Improved performance does little to lift GMR Infra stock

Improved performance does little to lift GMR Infra stock

Shares of GMR Infrastructure Ltd (GMR Infra) have been beaten down 50% this fiscal. At first glance, the consolidated net loss of Rs22.2 crore posted during the December quarter may well seem to justify this. However, a closer look at the results shows that led by the airports segment, GMR Infra’s operations have steadily improved in the last three quarters.

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Consolidated net revenue rose 27% year-on-year (y-o-y) and 11% quarter-on-quarter (q-o-q) to Rs1,359.8 crore. Airports contributed 46% to total revenue compared with 35% a year ago. Revenue from this segment rose 66% y-o-y and 30% q-o-q to Rs626.4 crore—the result of a steady rise in passenger traffic at two key airports, Delhi and Hyderabad, besides the addition of Male, a high-end tourist destination, during the quarter. More important is the increase in share in the operating profit, from 42% to 46%.

What then continues to drag the stock price down? One key reason is that the commissioning of T3 terminal at the Delhi airport resulted in higher operating expenses, which dragged down the segment’s operating profit margin. The larger drain was because of the near doubling of interest and depreciation costs compared with a year ago, when they were capitalized.

Another reason was that the energy sector did not quite measure up, given the lower merchant power tariffs during the quarter. Gas availability, too, affected plant load factor of one its units (Vemagiri). Hence, the segment posted flattish revenue at around Rs500 crore, versus the year-ago and the preceding quarter. The energy sector’s contribution, too, dipped to 37% from 41% a year ago, though its share in overall operating profit inched up.

To sum up, higher costs mainly from the airports segment pulled down the profit. On a consolidated basis, GMR Infra’s interest cost shot up 81% y-o-y to Rs294 crore, while depreciation cost was up 39% y-o-y at Rs236 crore during the quarter. The infrastructure conglomerate has a net debt outstanding of Rs15,300 crore, compared with around Rs11,000 crore a year ago. Of course, in infrastructure firms, one will see debt mounting as the asset build-up is in progress. It is at the inflection point, when the revenue generated from the assets offsets or surpasses the costs, that the profitability from an investor standpoint improves.

At this juncture, GMR Infra’s net loss of Rs22.2 crore, versus a net profit of Rs9.2 crore a year ago, reflects the higher costs incurred on operations and money borrowed, mainly for airports. Over the medium term, higher revenue ramp-up in its four key airport assets could offset these costs, resulting in improved profits. An Edelweiss Securities Ltd report says that valuations could improve as one sees a likely traction in project portfolio, growth in passenger traffic at airports and more efficient allocation of capital. This could well be the inflection point for GMR Infra’s beaten down stock.

Graphics by Ahmed Raza Khan/Mint

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