GMR Infrastructure Ltd’s stock has fallen nearly 60% this year in spite of steady progress in its airport, power and road projects businesses. Investors seem to be worried about some regulatory hurdles that might hit the company’s near-term performance.

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The reason investors aren’t excited is that there is no fuel to feed the power plants. Scarcity of liquefied natural gas in the country has hit the performance of several gas-based power producers in the last several quarters. In fact, although GMR’s management is hopeful of a decision on sourcing of gas soon, the delays are inflating the project cost, and hurting profitability.

The power segment has been plagued by many headwinds such as a shortage of fuel, low merchant tariffs and delay in payments by state-owned distributors. This has adversely affected profitability in the past one year. During the September quarter, the power segment reported an 11% contraction in operating profit on the back of a 10% increase in revenue.

Worse still, earnings from the company’s Male airport seem to be at risk. Last week, according to news reports, a Maldives civil court has ruled that GMR will not be allowed to collect an airport developmental charge of $25 (around 1,337 today) from every departing passenger.

GMR holds a 77% stake in the project and although it is minuscule compared with the airport assets of Delhi and Hyderabad, it is a profitable venture.

According to a report by Edelweiss Securities Ltd, if the ruling is final, then it hits the airport segment valuation by 1 per share. Edelweiss has a 46 price target on the stock. Compared with the current traded price of 18.85, a 1 hit is significant. So far, the airport segment’s contribution has been the highest in terms of both revenue and profit.

Of course, at a company-wide level, high interest costs continue to hurt profitability, as GMR carries a huge debt burden of around 26,000 crore. In this backdrop, the setback at Male and the shortage of fuel will hurt the company’s debt-servicing ability.

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