JPM_GVK_Power___Infrastr_2013-01-21_1031467.pdf

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Asia Pacific Equity Research21 January 2013

GVK Power & InfrastructureOverweightGVKP.BO, GVKP IN

Management feedback on investor concerns:Reiterate OW

Price: Rs13.90

Price Target: Rs19.00

India

India Infrastructure, CapitalGoods, Power & Construction

Sumit KishoreAC

(91-22) 6157-3581

[email protected]

J.P. Morgan India Private Limited

Deepika Mundra

(91-22) 6157-3582

[email protected]

J.P. Morgan India Private Limited

Karen Li, CFA(852) 2800-8589

[email protected]

J.P. Morgan Securities (Asia Pacific) Limite

YTD 1m 3m 12m

Abs -1.8% 2.6% -0.4% 1.5%Rel -4.1% -0.9% -7.0% -20.3%

GVK Power & Infrastructure (Reuters: GVKP.BO, Bloomberg: GVKP IN)

Rs in mn, year-end Mar FY10A FY11A FY12A FY13E FY14E

Revenue (Rs mn) 17,866 19,147 24,918 28,656 47,001Adjusted Profit (Rs mn) 1,559 1,549 615 -1,641 -858

Adjusted EPS (Rs) 0.99 0.98 0.39 -1.04 -0.54Revenue growth (%) 247.7% 7.2% 30.1% 15.0% 64.0%Adjusted profit growth (%) 44.9% -0.6% -60.3% -367.0% -47.7%ROCE 5.0% 3.9% 3.3% 2.8% 5.0%ROE 5.7% 4.7% 1.8% -4.8% -2.6%Adjusted P/E (x) 14.08 14.17 35.72 -13.38 -25.58P/BV (x) 0.7 0.6 0.6 0.7 0.7EV/EBITDA (x) 14.4 14.7 21.6 22.1 11.5Source: Company data, Bloomberg, J.P. Morgan estimates.

Company Data

Shares O/S (mn) 1,57Market cap (Rs mn) 21,95

Market cap ($ mn) 40Price (Rs) 13.9Date Of Price 18 Jan 1Free float (%) 45.83mth Avg daily volume 11.53M - Average daily Value (Rsmn)

157.7

BSE30 19,964.0Exchange Rate 54.3Fiscal Year End Ma

See page 4 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware ththe firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a singfactor in making their investment decision.

10

12

14

16

18

20

Rs

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13

Price Performance

GVKP.BO share price (Rs)

BSE30 (rebased)

Australia exposure capped, as per managment: As per GVKPIL (GVKP IN)

management, there is no plan to exercise the option of increasing its stake in

GVKCD to 49% from 10%. In the FY12 annual report GVKPILs investment in

GVKCD is reported at Rs2.5mn and there is no commitment to infuse equity for

mine development capex. As per company press release issued when the

acquisition was announced in Sep-2011, GVKPIL shall provide a bank

guarantee on the acquisition loan (USD1bn loan, total acquisition cost of

USD1.26bn). As per payment schedule in press release, GVKPIL has paidUSD700mn; balance is due on project financial closure or latest by Sep-14.

T2 of MIAL on track: CoD of Phase-I of the new integrated terminal (T2) is

on track for Sep-13. Pax from current international terminal (9.7mn FY12) will

migrate to the integrated terminal. Domestic pax (21mn FY12) will continue to

use the existing domestic terminals; their move to the integrated terminal willbe planned once Phase-II of T2 is commissioned closer to end-2014.

Real estate monetization event at MIAL could be close, however final

approval of the development plan still rests with MMRDA (or Chief Minister of

Maharashtra), as per management. GVKPIL has completed development plan

for 2mn sq. ft., however they did not disclose the location of the identified landparcel for monetization in our meeting.

Update on power projects: As per management, near-term CoD targets for

Alakhnanda hydro (330MW, CoD due May-13) and Goindwal Sahib (540MW,

CoD due in May-Oct13) remain unchanged. Alakhnanda project has received a

project cost approval for ~Rs36bn out of est. project cost of Rs41.9bn. However

the approval excludes IDC on additional approved project debt of ~Rs28.8bn.

