GMR’s fundraising lifts investor hopes but caution called for
Shares of GMR Infrastructure Ltd rose 7.8% on Monday on news that it is raising $350 million (Rs2,275 crore) through 10-year international bonds. The Street’s reaction implies confidence that the company’s financial health is recovering.
This bond issue, through its subsidiary GMR Hyderabad International Airport Ltd, is the third from the company’s airports vertical. In the near term, it will prune interest costs annually by about Rs45-50 crore because $275 million from the funds raised will replace high-cost debt. The balance will be deployed towards expansion plans for the Hyderabad airport.
Importantly, it reassures investors of the management’s commitment to monetize assets or raise low-cost funds to improve its balance sheet position. Recall that GMR Infrastructure had tapped $290 million in January 2015 and another $524 million in October 2016 through international bonds from its Delhi airport entity.
No doubt, the airports vertical with five assets in its portfolio is driving growth. Two-thirds of consolidated revenue and 93% of the earnings before interest, depreciation and tax accrues from this segment. Analysts believe that this segment’s performance can get better as the economic recovery would translate to higher air traffic, both passenger and cargo. Meanwhile, GMR Infrastructure is also monetizing land with non-aero revenue. So far, the segment has held out profit margins at a healthy 66-68% over the last few quarters.
That apart, the company has been actively pursuing improving the state of its beleaguered energy division. The recent Strategic Debt Restructuring Scheme took a huge portion of debt off the parent company’s books. According to Alok Ranjan, head of research at Way2Wealth, “Investor interest in infra stocks is likely to improve in the years ahead, especially in ones working on selling non-core assets, reducing leverage and consolidating growth.”
GMR Infrastructure’s stock surely can be in the running among infra stocks, more so, if revenue growth gets a boost, along with its efforts to improve balance-sheet health. For now, however, the company’s debt level at around Rs17,000 crore is still a heavy burden. That’s not easy to service with its current revenue and profit. That’s why the stock continues to trade in a narrow band, rising every time there is some positive news, only to be pulled back by the weight of its problems.
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