gmr infrastructure ltd. - keynote...

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Initiating Coverage March 14, 2011 Keynote Capitals Institutional Research is also available on Bloomberg KNTE <GO>, Thomson One Analytics, Reuters Knowledge, Capital IQ, TheMarkets.com and securities.com Keynote Capitals Institutional Research - awarded “India’s Best IPO Analyst 2009" by MCX-Zee Business Denil Savla, Analyst ([email protected]) (+9122-30266073) K E Y N O T E INSTITUTIONAL RESEARCH GMR Infrastructure Ltd.

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Page 1: GMR Infrastructure Ltd. - Keynote Indiakeynoteindia.net/document-hosting/research/042_GMR_Infrastructure... · Keynote Capitals Institutional Research 3 KEYNOTE Company Background

Initiating Coverage

March 14, 2011

Keynote Capitals Institutional Research is also available onBloomberg KNTE <GO>, Thomson One Analytics, Reuters Knowledge, Capital IQ, TheMarkets.com and securities.com

Keynote Capitals Institutional Research - awarded “India’s Best IPO Analyst 2009" by MCX-Zee Business

Denil Savla, Analyst([email protected])(+9122-30266073)

K E Y N O T EINSTITUTIONAL RESEARCH

GMR Infrastructure Ltd.

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2 Keynote Capitals Institutional Research

K E Y N O T E

(E - Keynote Capitals Institutional Research Estimates)

(`Cr)Key Financials

GMR Infrastructure Ltd.An integrated infrastructure developer… March 14, 2011

Key Stock Data

Sector Infrastructure

CMP `39.10

52-wk High / Low `68.70/29.80

Market Cap `152.19bn

($3382.1mn)

Avg 6m daily vol. 665500

BSE Sensex 18174.1

Reco Buy

TP `48.10

Particulars FY09 FY10 FY11E FY12E FY13E

Net Revenues 4019.2 4566.5 5032.9 5660.9 6500.3

Growth (%) 75.1% 13.6% 10.2% 12.5% 14.8%EBITDA 1088.2 1527.7 2057.9 2536.5 2739.6Growth (%) 62.9% 40.4% 34.7% 23.3% 8.0%

Net Profit 274.8 292.4 205.6 264.3 396.4Growth (%) 30.8% 6.4% -29.7% 28.6% 50.0%Book Value 24.2 25.0 36.2 37.9 40.1

Price to Book Value 2.2 2.1 1.5 1.5 1.4EBIDTA Margin % 27.1 33.5 40.9 44.8 42.1PAT Margin % 6.8 6.4 4.1 4.7 6.1

RONW % 4.2 4.4 2.1 2.6 3.7Market Cap/Sales 3.7 3.3 3.0 2.6 2.3

Price Performance (%)

1 Mth 3 Mths 6 Mths 1 Yr

11.1% -12.0% -32.3% -30.2%

Price Performance (%)

Stock Codes

Bloomberg Code GMRI.IN

Reuters Code GMRI.BO

BSE Code 532754

NSE Code GMRINFRA

Face Value `1per share

Shareholding Pattern (31st Dec, 2010)

Price Performance (%)Stock Price Performance

Promoters

70.7%

FIIs13.0

%DIIs 8.3%

Public29.3%

GMR Infrastructure Ltd. is a large conglomerate with presence across various businessverticals in the infrastructure space like airports, power, road-highways and urbandevelopment. The company has excellent track record of execution across differentsegment and is in a sweet spot with the pick-up in airport passenger traffic and improvingvisibility for monetization of real estate at premium valuations. It has a strong pipelineof new power projects which will be operational over the period and would unlockvalue for the parent company. GMR owns and manages 3 airports - Delhi, Hyderabadand Sabiha (Turkey) and recently acquired the Male airport as well. It also has 6operational and 3 under construction road projects with a project cost of `3000Cr andhas 823MW of operating power assets, and an under construction portfolio of 4138MW.

� Time to reap the returns:

Completion of Delhi airport well ahead of Commonwealth games provides moreevidence of GMR's execution capabilities. It is expected that the airport will beginFCF by FY12E and could also make net profit if management executes the plan topay off debt with further real estate lease outs. Hyderabad airport has begungenerating FCF in FY11 and there would be sharp rise in profits by FY12E led byhigher capacity utilization.

� Power to provide the next growth leg:

The Company has 823MW of operating power projects and 4138MW of underconstruction projects. Recent PE investment of US$3Mn in the power verticalwould fund the growth through FY13E.

� 50% stake sale in Inter-Gen:

The Company is going to sell its stake to China based Huaneng Group coveringall the investment except the transaction cost. The cash could be used to fund itslined up power projects of 4138MW reducing the consolidated debt position to2.58x from 2.98x.