Including est. IDC over Rs7.2B of additional debt @12.35% for 2 years, weestimate ~90% of project cost approval is already available with GVKPIL.

We maintain OW, Mar-14 PT of Rs19, implying 37% potential upside. We

expect Rs488mn loss in Dec-q results, likely to be announced in first week of

Feb. Over FY14/15 we expect EBITDA to grow 92% and 68% driven by CoD

of power projects and aero charge hike at MIAL. Key risks to our OW include

no progress on monetization of Mumbai real estate and ambitious growth plans

that could necessitate equity dilution. In the past week GVK corrected by ~8%,probably on the news that the stock has been removed by NSE from F&O.


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Asia Pacific Equity Research

21 January 2013Sumit Kishore(91-22) [email protected]

Company Description P&L sensitivity metrics EBITDA EPS

impact (%) impact (%)

GVKPIL is an integrated infrastructureplayer with assets in power, airport,road, and mining. The company is thedeveloper and operator of the Mumbaiand Bangalore International Airports.The company has 881MW of operationalgeneration capacity & 870MW capacityunder construction. The company alsooperates & maintains the JaipurKishengarh expressway and has added3 other road projects to its portfoliowhich are under construction.

Aero Tariff for MIALImpact of no increase in FY14, 161% base case 0.60% 7.20%

Traffic growth assumption (Airports)

Impact of 5% increase in FY13 2.00% 18.60%

Source: J.P. Morgan estimates.

Price target and valuation analysis

We maintain SOTP based Dec-13 PT. We use a 20% discount to fairvalue given funding and capex concerns. Our SOTP includes: a) Rs16for Mumbai airport and real estate, b) Rs5.4 for Bangalore airport c)Rs13 for power assets and d) Rs5 for roads. We also subtract Rs17from fair value for debt outside of key subsidiaries including

acquisition loans for airports. We maintain our OW rating.

(Rs B) GVK's stake(Rs/ahre)

Revenue composition (FY13E) Mumbai Airport 49.6 15.9

Core 15.2 4.9

Real estate 34.4 11.0

Bangalore Airport 19.7 5.4

Core 19.7 5.4

Real estate 0.0 0.0

Roads 8.0 5.1

Power assets 30.2 13.4

Net Cash (24.7) (15.6)

Gross fair value 82.8 24.0

Less 20% discount to fair value (16.6) (4.8)

Price target 66.2 19.2

Source: J.P.Morgan estimates.

Source: J.P.Morgan estimates.

EPS: J.P. Morgan vs consensus

J. P. Morgan Consensus Non approval for monetization of Mumbai airport land, denial forincrease in aero tariffs are the key downside risks. Increased capexcommitments and ambition are potential stock overhangs as well.FY13E

(1.0) (1.1)

FY14E

(0.5) 0.3

FY15E

1.2 2.0

Source: Bloomberg, J.P. Morgan estimates.

46%

9%

45%

MIAL Roads Power


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GVK Power & Infrastructure: Summary of FinancialsIncome Statement Cash flow statementRs in millions, year end Mar FY11 FY12 FY13E FY14E FY15E Rs in millions, year end Mar FY11 FY12 FY13E FY14E FY15E

Revenues 19,147 24,918 28,656 47,001 65,720 EBIT 3,217 4,351 5,523 11,159 19,923

% change Y/Y 7.2% 30.1% 15.0% 64.0% 39.8% Depreciation & Amortization 1,836 2,489 3,735 6,611 9,864

EBITDA 5,053 6,840 9,259 17,769 29,786 Tax -213 -678 171 691 -495

% change Y/Y 9.9% 35.4% 35.4% 91.9% 67.6% Other income - - - - -

EBITDA Margin 26.4% 27.5% 32.3% 37.8% 45.3% Decrease in WC 2,104 3,871 -6,697 -1,752 526

