GMR Infrastructure Ltd’s results for the September quarter echoed the macroeconomic challenges faced by the infrastructure segment. A sluggish economy, hurdles in the power sector and decisions on airport tariff revision hanging fire for the last few quarters hit profitability, though revenue forged ahead.

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However, as expected, the power segment was the dampener, registering a meagre 10% y-o-y growth. The sector is plagued with lower sales due to the poor financial health of electricity boards and a tough economic environment where direct sales (merchant) are not very remunerative. Merchant power sales rose only 2% y-o-y and fell 24% compared with the June quarter. Merchant tariffs, too, fell from 4.10 per unit a year ago to 3.30 during the period.

Revenue growth trickled down to post a 41% y-o-y growth in operating profit, led by the 90% surge in the airport segment. In fact, the power segment disappointed with an 11% drop in operating profit. The road segment, which owns six assets and contributes barely one-fifth to profit, fared well on this count.

Further, the airport tariff revision (Delhi) pending for several quarters now was another deterrent to better profitability, though passenger traffic increased compared with a year ago in the key Delhi and Hyderabad airports.

Rising interest cost was a further drag on profits. With greater number of power projects coming into execution, increased borrowing led to a 23% increase in debt from a year ago to 26,356 crore. Consequently, interest outflow was 50% higher. This ate into operating profit and the firm posted a net loss of 62.6 crore compared with a net profit of 71.1 crore a year ago, though it mirrored the loss posted in the June quarter. In fact, net loss was higher than Bloomberg’s consensus estimates, too.

GMR’s stock, which has underperformed the CNX Nifty index of the National Stock Exchange since January, has seen almost a 90% erosion in price. Unless the macro-operating environment improves to give a kicker to revenue and to stabilize cost pressures, profit will continue to be hit, keeping the stock out of favour with investors.

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