We expect the company's revenue to grow at 10.2%, 12.5% and 14.8% for FY11E,FY12E & FY13E respectively. Based on the SOTP valuation, we recommend 'Buy'with the target price of `48.10 per share.

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Keynote Capitals Institutional Research 3

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Company Background

GMR Infra (subsidiary of GMR Group) is a Bangalore headquartered global infrastructuremajor with interests in the Airports, Energy, Highways and Urban infrastructure (includingSEZ). The company has an exceptional track record of executing world-class infrastructuralfacilities within and outside India. The company currently has 3 airports, 3 power plants & 6road projects which are operational. However Company's under construction andunderdevelopment portfolio consisting of 1 international airport, 9 power project (7648MW), 3road projects and SEZs. With its foray into the Airports sector, the Group has establisheditself as a front runner and pioneer in the core infrastructure areas of the country.

Early entrant and a pioneer

GMR made its foray into infrastructure space with the commissioning of its first power plant(200MW, LSHS fuel) at Basin Bridge in Chennai during Feb-99. In fact, GMR was the first IPPin Tamil Nadu. Furthermore, GMR became India's pioneer airport developer in Dec-04, whenit was awarded the contract to develop a green-field airport in Hyderabad.

In May-06, the company bagged another landmark project-the development of Delhi Airport,which involved expansion and modernization of existing facilities, construction of a new runwayand development of a brand new, integrated terminal T3, which at 37m annual passengercapacity, is set to be amongst the biggest in the world.

Excluding power trading and EPC businesses, GMR currently has an equity interest in 35assets/projects/investments, of which 15 are operational; the operational assets comprise: 3airports, 3 power plants, 6 roads, DIAL real estate, InterGen and the Kendal coal mine(Homeland).

70.61%

98% 100% 100% 100%

GMR Holdings Pvt. Ltd.

GMR Infrastructure Ltd. (GIL)

GMR EnergyLimited

GMR HighwaysHolding Pvt. Ltd.

GMR AirportsHolding Limited

GMRInternational

Operating Companies:• GMR Energy Ltd (100%• GMR Power Corporation(51%)• Vemagiri Power Generation(100%)

Assets under development:• GMR Badrinath Hydro Power(100%)• GMR Kamalanga Energy (80%)• GMR Chattisgarh Energy (100%)• EMCO Energy Limited (100%)• GMR Rajahmundry Energy (100%)• Talong Hydro Power (100%)• Holi Bajoli Hydro Power (100%)• Himtal Hydro power Co. (80%)• GMR Upper Karnali (73%)• GMR Coastal Energy (100%)• Island Power Singapore (100%)

Operating Companies:• GMR Tambaram Tindivanam (61%)• GMR Tuni Anakapalli (61%)• GMR Pochanpalli (100%)• GMR Ambala Chandigarh (100%)• GMR Jadcherla (100%)• GMR Ulundurpet (100%)

Assets under development:• GMR Hyderabad Vijayawada (74%)• Chennai Outer Ring Road (90%)• Hungund-Hospet (51%)

Operating Companies:• GMR Hyderabad Intl. Airport (63%)• Delhi International Airport (54%)

Operating cum DevelopmentCompanies :• GMR Male International Airport

Operating Co.:• Sabiha Gokcen Intl. Airport (40%)• Intergen N.V. (50%)

Assets under development :-

2% with Employee Trust

GMR started its powerbusiness in 1999, roads in2004 and airports in 2006

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4 Keynote Capitals Institutional Research

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DIAL Passenger & Cargo Growth

Chart 1

(Source: Company & Keynote Capitals Institutional Research)

4

6

8

10

12

14

16

18

FY04-05 FY05-06 FY06-07 FY07-08 FY08-09 FY09-10

0

100000

200000

300000

400000

Domestic PAX (RHS) International PAX (RHS)

Domestic Cargo (LHS) International Cargo (LHS)

Handled 26.13Mn PAX and0.5Mn tons of cargo in

2009-10….

Passenger traffic has grown at a CAGR of 15% where as cargo traffic at 8% CAGR from

FY05 to FY10. We expect same growth in the passenger traffic and cargo traffic during next

three years.

2. Early COD of Sabiha Gokcen airport in Turkey

The company has completed the construction work 12months ahead of schedule. With this,

the capacity of airport has increased to 25Mn passenger and it is located on the Asian side

of Istanbul. Therefore company would be able to collect more revenues to that the extent

which may increase the value of the airport. The annual traffic growth in 2009 grew more

than double thereby indicating high growth area for the company.

3. HIAL: one of the fastest growing airport

Hyderabad airport is Greenfield airport which was awarded to GMR Infra in Dec 2004 by

ministry of civil aviation with concession for the period of 30 years. This airport is also

commenced its operations 5 months ahead of schedule on March ‘08.

