GVK Power and Infra (GVK’s) operating and maintenance expenses were ~INR 220 mn higher than our estimates. This was due to expenses in its road (INR 140 mn) and power (~INR 120 mn) segments as well as ~INR 35 mn on business development expenses. Consequently, the company reported PAT of INR 334 mn versus INR 327 mn last year against our estimates of INR 697 mn. Revenues, at INR 4.9 bn, grew 48%, in line with our estimates.
GVK’s two airport and one road project are performing well, with traffic growth in line with estimates - 7.4% road, 18% pax and 20% cargo at Mumbai International Airport (MIAL) and 26% pax and ~40% cargo in Bangalore International Airport (BIAL), which enabled the company to meet its financial targets. However, interest costs on the leveraged buyout of BIAL resulted in consolidated earnings of ~INR 40 mn against total earnings of ~INR 220 mn.
We have incorporated BIAL’s financials and higher maintenance expenses in the power and road projects. This has resulted in earnings being re-stated lower at INR 1.2 bn and INR 2.7 bn for FY11E and FY12E, respectively. We have valued the land parcels at BIAL at INR 20 mn/acre. However, the accretion of BIAL to SOTP is offset by delay in pipeline power projects along with higher O&M expenses in existing projects. Our SOTP value for GVK comes to INR 43/share.
