GMR Infrastructure Ltd has been in the spotlight for all the right reasons. Besides announcing decent results for the December quarter (Q3 FY20), the infrastructure giant’s efforts to monetize assets, trim debt and lower interest costs are beginning to bear fruit.
Last week, the private sector infrastructure firm sold its stake in the coal-fired Kamalanga power project for ₹5,320 crore. This will trim ₹4,140 crore of debt in the project. Meanwhile, it has signed an agreement to sell about 49% stake in the airports entity to a Tata group-led consortium, which will bring in about ₹8,000 crore into its coffers.
Although this may be a trickle in GMR Infra’s humungous debt of ₹25,660 crore, it is reassuring for investors. Not surprisingly, the stock, which was range-bound is inching up, rising 13% in the past two weeks.
The Q3 results have fuelled the optimism. An 11% year-on-year growth in the company’s consolidated revenue and a 77% growth in Ebitda (earnings before interest, tax, depreciation and amortisation) are laudable, given the regulatory challenges that bog down growth in the power and airports businesses.
Of course, much of Q3’s performance can be attributed to the airports business,which soared after a lull. Note that the 5% fall in Delhi air traffic in the first half of FY20 due to Jet Airways’ problems had grounded GMR Infra’s consolidated performance too during the period.
The 20% year-on-year revenue growth in Q3 in the airports segment, therefore, came as a relief. Besides Delhi, even the Hyderabad and Cebu (the Phillippines) airports clocked higher air traffic.
Importantly, the airports segment’s Ebitda margin expanded by a robust 500 basis points to 60%. Ebitda rose by 30% year-on-year.
In stark contrast to this segment, GMR Infra’s energy business has been the victim of regulatory and fuel supply issues. It continues to post losses. Even in Q3, there was a drop in plant load factor due to a strike at Mahanadi Coalfields Ltd in Odisha, which impacted fuel supplies.
Be that as it may, it appears that the infrastructure firm is minimizing exposure to the energy business. A report by Edelweiss Securities Ltd says that efforts are on to sell the barge-mounted power plant, after a successful exit from Kamalanga.
Meanwhile, the airports business is taking wings. On Tuesday, GMR’s $150 million bond issue to fund expansion plans of its Delhi airport was oversubscribed eight times. The effective interest rate of 5.34% on a 10-year bond was lower than 6.45% offered a few months ago when it raised about $350 million for the same purpose.
While the recent take-off of GMR Infra’s stock is justified, regulatory risks, however, loom over the airports and the power sectors. This poses a challenge to asset monetization and weighs on deal valuations..