Investment Rationale

1. DIAL: One of the busiest airport in India under the portfolio

The company handles one of the busiest airports (Delhi) which contribute 21% of the total

passenger traffic of Indian Airports. Delhi and Mumbai airports are the busiest airport in

India. Of which Delhi is likely to emerge as one of the biggest airport with a capacity of 60Mn

expandable to 100Mn over the period, whereas Mumbai, due to airside constrain, will have

peak capacity of 40Mn over the period, which is much lower than the current capacity of

Delhi Airport. The company has completed the construction of the airport in the record time

of 37months compare to the world standard of 48-60 months, much ahead of schedule.

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Keynote Capitals Institutional Research 5

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HIAL Passenger & Cargo Growth

Chart 2

(Source: Company & Keynote Capitals Institutional Research)

10000

15000

20000

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30000

35000

40000

FY04-05 FY05-06 FY06-07 FY07-08 FY08-09 FY09-10

1

2

3

4

5

6

Domestic PAX (LHS) International PAX (LHS)

Domestic Cargo (RHS) International Cargo (RHS)

Purchased 1135 110 23 837 275

Additional - - 230 -100 -

Dividend 32.5

Sold 1232 - 220 737 275

Particulars Deal Cost TransactionCost

EquityDebt

ShortTerm

Longterm

(Source: Company & Keynote Capitals Institutional Research)

The company announced to sell their stake in InterGen NV (50%) to China based Huaneng

Group, the largest power generation company in China for equity value of US$1232Mn. After

the completion of the deal, it seems that the company could successfully pull out its

investments except the transaction cost.

This cash inflows of ̀ 1000Cr (US$220Mn) can be utilized for the energy vertical where it has

plan of 5000MW under various stage of construction & development. The acquisition debt

would have led to deterioration of company's leverage position, which this sale has averted.

The company's current D/E stands at 2.3x which would otherwise have resulted into 2.5x on

InterGen consolidation worsening the leverage.

5. Monetization of Prime real Estate - Value creator

The company holds 250 acres of land adjacent to DIAL. Land parcels are located in heart of

National Capital territory with Delhi & Gurgaon (Central Business Districts) less than 20kms

away. 190-200 acres of land is near NH-8 and remaining is situated nearby airport terminals.

Recently, the company manages to monetize 45 acres of land at NPV of `77Cr per acre

including lease rentals & upfront fees. Considering remaining land at NPV of `60Cr per acre

another `12,300Cr can be monetized adding value to the real estate.

4. InterGen sale to improve liquidity

GMR Infra acquired 50% stake in 'InterGen NV' in October 2008 for US$1135Mn. Additional

transaction cost & fees on the deal was to the tune of US$110Mn (including island power). In

addition to US$275Mn in the form of equity, GMR has injected additional funds of around

US$130Mn and have received US$32Mn in the form of dividend.

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DIAL real estate: Monetization Schedule and other key assumptions

Particulars FY10 FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E

Area Allocated (acres) 45 25 25 25 25 25 25 25 30Escalation in Land Value 10 10 10 10 10 10 10 10

Refundable Deposit (`Cr/acre) 29.6 32.5 35.7 39.3 43.2 47.5 52.3 57.5 63.2Infrastructure Cost (`Cr/Acre) 14.4 15.8 17.4 19.2 21.1 23.2 25.5 28.1 30.9Total Deposits (`Cr/Acre) 44.0 48.3 53.1 58.4 64.3 70.7 77.7 85.5 94.1

Rental @ 5% incremental (`Cr/Acre) 31.0 32.5 34.2 35.9 37.7 39.6 41.5 43.6 45.8GPV per Acre (`Cr) 75.0 80.8 87.3 94.3 102.0 110.3 119.2 129.1 139.9Share of GMR in GPV 59 59 59 59 59 59 59 59 59

(E: Keynote Capitals Institutional Research Estimates)

Apart from Delhi, company also has land parcels of around 1500 acres near the Hyderabad

International Airport. HIAL has already developed an airport hotel (Novotel) on about 5 acres

of land which is operational since October 2008.

According to HIAL management, the value of land itself is ̀ 2Cr per acre and post development,

it cloud be worth more than `7-8Cr per acre.

HIAL real estate: Monetization Schedule and other key assumptions

Year Area Allocated Escalation in GPV per Acre(acres) Land Value (%) (`Cr)

FY10 0 0.0% 5FY11E 0 5.0% 5.25

FY12E 50 5.0% 5.51FY13E 100 5.0% 5.79FY14E 100 5.0% 6.08

FY15E 100 5.0% 6.38FY16E 100 5.0% 6.7FY17E 100 5.0% 7.04

FY18E 100 5.0% 7.39FY19E 100 5.0% 7.76FY20E 100 5.0% 8.14

FY21E 100 5.0% 8.55FY22E 50 5.0% 8.98

(E: Keynote Capitals Institutional Research Estimates)

6. Significant pipeline in Power portfolio

5508MW of additional thermal capacity planned of which 4138MW under construction andalso 2140MW of hydro capacity under planning stages. The company is expecting to add4138MW of capacity by 2015.