EBIT 3,217 4,351 5,523 11,159 19,923 Operating CF 8,338 11,986 3,323 17,262 30,609

% change Y/Y NM 35.3% 26.9% 102.0% 78.5%

EBIT Margin 16.8% 17.5% 19.3% 23.7% 30.3% Capex -11,173 -104,378 -74,899 -10,250 -3,293

Other income 1,395 1,953 591 553 792 Change in investments -5,635 3,697 200 0 0

Net Interest -2,545 -4,572 -7,269 -13,896 -18,675 Investing CF -16,808 -100,681 -74,699 -10,250 -3,293

Earnings before tax 957 667 -1,535 -2,630 1,341 Free cash flow -2,835 -92,393 -71,576 7,012 27,316% change Y/Y -33.2% -30.3% -330.0% 71.4% -151.0%

Tax -213 -678 171 691 -495 Change in equity 2,759 20,157 11,188 3,044 3,122

as % of EBT 22.3% 101.6% 11.1% 26.3% 36.9% Change in debt 11,029 87,091 46,893 -1,668 -11,496

Net income 1,549 615 -1,641 -858 1,961 Other financing activities - - - - -% change Y/Y -0.6% -60.3% -367.0% -47.7% -328.5% Financing CF 11,244 102,676 61,098 -8,373 -26,054

Adjusted profit 1,549 615 -1,641 -858 1,961 Change in cash 2,774 13,981 -10,277 -1,361 1,262

% change Y/Y -0.6% -60.3% -367.0% -47.7% -328.5% Opening cash 508 3,282 17,263 6,985 5,625

Shares outstanding 1,579 1,579 1,579 1,579 1,579 Closing cash 3,282 17,263 6,985 5,624 6,887

EPS 0.98 0.39 (1.04) (0.54) 1.24

% change Y/Y (0.6%) (60.3%) (367.0%) (47.7%) (328.5%)

Adjusted EPS 0.98 0.39 -1.04 -0.54 1.24

% change Y/Y -0.6% -60.3% -367.0% -47.7% -328.5%

Balance sheet Ratio Analysis

Rs in millions, year end Mar FY11 FY12 FY13E FY14E FY15E Rs in millions, year end Mar FY11 FY12 FY13E FY14E FY15E

Net fixed assets 36,719 70,748 118,982 168,421 221,850 Revenue growth 7.2% 30.1% 15.0% 64.0% 39.8%

CWIP 25,790 76,871 101,800 58,000 0 EBITDA growth 9.9% 35.4% 35.4% 91.9% 67.6%

Investments 25,017 21,320 21,120 21,120 21,120

Cash and bank balances 3,282 17,263 6,985 5,625 6,886 PAT growth -0.6% -60.3% -367.0% -47.7% -328.5%

Net current assets ex-cash -246 -4,117 2,581 4,332 3,807 EPS growth (0.6%) (60.3%) (367.0%) (47.7%) (328.5%)

Miscellaneous - - - - -Total Assets 104,529 216,350 280,511 282,541 274,706 EBITDA margin 26.4% 27.5% 32.3% 37.8% 45.3%

Dividend payout ratio 0.0% 0.0% 0.0% 0.0% 0.0%

Total Debt 55,484 142,574 189,467 187,799 176,303

Paid-up common stock 1,579 1,579 1,579 1,579 1,579

Reserves and surplus 32,289 33,235 31,594 30,736 32,697 Sales/GFA (x) 0.21 0.16 0.12 0.17 0.24

Shareholders' fund 33,868 34,814 33,173 32,315 34,276 GFA/Equity (x) 2.65 6.21 8.46 8.74 8.01

Deferred tax liability 2,273 4,651 5,116 5,627 6,190 Debt/Equity (x) 1.64 4.10 5.71 5.81 5.14

Minority interests 11,534 31,168 31,825 31,190 30,773 Net debt/Equity (x) 1.54 3.60 5.50 5.64 4.94

Total Liabilities 59,127 150,368 215,513 219,037 209,657 ROE (%) 4.7% 1.8% (4.8%) (2.6%) 5.9%

ROCE (%) 3.9% 3.3% 2.8% 5.0% 9.3%

BVPS (Rs) 21.45 22.05 21.01 20.46 21.70

Source: Company reports and J.P. Morgan estimates.


