11 APR 2013

Flash Note

GMR INFRASTRUCTURE
INFRASTRUCTURE

BUY
Target Price: Rs 27

Focusing on cash generation

We attended the analyst meet of GMR Infrastructure. Management spoke about the current volatile scenario (both domestic and global) and stressed on the need to adapt its business in order to tackle various challenges. Management decoded its Asset light asset right strategy with a focus on cash generation (vs. asset growth earlier) and a target of reducing its debt by Rs 100 bn by next year. We remain positive on GMR and believe that judicious asset sales as well as potential separate listing of business verticals could lead to value un-locking. Maintain BUY with TP Rs 27 (upside of 23% from CMP)

CMP Potential Upside Relative to Sector MARKET DATA No. of Shares Free Float Market Cap 52-week High / Low Avg. Daily vol. (6mth) Bloomberg Code Promoters Holding FII / DII
BSE Code NSE Code

: Rs 22 : 23% : Outperformer

: 3,892mn : 28% : Rs86bn : Rs32 / Rs17 : 11.7 mn shares : GMRI IB Equity : 72% : 12% / 7%

: 532754 : GMRINFRA

Key highlights

Asset Light asset right Recent divestments (3 assets in last 3 months) have led to debt reduction of Rs 55 bn already (vs. net debt of Rs 377 bn in Dec 12). It is reassuring that recent divestments have been at healthy valuations (profit of ~Rs 14 bn). Further divestments are likely in roads and select power assets Rationale for mine sale: Despite 3.3 GW coal-based power plantsexpected to become operational in the next 2 years (requires 13-14 MTpa coal), GMR has recently divested 2 mines. Management cited lack of evacuation infrastructure (mine to port as well as at the port) as the reason. There are no plans to divest the other 2 coal mines - Golden Energy (reserve 860 MT; production 1.8 MT Q3FY13) and Barasentosa (reserve 104 MT; exp. production 2-2.5 MT FY14) Equity requirement:Total equity requirement stands at Rs 18.6 bn (Rs 18.3 bn in power and Rs 0.3 bn in roads). GMR expects to generate sufficient cash flows to fund the same

FINANCIAL SUMMARY (Consolidated)

Y/E March
Sales (Rsmn) Adj PAT (Rsmn) Con. EPS* (Rs.) EPS (Rs.) Change YOY (%) P/E (x) RoE (%) RoCE (%) EV/EBITDA (x) DPS

PBIT break-up
FY13E
76,897 (7,531) (0.9) (1.9) 87.7 (10.5) (11.4) 2.6 17.1 -

FY12
76,421 (4,012) (1.0) 136.5 (30.1) (6.0) 1.7 27.5 -

FY14E
105,126 (3,873) (0.1) (1.0) (48.6) (20.5) (5.2) 3.5 11.2 -

FY15E
147,225 (3,200) 0.4 (0.8) (17.4) (24.8) (4.4) 4.6 8.2 -

(Rsmn)
Airports Power Road Others Total

Dec-12
2,828 (573) 670 1,484 4,409

Dec-11
868 (146) 546 1,467 2,735

% Chg
225.7 293.1 22.7 1.2 61.2

Sep-12
2,155 (180) 574 285 2,834

% Chg
31.3 219.1 16.8 420.3 55.6

PRICE PERFORMANCE

Source: *Consensus broker estimates, Company, Axis Capital; Note: CMP as on Apr 08, 2013

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11 APR 2013
INFRASTRUCTURE

Flash Note

GMR INFRASTRUCTURE LTD

Exhibit 1:
Asset Sold
Stake sold (%) Seller Buyer particulars

Details of recent transactions

Island Power, Singapore
70 GMR Energy FPM power 800 MW natural gas based, COD end CY13 28.6 12.9 48.0

GMR Jadcherla Exp. Ltd.