Meanwhile, the company has extended its hands to acquire coal mining assets internationally,a step to mitigate coal-availability issues and fluctuating coal-price risks. GMR has acquireda 100% stake in PT Barasentoso Lestari, Indonesia, and a 38.5% stake in Homeland EnergyGroup (HEG). HEG, through its subsidiaries, holds a 75% stake in Kendal & Eloff mines inSouth Africa. We believe owning mining assets abroad is a big positive for the company,considering the visible shortage of coal in India. Moreover, we expect coal imports to rise inthe next few years due to the supply shortfall of domestic coal and the potential increase incoal blending at the upcoming thermal power stations.

7. Mining (coal) assets to feed ambitious growth plan in power segment

An Indonesian coal mine acquired by GMR Energy a subsidiary of GMR Infra holds 30 year

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Keynote Capitals Institutional Research 7

K E Y N O T E

mining authorization over 2 separate coal blocks. GMR will import the extracted coal fromthis coal mine to India for its coastal power project, thereby ensuring coal supply to scale uppower business. Moreover, this acquisition would help to hedge against coal-price fluctuationrisks.

8. Diversified player with proven execution record

GMR's portfolio is well diversified in the terms of geographical presence, asset-type, revenuestream, fuel mix in power projects, etc. Geographically company has presence in 10 statesin India and internationally in 6 countries including Indonesia, Turkey and South Africa. It haspresence in airport, power, roads & urban infrastructure (including SEZ).

Air Roads Ports Metro Power Oil & Real Estate/ports Rail Gas SEZ

GMR Infrastructure � � � � � � �

GVK Power & Infrastructure � � � � � � �

Lanco Infratech � � � � � � �

Reliance Infrastructure � � � � � � �

L&T � � � � � � �

Mundra Ports & SEZ � � � � � � �

Tata Power � � � � � � �

JP Associates � � � � � � �

IRB Infra Developers � � � � � � �

HCC � � � � � � �

(Source: Company & Keynote Capitals Institutional Research)

Diversified Portfolio (FY10)

Chart 3

(Source: Company & Keynote Capitals Institutional Research)

39% 35%

42%42%

8%8%

11% 15%

Revenue Networth

Airport Power Roads Others

9. Revenue Streams

With each segment, GMR earns a mix of regulated and market-linked returns as well asbusiness. The company is well hedged against the downside risk due to the regulated marketreturns.

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8 Keynote Capitals Institutional Research

K E Y N O T E

Business Mix Returns (FY10)

Chart 4

(Source: Company & Keynote Capitals Institutional Research)

33%

73%

29%

67%

27%

71%

Airport Power Roads

Regulated Market Linked

Apart from the diversified revenue mix, company is well known for its timely execution of its

projects. All the projects have been completed on or before time, mainly due to strategic

alliance formed with global infra developers.

Airport - offer significant growth potential

The Indian aviation sector is emulating the growth story of the Chinese aviation sector. In

India also the infrastructure of the aviation sector is all set for a revamp with major airports

under development through the public private partnership model. Key Drivers that could lead

to overall growth are:

1. Development of regulatory framework.

2. Infrastructural changes at major airports.

3. Allaying funding concerns after improvement in the credit and capital markets.

4. Levy of development fees by major airports will partly fund the infrastructure capex.

Passenger Growth

Chart 5

(Source: AAI & Keynote Capitals Institutional Research Estimates)

40 44 4959

73

96

117109

121132

144157

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E

FY

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(CAGR of 13% FY02-FY10)

(CAGR of 9%FY10-FY13E)

Business Verticals

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It started witnessing growth in the double digit since 2002. It has been one of the fastest

growing markets in the world with passenger traffic growth of 19.5% CAGR from FY02 onwards.

The Ministry of Civil Aviation has also envisaged a vision to create infrastructure for handling

280 million passengers by 2020.

Ministry of civil aviation has envisaged a capacity of 280Mn passenger by 2020 at CAGR of

9%. It is expected the airports to operate at 80% utilization.

Ministry of civil aviation has identified the overall opportunity of ̀ 5.5Lac Cr. Out of which ̀ 4lac

Cr to be used for new aircraft and balance `1.5lac Cr for development of new airports by

2020.

