GVK has a presence in the airports, power and roads businesses and the operating assets in each of these segments are held under three subsidiary companies representing each segment. In short, the company has three layers, with GVK Power as the overall holding company; the three broad subsidiaries at the second level; and the operating assets at the third.

The company, through its energy subsidiary which holds all energy-related assets, recently completed the purchase of a 9.5% stake in GVK Gautami Power Ltd from Nagarjuna Construction Co. Ltd. With this purchase, its stake has gone up from 54% to 63.6%. Likewise, the 17% stake purchase from Larsen and Toubro Ltd in Bangalore International Airport Ltd (Bial) was completed in mid-January this year, taking GVK’s stake in the entity to 29%.

Strategically, the group’s intent is to enhance equity in projects as they start generating revenues and profits. “We would take a controlling stake in all our ventures which is important in running such large capital intensive businesses," says Issac George, chief financial officer (CFO) of the group.

Also, this enhances the value of the subsidiary companies at the second level. This will give the company leeway to dilute its stake at the subsidiary level itself to fund future expansion plans. Gautami Power, for instance, will expand capacity from its present 469MW to around 800MW in a brownfield expansion. GVK can raise funds by diluting its stake in favour of an investor in the energy subsidiary. It can do the same with its airports subsidiary, which holds an interest in the Bangalore and Mumbai airports.

Of course, as pointed out by George, a higher equity stake will bring in proportionately higher profits into the parent firm’s kitty. The current fiscal will see the first full year of operations of Bial, which is expected to register a net profit of around Rs70 crore. Similarly, Mumbai International Airport Ltd, where GVK holds a 37% equity stake, is expected to report a 20% growth in net profit, compared with the Rs110 crore profit posted in the previous year. The company aims to hold 51% controlling stake in both these ventures.

GVK’s shares have been stuck at around Rs45 since January owing to the lacklustre results for the December quarter. News of the company increasing its stake in various assets, too, has not enthused investors.

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