Multi Bagger: GVK Power & InfrastructureRecommended Price Rs 50.60

Multi Bagger: GVK Power & Infrastructure Recommended Price Rs 50.60
S.P.Tulsian, Investment Advisor Report Dated: May 06, 2008

GVK Power & Infrastructure is a holding company having interests in Energy, Road, Airport and SEZ projects. The company is having 37% interest in Mumbai International Airport Ltd. (MIAL) developing Mumbai Airport on build-own-operate basis with an initial concession term of 30 years, which is extendable by another 30 years at the option of MIAL subject to certain terms and conditions. The project is extendable beyond 60 years subject to mutual agreement.

MIAL will pay 38.7% of its revenue generated from Mumbai Airport to Ministry of Civil Aviation. The airport will have Aero-related and Non-Aeronautical revenues. Presently, airports caters to 22.25 million passengers and handles 4.80 lakh tonnes of Cargo annually,

which would rise to 40 million passengers and 1 million Cargo with the upgradation of the infrastructure which would happen by 2012. MIAL plans to build state of the art 3 km and 6 lane expressway from Western Express Highway directory to the airport terminal.

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		Reliance Infra		330		3202		870
		TRF		240		2100		775
		Opto Circuits		119		581		390
		Usha Martin		32		154		380
		Genus Power		246		1050		328
		IDFC		55		235		327
		Indo Tech Trans		200		808		304
		Hind Zinc		288		1119		289
		Thermax		255		968		280

Mumbai Airport is presently located on 1,875 acres of land and as per the concession agreement 10% of this can get developed. Presently, 91 acres of land is available vacant for development while 147 acres of land is encroached. Also, of the 102 acres land occupied by Government/AAI colonies, 40 acres would be available to MIAL for development.

MIAL in October 07, entered into an agreement with HDIL for development of 276 acres of land at the Airport including land under Slum Rehabilitation Scheme, in which, FSI has been recently raised to 4. This development would be carried out in four phases to be completed in 48 months and HDIL is said to have identified the land in the vicinity for slum resettlement.

The entire development would be of about 50 million sq. feet of which after giving about 300 sq. ft. each to about 80,000 slum dwellers, an areas of 25 million sq. ft. would be available for sale/leases/rentals.

GVK is having 6 lane, 90 km. Toll based road project at Jaipur – Kisangarh of the Golden Quadrilateral project with concession period of 20 years, starting from April 03 to March 23, including the construction period.

GVK is executing 2,200 MW power projects, of which 437 MW gas based (100% stake) 464 MW gas based (with 51% stake) 700 MW Hydel with 100% stake and 600 MW coal based with captive mines of coal with 100% stake.

GVK is developing 3,000 acres SEZ at Perambalur in Tamil Nadu, through its WoS GVK Infratech Pvt. Ltd., to cater to Textiles/Garments, Leather, Engineering, Pharma, Power, IT/ITeS, Iron & Steel, Fertilisers, Chemicals, Petrochemicals, Floriculture, Horticulture, Electronics, Communications etc.

GVK had recently restructured its business and brought ownership of all the business in itself with 37% stake in Mumbai Airport, 100% stake in Road, 100% stake in SEZ, 100% stake in Coal based power project with coal mining, 100% stake in Hydel Power, 100% stake in 437 MW gas based power project and 51% in 464 MW gas based power project, thus consolidating its infrastructure assets under GVK Power & Infrastructure.

GVK has reported good consolidated results for the year ending 31st March 08, with total income of Rs.532 crores on which PAT was placed at Rs.135.47 crores resulting in an EPS of rupee 1.04 on face value of rupee one.

Present equity of the company is Rs 140.58 crores, with face value of rupee 1, which is held to the extent of 60.94% by the promoters, 30.28% by FIIS and OCBs, 5.89% by banks, mutual funds and 2.89% by the public. One could understand the confidence of the promoters and overseas investors into the company and less than 3% is the effective public float.

Share is presently ruling at Rs 50.60, which translates into a market capitalization of just Rs 7,000 crores for the company while Mumbai Airport land available for development is valued at about Rs 50,000 crores, 37% share of this gets valued at Rs 18,000 crores. Other interests of Airport, Power, Road can be valued at over Rs 20,000 crores.

Share is an excellent bet at Rs 50.60, which has good potential to give an annualized return of 40% over the next 4 – 5 years, with virtually no downward risk.