Delhi International Airport (DIAL)

GMR has been granted 60 years concession period in which it will modernize, develop &

operate the airport to handle the 100Mn passenger capacity by the end of period. It is one of

the busiest airports which currently handles 26Mn passengers in FY10. The bidding includes

paying an upfront fee of `150Cr and 46% of its gross annual revenues to AAI during the

concession period. It has also signed agreements with government, not to invite bids for

another airport, within 150Km radius of Delhi airport, DIAL would be allowed to match the

most competitive bid, provided its initial bid is within 10% range of the most competitive bidder.

Airport Development Plan:

Phases Completion PAX Capacity Cargo Capacity PTB Area(MN) (tones) (Sq.m)

1A March-08 26 539000 110973July-08 26 539000 150973

1B March-10 60 638000 5150752 March-17 60 900000 515075

3 March-22 76 1400000 9760174 March-27 86 2100000 12682775 March-37 100 3600000 1679844

(Source: Company & Keynote Capitals Institutional Research)

Financing of Phase I: The total project cost for the Phase-I expansion is expected to be more

than `10000Cr.

Capex Funding `Cr

Debt 4986

Equity + Shareholders Advances 1250 + 1200Internal Accruals 29Deposits from Real Estate deals 882

ADF 1827

(Source: Company & Keynote Capitals Institutional Research)

Phase I completion at opportune time

Delhi airport contributes 21% of all India traffic is the second largest in India. In FY10, the

passenger traffic grew by 14.5% mainly due to global recovery. The Delhi passenger traffic

has grown at a CAGR of 12.6% from FY04-10. However we expect passenger traffic growth

to remain sustainable. It is expected to grow at CAGR of 8% over the next decade driven by

overall stability in economy.

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Traffic at DIAL

Chart 6

(E: Keynote Capitals Institutional Research Estimates)

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

FY07 FY08 FY09 FY10 FY11E FY12E FY13E

PAX ATMs Cargo

Regulated and Market linked growth driver:

Revenues of DIAL could be broadly classified in to three types: aero, aero related and non-aero. Aero revenues are a composition of landing revenue, passenger service fee, aircraftparking charge and X-ray charge, all of which are regulated by the AAI. The aero-related andnon-aero revenues comprise revenues mainly from ground handling, fuel farm, duty-free,food & beverages, advertising, and car parking and rentals, which are linked to rental andcustomer spends. Since the aeronautical revenues are capped by a fixed formula, we believe,going ahead, the contribution of non-aero revenue will increase in the revenue mix and drivegrowth.

DIAL enjoys a guaranteed return of 11.7% on investments in aero assets, which should offersupport to profitability after the implementation of the regulatory framework. At the same time,the non-aero segment is not regulated and will offer significant upside potential to the profitabilityof the airport venture. We expect the framework to be implemented from FY12E onwards.

Particulars FY10 FY11E FY12E FY13E FY14E FY15E

Aero Revenues 421.8 503.3 600.7 716.9 855.8 1021.8Non Aero Revenues 508.3 606.5 723.8 863.9 1031.3 1231.3

Cargo Revenues 238.2 268.8 303.5 342.7 387.1 432.8CPD Rentals 46.4 79.5 79.5 99.3 99.3 99.3Gross Revenue 1153.20 1384.90 1635.40 1932.40 2284.80 2698.60

Less: Revenue Share 538.9 670.7 785.4 930.5 1091.8 1281.2Net Revenue 614.3 787.4 922.0 1092.4 1281.7 1504.0Total Expenditure 370.1 433.1 507.1 600.8 704.9 827.2

Gross Profit 285.2 366.3 429.9 506.6 591.8 691.8Depreciation 116.6 196.3 180.6 166.2 152.9 140.6EBIT 168.6 170.0 249.3 340.4 438.9 551.2

Interest 128.1 319.0 472.8 241.9 185.9 129.9EBT 40.5 -148.9 -223.5 98.5 253.0 421.3Tax -3.1 -26.8 -40.2 17.7 45.5 75.8

EAT 43.6 -122.1 -183.3 80.8 207.4 345.4

(E: Keynote Capitals Institutional Research Estimates)

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It is expected that DIAL's revenues will show a 14.2% CAGR during FY11-15. EBIDTA marginsare expected to be stable from FY10 to FY15E.

HIAL-India's first world-class Greenfield airport

HIAL has been granted the concession to develop and operate the airport to handle a capacityof 40 million passengers for 60 years. Hyderabad Airport has been the fastest growing Indianairport with a CAGR of 19.7% over FY05-FY10. Being independent of the regulatory framework,the profitability of the aero segment is much more reliant on the growth in passenger traffic. Ithas same revenue stream as DIAL. However, HIAL has to share only 4% of the gross revenuesto AAI from 11th year.

Key Feature:

Deferred revenue share of 4%: In accordance to the revenue-sharing arrangement, HIALwill pay 4% of the revenue to AAI. However, the revenue sharing has been deferred for thefirst 10 years of operations, and the accrued amount is payable in the subsequent 10 years in20 equal half-yearly instalments.

