GMR Group firm GMR Infrastructure Ltd reported a 24% drop in its profit before tax for the September quarter although operating profit rose by a smart 54%. Blame a 150% jump in interest cost for this outcome. Finance charges rose as new projects started, which were funded mainly by debt.
The company had attempted to raise funds earlier this year by selling securities to institutional investors who were not willing to subscribe at prevailing prices. The company is now set to raise Rs1,000 crore through an issue of preferential shares. Part of the funds raised will be used for ongoing projects and some of it used to retire debt.
GMR’s consolidated revenues grew by 41% year-on-year and operating profit margin improved by 2.6 percentage points to 31.8%. This rise in profitability is partly due to a reduction in employee costs, which fell by 30% over the year-ago period. This relief is largely due to retiring of employees in the Delhi airport project. The company had an agreement to employ them for three years.
With India moving out of a slowdown, the company’s airports business has done well. Passenger traffic has increased by around 20-22% in the three airports it operates. Revenues from the power sector grew 21% and that from roads by 60%, although the latter has benefited from a relatively low base.
A key concern is the company’s high appetite for tapping funds. In a report released last month, Nomura’s analysts said: “The company has revealed plans to raise Rs7,500 crore over FY10-12 even as medium-term requirement for projects under development is only Rs2,850 crore, as per the company’s estimates. The plan envisages a separate listing of segment holding companies with a view to unlocking value. We see this as a negative for the parent company as one would now attribute a holding discount to GMR, since investors can pick and choose segments in which they would want to invest.”