74* GMR Highways Macquarie SBI Operational Toll road, AP 2.1 1.2 6.1

Eloff mines, South Africa

50

Kendal mines, South Africa

74

Homeland Energy (56% sub of GMR Energy) Partner holding 50% currently Coal mine Under Operational coal mine construction 0.7 1.4

Valuation of stake sold (Rsbn) Equity profit GMR's Debt reduction

Source: Company, Axis Capital; *GMR holds 100% in Jadcherla expressway. Balance 26% will be sold to same party at similar valuation

Exhibit 2:
Rsbn
Kamalanga EMCO GREL Chattisgarh Transmission

Equity requirement over FY14-15

FY14-15
5.1 3.2 2.2 7.7 0.2 0.3 18.6

Chennai outer ring road Total

Source: Company, Axis Capital

Asset Right - Asset Light:

Asset Right to consist of Building quality assets Recycling assets where valuation & timing is right to release growth capital Divesting value eroding assets Asset Light consists of Sweating existing assets Investing in new opportunities with low capex requirements

Update on airports vertical

Delhi: Post 340% aero tariff hike, focus is now on finding a feasible model to monetize land (205 acres) without erosion of Regulated asset base (zero return on deposits) or paying 46% revenue share to AAI (in case of lease rental model). The matter is pending before appellate tribunal (next hearing on 9 Apr 2013). We consider 46% revenue share on lease rental for land monetization Hyderabad: Management is trying to convert Hyderabad airport from single till (100% regulated returns) to dual till. The case has been referred back to Airports Economic Regulatory Authority (AERA) for consideration by the appellate tribunal.We consider single till model in our estimates GMR is also focused on ramping up its non-aero revenues at both airports with several initiatives being taken

02

11 APR 2013
INFRASTRUCTURE

Flash Note

GMR INFRASTRUCTURE LTD

Male: Management is looking for compensation from Maldives government (capex incurred ~USD 230 mn; Equity: USD 30 mn; Debt: USD 160 mn which had the guarantee of Maldives government; internal accruals: USD 40 mn). Arbitrators have been appointed, first hearing is on 10 Apr 2013

Update on power vertical

GMRs gas-based facilities have suffered due to fuel availability issues. Management is optimistic that coal-based plants will have sufficient coal linkage to run at healthy PLFs. We believe concerns are adequately factored in our TP. Update of coal based projects:

Emco (600 MW): First unit (300 MW) has commenced operations; second units CoDis expected by July 13. Fuel Supply agreement for the first unit has been signed. Kamlanga (1400 MW):CoD of the first unit (350 MW) is expected in Apr 13 andmanagement expects entire project to be operational by Oct 13. Management has signed fuel supply agreement for firm linkage (500 MW)

Update on roads vertical

GMR is not actively pursuing new projects and would selectively look at divesting some assets. Notice for termination of Kishangarh Udaipur Ahmedabad project has been given to NHAI in Jan 13. Management may consider taking up the project in case certain conditions are met by NHAI

Possible triggers for the stock as outlined by management:

SEZ Favorable policies can help unlock immense value from the 10,000 acre Kakinada SEZ Gas availability - Through better allocation and price pooling Delhi Airport Resolution of issue regarding RoE and return on deposits Hyderabad Conversion to dual till model Land monetization at Delhi Male arbitration success

Other highlights

GMR shall continue to explore new businesses with an aim of generating 25% of revenues from international businesses and establishing itself among the top 3 infrastructure companies in India New ventures: GMR is a) looking to grow its EPC business b) studying urban infra space carefully with the exception of metro projects and c) found port business interesting but had not taken any steps here so far

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11 APR 2013
INFRASTRUCTURE

Flash Note

GMR INFRASTRUCTURE LTD

FINANCIAL SUMMARY (Consolidated)
Profit &loss (Rsmn)
Y/E March
Net sales Other operating income Total operating income Cost of goods sold Gross profit Gross margin (%) Total operating expenses EBITDA EBITDA margin (%) Depreciation EBIT Net interest Other income Profit before tax Total taxation Tax rate (%) Profit after tax Minorities Profit/ Loss associate co(s) Adjusted net profit Adj. PAT margin (%) Net non-recurring items Reported net profit

Cash flow (Rsmn)

FY12
76,421 76,421 (37,681) 38,740 50.7 (22,144) 16,596 21.7 (9,358) 7,238 (16,531) 2,434 (6,860) (1,707) (24.9) (8,567) 4,555 (4,012) (5.2) (2,025) (6,037)

FY13E
76,897 76,897 (46,138) 30,759 40.0 (6,871) 23,888 31.1 (10,618) 13,270 (21,065) 2,777 (5,019) (3,031) (60.4) (8,049) 519 (7,531) (9.8) (7,531)

FY14E
105,126 105,126 (63,076) 42,050 40.0 (6,331) 35,720 34.0 (15,930) 19,790 (27,649) 4,503 (3,357) (846) (25.2) (4,203) 330 (3,873) (3.7) (3,873)