No competing airport within 150 km: The existing airport was shut down after thecommissioning of the new airport. No airport will be allowed to function within 150 km of HIALfor 25 years from the commissioning of the airport.

Concession period: The concession period is 30 years from the airport opening date and thesame is extendable by another 30 years at the option of the airport.

Land-lease agreement: HIAL received 1,500 acres of land on lease for commercialdevelopment.

Financing of Phase I

The total project cost for the Phase-I expansion is expected to be more than `2920Cr.

Capex Funding `Cr

Debt 4986Equity 378

Interest Free Debt (From Govt. AP) 107Non Refundable Grant from Govt. AP 315

(Source: Company & Keynote Capitals Institutional Research)

UDF being key driver:

There has been increased in UDF with effect from 1st November, 2010. The new UDF is`430/- + ST and `1700/- + ST for each domestic & international departing passengerrespectively. This could help HIAL to cover its cost faster and could break even before theexpected year during initial period. Increased in UDF coupled with the rise in passengertraffic due to higher capacity utilization will drive the revenue growth.

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Traffic Growth in HIAL

Chart 7

(Source: Company & Keynote Capitals Institutional Research)

-15%

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0%

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10%

15%

20%

25%

FY08 FY09 FY10 FY11E FY12E FY13E

PAX ATMs Cargo

Sabiha Gokcen (Istanbul) Airport

GMR owns 40% of Istanbul SGIA, the company that won the 20- year concession to operateand develop the Sabiha Gocken International Airport in Turkey. The development was completedon 31st Oct '09, almost a year ahead of schedule, at the budgeted cost of Euro451m (`31bn).

Project Detail:

• The project involved expanding two existing terminals (one domestic, one international),and developing a brand new international terminal, thus increasing the total capacity to25m from 5m passengers. By the end of the concession term in July 2028, the airport islikely to handle well over 30m passengers annually, in our view.

• The project is a 'landside' concession, i.e. limited to terminal building and does not includeany runways or airfield operations.

• Total project cost of Euro451m has been funded by equity of Euro115m and debt ofEuro336m.

• Concession fee of Euro1.93bn (US$2.9bn; `135bn) to be paid in annual instalments,starting from the 4th year onwards, i.e. no concession fee to be paid until the end of April2011.

Increased in UDF and highercapacity utilization, the likely

profit driver

Due to limited scope indomestic markets as the

company is already having27% stake, it has foray into

international markets bybagging 2 airport projects…

Particulars FY10 FY11E FY12E FY13E FY14E FY15E

Aero Revenues 159.7 186.1 217.1 253.1 295.2 344.2Non Aero Revenue 149.3 174.0 202.9 236.6 276.0 321.9

Cargo Revenues 13.8 47.8 55.0 63.3 72.8 83.7Gross Revenue 322.8 408.0 475.0 553.0 643.9 749.8Less: Revenue Share 18.0 22.8 26.6 31.0 36.1 42.0

Net Revenue 304.8 385.2 448.4 522.0 607.8 707.8Total Expenditure 178.7 177.2 206.3 240.1 279.6 325.6Gross Profit 132.8 214.7 248.8 288.6 334.9 388.9Depreciation 124.6 154.5 145.2 136.5 128.3 120.6

EBIT 8.2 60.2 103.6 152.1 206.6 268.3Interest 207.6 201.1 192.1 183.1 174.1 156.1EBT -199.4 -140.9 -88.4 -31.0 32.6 112.2

Tax -0.7 -25.4 -15.9 -5.6 5.9 20.2EAT -198.7 -115.5 -72.5 -25.4 26.7 92.0

(E: Keynote Capitals Institutional Research Estimates)

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As per the World Bank, Turkey is 16th largest economy on the world with GDP nearly $1trillion. The Turkish economy is expected to grow at 4.5%. SGIA is one of the two airports inIstanbul, and is situated on the Asian side; the Ataturk airport on the European side is 55kmsaway from the SGIA. Ataturk airport has already exceeded its capacity by 35-40%. SGIA istherefore uniquely positioned to capture the spill-over traffic.

The company has part of the revenue from the sale of fuel. We have included on net revenue(Gross - fuel cost) from sale of fuel for our analysis.

Maldives International Airport (MIAL):

In Jan-11, company bagged this project where the total estimated cost is US$511Mn. GMRholds 77% stake and remaining is held by Malaysia Airports Authority.

Key Project Details

• The concession period is for 25 years extendable for another 10 years on mutual consent.

• PAX capacity added to 5.2Mn from 2.6Mn and Cargo to 10000 sq mts.

• To receive ADC of US$25 per departing passenger from 1st Jan, 2012.

