GVK Power and Infrastructure

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   GVK Power and Infrastructure

GVK (CMP: Rs. 680) is a GMR lookalike infrastructure play with interests in airports, roads and SEZs. The biggest USP of GVK is that it (partly) owns and manages the Chatrapati Shivaji International Airport, Mumbai - the airport that handles 37% of India's air traffic. The rest of its businesses (roads, power) might not be high growth segments, but they generate cash to sustain future investments in airports.

Financial Highlights:

                                  Q2FY08    Q2FY07    H1FY08    H1FY07    FY07

Revenues (Rs. Cr)        104.0        71.89          235.1       144.5         409
Net Profit (Rs. Cr)          39.5          8.52            61.1          15.2          58

Most of the financial websites including MoneyControl.com is carrying incorrect financial data. That's because GVK was a holding company before, and the numbers you see on the website are mostly dividend income. However, GVK recently underwent a restructuring exercise after which it has restated its previous earnings.

Stock Information:

GVK has a market cap of Rs. 8,100 crores and trading at a trailing P/E of 57. In comarison, GMR Infrastructure has a market cap of Rs. 28,000 croes. However, GMR and GVK are not strictly comparable - because most of GMR Infrastructure valuation comes from the land development rights it has around New Delhi and Hyderabad airport.

Current Operational Businesses:

Let's get the 'boring' businesses out of the way first. 

Roads: GVK built a part of the amazing Jaipur - New Delhi 6-lane Golden Quadrilateral highway. Earns income through road tolls - an annuity type of business.  

When the $100 billion Delhi Mumbai Industrial Corridor goes onstream, one can expect a decent growth in toll revenues.

Power Plants: The company has 5 or 6 power plants either in operation or under construction. One of the power plants is coal fired, and they have backward integration in place. The company owns a coal mine and the coal will be used only for internal consumption. 

Expect the power business to generate low growth rates, but it will definitely generate cash - which can be deployed in other businesses.

Now for the interesting part - Airports!

Airport Infrastructure:

GVK consortium will be investing Rs. 5,000 crores in upgrading the Mumbai airport. A few facts about this airport -

- Busiest airport in South Asia

- Mumbai - Delhi is the seventh busiest domestic route in the world (50 daily flights)

- Handles 37% of India's air traffic.

GVK consortium will invest Rs. 5,800 crores to modernise and upgrade the airport over the next few years. This includes new terminals, better facilities for passengers including shopping/food court, new approach roads, better cargo handling facilities etc. 

The goal is to increase the passenger handling capacity of the airport of 40 million (from the current 20 million).

Business Model of an Airport:

An airport's revenues can be classified under 'Aero Revenues' and 'Non-Aero Revenues'. In India, aero revnenues (landing charges, aeroplane parking charges) are regulated.

The interesting part in non-aero revenues from sources like -

- Cargo handling
- Aircraft refueling and maintenance
- Duty free shops & retailing of food and beverages
- Advertisements inside the airport
- Car parking

Internationally, 50% of airport revenues are non-Aero related.

Note: Airports Authority of India owns 26% of Mumbai Airport but has rights to 39% of revenues.

Future Businesses of GVK:

- The Mumbai Airport is not enough to handle the traffic, even after upgradation. For the proposed Navi Mumbai airport, GVK has the RoFR(Right of First Refusal). GVK plans to bid for the project in partnership with Reliance Industries.

- GVK will continue building new power plants.

- Plans to get into ports and MRTS (Mass Rapid Transport System) - they've already  been shortlisted for Hyderabad MRTS.

- Plans to develop a multi-product SEZ in Tamil Nadu.

Edited by smartcat - 05/Dec/2007 at 6:00pm