INSUBCONTINENT EXCLUSIVE:
Edelweiss Financial Services has a buy call on GMR Infrastructure with a target price of Rs 22.
The current market price of GMR
Infrastructure is Rs 16.10.
Time period given by the brokerage is one year when GMR Infrastructure price can reach the defined target
Investment rationale by the brokerage:Favourable regulatory developments continue for airports business: AERA, in its recent order (refer
AERA order), confirmed DIAL’s right to charge aero revenue at a minimum of ‘BAC + 10 per cent of BAC’ w.e.f
BAC had been stipulated under the state support agreement (SSA) for DIAL
AERA will consider true-up of all aero revenues collected by DIAL when it comes up with the tariff order for the third control period
(beginning FY20); this order will also address other pending matters such as returns on refundable security deposit, excess aero revenue
collection by GMR till now and incorporating the ongoing nearly Rs 90bn capex at DIAL.
Floor tariff improves aero revenue’s visibility:
The BAC provided by the regulator is a fixed fee per traffic unit; hence, as the traffic volumes in DIAL increase over time, overall BAC
revenue will also increase, in line with traffic growth
The BAC provides a much needed floor for aero revenue and alleviates fears that once the capex phase is over and non-aero revenue scales up,
cross subsidisation (30 per cent of non-aero revenue used for this purpose) could result in a drastic fall in aero revenue
Thus, this order provides significant visibility for aero revenue and bolsters investors’ confidence in cash flows.
Outlook and
valuations- Strong prospects; maintain ‘BUY’: Favourable policy/regulatory actions, the recent PE settlement and an expanding airport
portfolio reinforce our view that GMR is the most exciting play on the fast-growing Indian airport sector (GMR Infrastructure - Taking
Favourable tariff orders and steady monetisation of non-core assets are key catalysts for the stock, in our view
We maintain 'BUY/SO' with SOTP-based target price of Rs 22.