• Concession upfront fees paid US$ 78Mn to the authorities for the project with fixed annualcontribution of US$1.2Mn.

Power sector landscape in India:

Energy sector reforms have evolved over time and created an environment for private playersto capture significant value from the huge power demand in India. As on 31st December 2010,India has an installed capacity of 169749MW. The focus over the coming five years has beentilting towards private sector players. At present, ~16.8% of the installed capacity is with theprivate sector, which is expected to rise to 24.5% by 2017.

Particulars FY10 FY11E FY12E FY13E FY14E FY15E

Aero Revenues 60.8 95.6 108.3 122.7 139.1 157.6Non Aero Revenues 55.4 87.1 98.7 111.9 126.7 143.6

Fuel Revenue (Net) 18.6 17.6 19.0 20.6 22.3 24.2Net Revenue 135.5 200.3 226.1 255.2 288.1 325.3Total Expenditure 78.2 115.6 130.5 147.3 166.3 187.7

Gross Profit 64.6 84.8 95.7 108.0 121.9 137.7Depreciation 83.1 53.9 51.2 48.6 46.2 43.9EBIT -18.5 30.9 44.5 59.4 75.7 93.8

Interest 50.9 54.4 54.4 54.4 54.2 52.4EBT -69.4 -23.5 -9.9 5.0 21.6 41.4Tax -11.2 -4.2 -1.8 0.9 3.9 7.5

EAT -58.2 -19.3 -8.1 4.1 17.7 34.0

(E: Keynote Capitals Institutional Research Estimates)

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Plan wise installed capacity in India

Chart 8

(Source: Planning Commission)

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Aero Revenues 54.1 173.6 521.6 564.0 609.8Non Aero Revenues 33.1 106.2 114.9 124.2 134.3Fuel Revenues (Net) 47.0 150.8 166.1 183.0 201.6

Gross Revenue 101.2 324.4 687.8 747.0 811.4Less: Revenue Share 29.0 93.0 197.0 214.0 232.5Net Revenue 72.2 231.5 490.7 533.0 578.9

Total Expenditure 54.8 175.9 372.9 405.1 440.0Gross Profit 17.3 55.6 117.8 127.9 138.9Depreciation 2.5 7.4 11.4 15.2 14.3

EBIT 14.8 48.2 106.4 112.7 124.6Interest 12 18 21.42 20.22 19.02EBT 2.8 30.2 84.9 92.5 105.6

Tax 0.5 5.4 15.3 16.6 19.0EAT 2.3 24.8 69.7 75.8 86.6

(E: Keynote Capitals Institutional Research Estimates)

Growth in deficit to support merchant market rates

A continuous increase in the demand supply gap is providing support to the merchant powermarket. Erratic rainfall in several parts of the country is also supporting the favourable merchantrates in the near term. The merchant market is still at a nascent stage in India and is likely tobehave in a volatile matter in the initial stages. With a view to curb volatility in the short-termmarket, CERC has capped the rates at `8. We expect the short-term merchant market to

stabilise at ̀ 4. Even then, the players are expected to enjoy a premium to the players operatingunder the regulated regime.

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GMR Infrastructure has three operational power generation plants in India, with a total capacityof 823 MW currently. Moreover, it is planning to add another 7648MW of generation capacityin India. The pipeline includes 4138MW of projects under construction and 3510MW ofidentified projects.

Meanwhile, the company has extended its hands to acquire coal mining assets internationally,a step to mitigate coal-availability issues and fluctuating coal-price risks. GMR has acquireda 100% stake in PT Barasentoso Lestari, Indonesia, and a 38.5% stake in Homeland EnergyGroup (HEG). HEG, through its subsidiaries, holds a 75% stake in Kendal & Eloff mines inSouth Africa.

GMR has built a significant pipeline of power projects, which is likely to result in strongoperational / financial growth over the medium-to-long term.

PE deals to fund equity requirement through FY13E

The company completed `1390 in Q1Fy11 through PE (Temasek & IDFC) in GMR Energy.The convertible preference shares are to be converted into equity at the time of IPO of GMRenergy, slated in next 24-36 months.

7648MW projects under various stages of construction and development

It has 10 projects in hand totalling 7648MW, out of which 4138MW is under construction and3510MW is under development. Management expects under construction portfolio to becompleted by FY15. It consist proper mix of coal and gas.