FY15E
147,225 147,225 (88,335) 58,890 40.0 (11,854) 47,036 31.9 (21,303) 25,733 (35,255) 5,177 (4,345) (1,856) (42.7) (6,201) 3,001 (3,200) (2.2) (3,200)

Y/E March
Profit before tax Depreciation &Amortisation Chg in working capital Cash flow from operations Capital expenditure Cash flow from investing Equity raised/ (repaid) Debt raised/ (repaid) Dividend paid Cash flow from financing Net chg in cash

FY12
(6,860) (9,358) 9,168 13,309 (143,986) (108,971) 36,895 127,795 105,877 10,215

FY13E
(5,019) (10,618) 9,494 30,069 (75,444) (72,600) 8,575 13,060 58,372 15,841

FY14E
(3,357) (15,930) 8,888 44,608 (19,426) (14,923) 25,282 3,596 33,280

FY15E
(4,345) (21,303) 10,120 57,156 (4,844) 432 (1,106) (27,882) (68,399) (10,811)

Key ratios
Y/E March
OPERATIONAL FDEPS (Rs) CEPS (Rs) DPS (Rs) Dividend payout ratio (%) GROWTH Net sales (%) EBITDA (%) Adj net profit (%) FDEPS (%) 35.5 16.7 136.5 136.5 0.6 43.9 87.7 87.7 36.7 49.5 (48.6) (48.6) 40.0 31.7 (17.4) (17.4) (1.0) 0.9 (1.9) 0.8 (1.0) 3.1 (0.8) 4.7 -

FY12

FY13E

FY14E

FY15E

Balance sheet (Rsmn)

Y/E March
Paid-up capital Reserves & surplus Net worth Borrowing Other non-current liabilities Total liabilities Gross fixed assets Less: Depreciation Net fixed assets Add: Capital WIP Total fixed assets Total Investment Inventory Debtors Cash & bank Loans & advances Current liabilities Net current assets Other non-current assets Total assets

PERFORMANCE

FY12
3,892 55,669 97,280 377,455 4,272 545,107 274,431 (41,154) 233,277 206,400 439,677 7,216 2,595 18,374 42,561 66,100 32,114 545,107

FY13E
3,892 68,862 155,325 388,211 6,576 550,112 348,399 (51,772) 296,627 207,876 504,503 7,148 (19,942) 58,402 38,461 550,112

FY14E
3,892 71,978 157,932 413,808 6,261 578,000 398,522 (67,702) 330,820 177,178 507,999 7,148 (28,829) 91,682 62,853 578,000

FY15E
3,892 65,760 148,324 386,226 5,961 540,511 548,265 (89,005) 459,260 32,280 491,540 7,048 (38,949) 80,871 41,923 540,511

RoE (%) RoCE (%) EFFICIENCY Asset turnover (x) Sales/ total assets (x) Working capital/ sales (x) Receivable days Inventory days Payable days FINANCIAL STABILITY Total debt/ equity (x) Net debt/ equity (x) Current ratio (x) Interest cover (x) VALUATION PE (x) EV/ EBITDA (x) EV/ Net sales (x) PB (x) Dividend yield (%) Free cash flow yield (%)

(6.0) 1.7

(11.4) 2.6

(5.2) 3.5

(4.4) 4.6

0.2 0.2 (0.1) 87.8 15.8 -

0.2 0.1 (0.2) (94.7) -

0.2 0.2 (0.2) (100.1) -

0.3 0.3 (0.2) (96.6) -

3.6 3.2 1.5 0.4

3.1 2.6 0.6

2.6 2.1 0.7

2.5 2.0 0.7

(30.1) 27.5 6.0 2.0 (108.3)

(10.5) 17.1 5.3 1.1 (57.1)

(20.5) 11.2 3.8 1.0 31.7

(24.8) 8.2 2.6 1.1 65.9

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11 APR 2013
INFRASTRUCTURE

Flash Note

GMR INFRASTRUCTURE LTD

Axis Securities Limited *

Regd Office: Axis House, 8th Floor, Wadia International Centre, P.B Marg, Worli, Mumbai 400 025, India. Corporate Office: 201-A Laxmi Towers, Bandra-Kurla Complex, Bandra (E), Mumbai - 400 051 (+91-22) 6680 3600

Axis Securities Limited Branch Details Mumbai

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Bangalore
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rd

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