonesian mine). These mines are believed to have an overall 18 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 ~3 MT and is expected to have an annual production capacity of ~14 MT. Valuation of Mines Segment Mines 21 Page

22 Risks & 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. Operation and expansion of power project linked to fuel availability The commencement of gas from Reliance KG-D6 block has assured a regular supply of fuel for existing plants. However, any disruption could result in the operating performance getting impacted. GMR has significant gas-based expansion plans in Andhra Pradesh. Nonavailability of fuel may significantly impair the position of the company. Delay in implementation of order selling 2% capacity on merchant Delay in implementation of the order for selling around ~78 MW of capacity on a merchant basis is pending with the regulator. The delay in implementation will result in GMR losing out on the opportunity to capitalise on high merchant power tariff. Cash flows to remain choppy Short-term cash flows are dependent on real estate projects ancillary to the airport segment. Since the company is in the capital expenditure phase, the company needs to generate significant cash flows from real estate deposits in order to meet future funding requirements. Execution risk GMR is aggressively pursuing growth opportunities in all verticals in which it has a presence. The company is heavily reliant on Chinese vendors for executing power projects on time. Any adverse development may delay the execution of the project pipeline. However, GMR has an excellent track record of delivering projects on time in the past. This may mitigate the execution risk to some extent. Funding risk for the expansion plans GMR has an aggressive expansion plans with the overall capex requirement to the tune of ~Rs 26,7 crores over the next three years. GMR will have to tap the markets for raising another round of equity either at the parent level or at the SPV level. Implementation of direct tax code without any alteration to be negative GMR Infra enjoys tax benefits under major segments. After the implantation of the direct tax code the liability of GMR is expected to rise. This is because the government in the draft copy has proposed MAT on the gross asset base compared to the existing tax computation, which is based on book profitability. Consolidation of Intergen books will lead to significant leverage GMR Infra is not consolidating the books of InterGen in the accounts of GMR Infra. If the company starts consolidating the books with InterGen then the additional leverage of US$4.2 billion at the InterGen level will start reflecting in the books of GMR Infra and spoil the debt coverage ratios. Delay in the implementation of the order to sell power in the merchant market will lead to losing out an opportunity to take advantage of the high merchant tariffs in the near term. 22 Page

23 Financials CAGR of 35% in topline over next four years GMR is expected to witness a topline growth of 35% from Rs 2,295 crore to Rs 7,71 crores over the period of FY8-FY12E. GMR has already commenced operation of the Vemagiri plant on receiving allocation from the KG-D6 block. Out of ~389 MW, nearly ~78 MW is believed to be contracted on a merchant basis. This will improve the realisation from the project. In the aviation segment, the commissioning of the new terminal T3 in Delhi by April 21 is expected to further enhance the growth of revenues from the aviation segment. Full availability of gas for the Vemagiri plant has lead to growth in revenues in FY1E for the power segment Exhibit 29: Revenue growth pegged at 35% CAGR for FY8-FY12E Rs Crore 1,. 8,. 6,. 4,. 2,.. 1, , ,987. 3, , , , ,43.8 1,715.7 FY8 FY9 FY1E FY11E FY12E Airport Power Roads Real Estate & SEZs Others Total Revenue Growth - RHS Percentage (%) Robust EBITDA growth expected After witnessing subdued EBITDA growth in FY1E, we expect the EBITDA to sharply take off with the power segment taking the lead in margin expansion owing to significant cost reduction due to changeover from naphtha to natural gas for the barge mounted facility. EBITDA in the airport segment will also receive a fillip on account of the commissioning of the new terminal at the Delhi Airport in 21. Contribution from the road segment is also expected to pick up significantly as the new project gets approval. EBITDA contribution from the power segment is expected to fall sharply due to one-time relocation of barge mounted facility from Karnataka to Andhra Pradesh Exhibit 3: EBITDA growth Stellar performance to come 3,. 2,5. 2,82. 2,. 1, ,5. 1,67.1 1, Rs Crore 2, , FY8 FY9 FY1E FY11E FY12E Airport Power Roads Real Estate & SEZs Others Total EBITDA Growth - RHS Percentage (%) 23 Page

24 PAT to continue to witness pressure One of the key segments contributing to the overall profitability, the power segment will not contribute to the overall profitability in FY1E led by one-time relocation expenses. From FY11E, the power segment will again take a significant role in the contribution to the overall profitability. Other segments like the aviation segment are not expected to be profitable. This is mainly owing to significant non-cash expenses like depreciation picking up significantly after the commissioning of the new terminal (T3) at the Delhi Airport. Exhibit 31: Profitability to continue to remain under pressure (2.) (4.) (6.) Rs Crore (11.1) (21.6) (35.1) (327.) FY8 FY9 FY1E FY11E FY12E Airport Power Roads Real Estate & SEZs Others Return ratios to continue to remain subdued Return ratios are expected to stay subdued as a lot of investment remains locked in the CWIP, which does not fetch any returns. Overall profitability of the airport segment will continue to exert significant pressure on the bottomline leading to overall muted return ratios. Exhibit 32: Low RoE & RoCE Percentage (%) FY8 FY9 FY1E FY11E FY12E ROE ROCE 24 Page