I used to have the first look at the Mcap, Recent revenues and profits, EPS and the PE. I had the same first look and was taken aback to see this company commanding a PE of around 55 based on the recent EPS of .77 for the financial year FY09.
The margins at just more than 20% was really impressive for such an infra player, but why a PE of 55? Well, a look into their plans for the next 3 years cemented the views markets are forward looking. Yes, if the estimates are any indicators to go by, the revenues are expected to more than triple in a year and move by more than 10 times in the next 3 years.
Let’s see what the company’s recent performance was. For the financial year FY09, the company reported total revenues of around 513 crore and net profits of 107 crore. A peep into the segment wise results shows that most of the revenues have come from the power division while the true money spinner has been the road division. The power division contributed to around 70% of the revenues, the roads division made up for 28%, while the rest came from Airport, Aviation, SEZ and the investment companies.
Let’s see what’s in store going forward.
Power division - For the financial year FY09, the power plant at Jegurupadu 1 was the only truly operational unit. The other two units Jegurupadu 2 and Gautami were based on gas and they really did not have any kind of operational levels due to the non availability of gas.
Jegurupadu 1 has a capacity of 216.8 MW, while the second phase and the Gautami plant have capacities of 220 MW and 464 MW respectively. GVK has signed agreements with RIL for the gas supplies and both the second phase of Jegurupadu and Gautami are operational now.
From the above three plants alone, the company is expecting total output of around 900 MW for the financial year FY 10. The revenues from these three plants combined is expected to be more than 1500 crore. And this alone will more than triple the FY 09 revenues.
The above 3 plants are already existing and currently operational. The further plans of the power division include capacity additions in the three plants by 1200 to 1500 MW, 330 MW hydro electric power project being developed in Uttarkhand, 540 MW thermal plant being developed in Punjab and another 370 MW hydro electric power project in Uttarkhand. All the above said power projects that are under construction and the capacity additions that have been planned will become operational at various time points in the next 3 to 4 years.
I believe other than the Gautami plant, the other power projects are owned 100% by the company. In Gautami, GVK PIL has only 51% stake. The company’s asset base is huge and has more than 60% holdings by the promoters. Most of the above said power projects are already funded.
Airport Division - Mumbai Airport Authority Limited – MIAL is the entity that is currently developing the Mumbai Airport on a BOO basis with an initial term of 30 years and this can be extended to another 30 years. In MIAL, GVK led consortium owns 74% while AAI owns 26%. GVK PIL as such owns 37% in MIAL, while the rest is held by other players in the consortium. The airport currently has the capacity to handle 22.25 million passengers and 4.8 lac tonnes of Cargo annually.
With the up gradation that the company is doing, it is expected to handle 40 million passengers and 1 million tonnes of Cargo by 2012. The revenue sharing will 37% for AAI, while the rest is for the GVK led consortium. The turnover from the Mumbai Airport was at 955 crore in FY 09 but the profits were lower. The company has the potential to unlock the value in the real estate assets in the Mumbai Airport. The available land bank is estimated to be around 135 acres.
However, the up gradation of the airport is currently running behind schedule and the target of 2012 may not be achievable.
Here is something for the gossip lovers – Some reports claim that the Mumbai airport land that is currently available is value at around 50,000 crore and GVK has 37% ownership of this, which works out to around 18,000 crore.
The road division will continue to be a money spinner, since the company is currently collecting only the tolls and the maintenance cost is coming down. It reported profits of around 80 crore from a revenue of around 145 crore.
The company is currently developing a 3000 acre SEZ in TN along with TIDCO. The SEZ is expected to generate annual revenues of around 6000 crore.
GVK PIL has drawn up ambitious plans for the next few years and as said before they could catapult the revenues to higher levels. This is a company which has the experience in power development projects. The Airport development project is expected to be behind schedule. However, the valuations on the land bank that is being carried out officially by the company seems to present a bigger opportunity. The company has less debt, high promoter holding, higher assets, no pledged shares and the resources to get the plans to reality. Though the plans may get delayed, it is highly likely that they would happen.
To contact the equity analyst on this story: Arun Gopalan in Chennai at Arun@hbjcapital.com