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Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple researchanalysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document

individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the viewsexpressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part ofany of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or viewsexpressed by the research analyst(s) in this report.

Important Disclosures

Beneficial Ownership (1% or more): J.P. Morgan beneficially owns 1% or more of a class of common equity securities of GVKPower & Infrastructure.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: GVK Power &Infrastructure.

Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgancovered companies by visiting https://mm.jpmorgan.com/disclosures/company , calling 1-800-477-0406, or e-mailing

[email protected] with your request. J.P. Morgans Strategy, Technical, and Quantitative Research teams mayscreen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or [email protected] .

Date Rating Share Price(Rs)

Price Target(Rs)

10-May-09 OW 27.55 35.00

05-Jun-09 OW 48.70 47.00

29-Jul-09 OW 44.50 46.50

03-Nov-09 OW 44.80 52.00

22-Nov-09 OW 52.35 56.00

02-May-10 OW 45.15 57.00

16-Jan-11 OW 35.70 53.00

18-Apr-11 N 28.20 31.00

14-Jul-11 UW 19.45 17.00

16-Feb-12 UW 18.70 16.00

11-Dec-12 N 13.70 12.00

09-Jan-13 OW 14.25 19.00

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entireperiod.J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated

Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:

J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform theaverage total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelvemonths, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams)coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return ofthe stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, ifapplicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policyreasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not arecommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return iscompared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appearin the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans researchwebsite, www.jpmorganmarkets.com.

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GVK Power & Infrastructure (GVKP.BO, GVKP IN) Price Chart

OW Rs46.5 UW Rs17

OW Rs47OW Rs56 N Rs31 OW Rs1

OW Rs35OW Rs52OW Rs57 OW Rs53 UW Rs16 N Rs1

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.

Initiated coverage May 10, 2009.
https://mm.jpmorgan.com/disclosures/companyhttps://mm.jpmorgan.com/disclosures/companymailto:[email protected]:[email protected]:[email protected]://mm.jpmorgan.com/disclosures/companymailto:[email protected]:[email protected]


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Coverage Universe: Kishore, Sumit: ABB Ltd (ABB.BO), Adani Enterprises Ltd (ADEL.BO), Adani Ports and Special Economic Zone(APSE.BO), Adani Power (ADAN.BO), Bharat Heavy Electricals (BHEL) (BHEL.BO), Crompton Greaves Limited (CROM.BO), EssarPorts (ESRS.BO), GMR Infrastructure Ltd (GMRI.BO), GVK Power & Infrastructure (GVKP.BO), JSW Energy Ltd. (JSWE.BO),

Jaiprakash Associates Ltd (JAIA.BO), Jaiprakash Power Ventures Ltd (JAPR.BO), Lanco Infratech (LAIN.BO), Larsen & Toubro(LART.BO), NTPC (NTPC.BO), Power Grid Corporation of India (PGRD.BO), Reliance Infrastructure Ltd (RLIN.BO), Reliance Power(RPOL.BO), Siemens India (SIEM.BO), Suzlon Energy Ltd (SUZL.BO), Tata Power (TTPW.BO)

J.P. Morgan Equity Research Ratings Distribution, as of January 1, 2013

Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 44% 44% 12%IB clients* 53% 46% 34%

JPMS Equity Research Coverage 42% 49% 9%

IB clients* 71% 62% 51%

*Percentage of investment banking clients in each rating category.

For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a holdrating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the tableabove.

Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for coveredcompanies, please see the most recent company-specific research report athttp://www.jpmorganmarkets.com, contact the primary analystor your J.P. Morgan representative, or [email protected] .

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