GMR Infrastructure Ltd’s two main businesses of energy and airports are still not out of the woods. The company’s shares have fallen by 13% since its March quarter results were declared five days ago.

Investors were unimpressed by the auditor’s qualification of a 2,255 crore impairment loss on a stranded power project. Even GMR Infra’s defence that the project has been referred for Special Debt Restructuring, and the onus is now on the bankers, did not help.

In the energy business, there is some operational improvement. The plant load factor at two coal-fired power plants improved as coal supply resumed. The segment’s share in consolidated revenue rose to 21% from 16% in the year-ago period. However, the gas-based power projects continue to languish for want of fuel.

Sure, the sale of a 30% stake in GMR Infra’s energy business to a Malaysian entity will improve liquidity. But its stranded power assets will still be a drag on profitability. Amid all these headwinds, its energy division’s Ebitda (earnings before interest, tax, depreciation and amortization) margin turned positive. But high interest costs led to losses.

The company’s airports segment, a star performer that contributes to three-fourths of its share valuation, reported a drop in profits. A lowering of user development fees at the Delhi airport by the regulator led to a steep 33% contraction in overall revenue from airports. This was despite an increase in non-aero revenue by a sizeable 15%, 25% and 12% in Delhi, Hyderabad and Cebu airports, respectively.

The airports business will get some relief from the appellate tribunal’s decision advising the airports regulator to provide a return (earlier zero) on the security deposit for the Delhi airport. A proposal to provide a base airport charge at Delhi should also bolster overall revenue in the coming quarters.

The roads segment is a small one but did well and posted a decent 58% Ebitda margin. With two of the company’s main segments doing poorly, its performance was affected. Consolidated Ebitda margin halved year-on-year.

High interest costs are a problem too. GMR Infra’s FY18 interest cover (Ebitda/interest) dropped to 0.9 from 1.5 in the previous year. Consolidated net debt is nearly 1.5 times the equity, indicating high leverage.

GMR Infra’s hopes lie in its airport revenue growth recovering and its planned monetization of assets in the road and power sectors. If the company succeeds on all these fronts, it may cross over to safer ground. With the operational picture looking grim at this juncture, negative news such as auditor’s qualifications further dampen investor sentiment.

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