Demand-Supply scenario

Chart 9

(Source: CEA & Keynote Capitals Institutional Research)

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Plant Size GMR’s Project Cost Estimated Off-take arrangements Fuel(MW) Stake `Cr COD

Kamalanga 1400 80% 6040 Unit1: Mar 12Unit 2: Jun 12Unit 3: Sep 12Unit 4: Dec 12

EMCO 600 100% 3480 Unit 1: Aug-12Unit 2: Nov-12

Vemagiri 2 768 100% 3290 Single cycle:Dec-11Combinedcycle: Mar-12

Chhattisgarh 1370 100% 8290 FY14

Total 4138 21010

25% to be sold at regulated rates withan additional 7% at variable rates toOrissa. Case 1 bid signed for 300MWwith Haryana. Target to maintain max.15% (210MW) at merchant rates.Balance yet to be tied up

Allotted the Rampia Dip captive coalblock which is est. to start productionby Mar-12. The project also has atapering linkage for 1,050MW over3.5 years in case production doesn’tcommence.

Tied up 200MW with the MahararshtraGovt. at a levelized tariff of `2.88/unit.200MW yet to be tied and balance tobe on merchant basis.

PPA not yet signed. Mgt. expects to takebenefit of merchant rates in the nearterm. We model a 40:60 PPA: merchantsplit in the long term.

Mgt. plans to keep ~30% of capacityopen while balance to be tied up onregulated/PPA basis.

Signed L0A for with Coal India.

Applied for KG-D6 gas allocation. Mgt.expects to top the EGoM’s priority listgiven progress made on the project.

Applied for linkage coal. Plan to fuel~30% from e-auction and/or importedcoal.

Existing power capacities

GMR has three operational power plants with a total generation capacity of 823 MW. Thesethree plants are: (1) low sulphur heavy stock (LSHS) based 200 MW plant in Chennai, TamilNadu; (2) naptha-based 220 MWplant in Mangalore, Karnataka; and (3) natural gas-based388.5 MW plant in Vemagiri, Andhra Pradesh.

GMR Power Corporation Pvt Ltd (Chennai plant)

GMR's oldest plant (200 MW) is in Chennai, operating since 1999 on low sulphur heavy stock(LSHS). GMR Infra holds a 51% stake in GMR Power Corporation Pvt. Ltd. The plant isoperating currently above a PLF of 70% and selling ~188Cr units of energy (kWh) annually.This plant sells its entire power at a regulated price with Tamil Nadu State Electricity Boardunder a 15-year Power Purchase Agreement (PPA) valid until 2014.

Key Features

• GPC is guaranteed recovery of fixed charge (O&M, depreciation, interest and a 16%post-tax RoE), based on a minimum 68.5% plant availability factor (PAF); the fixed chargeper unit at the targeted 68.5% PLF, has historically been in the range of `1.50-1.60

• Recovery of variable cost i.e. fuel cost and cost of lubricants is guaranteed, based oncertain assumptions about the station heat rate and oil consumption norms

• GPC gets an incentive income of `0.25 for each additional unit, if actual generationexceeds a PLF of 68.5%

• State Govt. Guarantee is in place, in case of any default by TNEB on its dues to GPC

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Particulars 2010 2011E 2012E 2013E 2014E

PLF 62.50% 68.50% 68.50% 68.50% 68.50%Production (Cr units) 118.8 130.2 130.2 130.2 130.2

Total Sales 963.47 1077.08 1098.62 1120.59 1143.01Total Cost of Generation 750.82 839.35 856.14 873.26 890.73EBIDTA 212.65 237.73 242.48 247.33 252.28

Depreciation 42.7 42.7 42.7 42.7 42.7EBIT 169.95 195.03 199.78 204.63 209.58Interest 20 14 7 0 0

EBT 149.95 181.03 192.78 204.63 209.58Tax 25.49 30.77 32.77 34.79 35.63EAT 124.46 144.37 167.47 194.27 225.35

(E: Keynote Capitals Institutional Research Estimates)

GMR Energy Ltd (Mangalore plant)

GMR's second plant in operations is currently located in Mangalore, Karnataka. The companyhas relocated this plant from Mangalore to the east coast, near Kakinada, Andhra Pradesh,in Q4FY10, and converted the plant from the current naptha-based to gas-based. Also, theexisting capacity of the plant is likely to improve from 220 MW to 235 MW. The relocation ofthe plant near Kakinada (closer to the Krishna-Godavari basin) and the change in fuel baseto natural gas is a strategic move made by the company, considering the gas availability inthe Krishna-Godavari (KG) basin. The seven-year PPA got over in 2008, and the plant iscurrently operating on merchant basis. Due to the relocation exercise, PLF remained low inFY10; however, it touched to 46% in Q2FY11 and is expected to be at 75% from Q4FY11.This relocation has not only improved its efficiency but also hedge fuel supply and pricefluctuation risks, given the adequate availability of natural gas in the new location.

Significant value from merchant operations, post-conversion to natural gas

The plant is being operating on a short term merchant basis, realizing anywhere between `4

to `4.5 per unit. However, the plant operated on lower PLF in FY10 due shifting of plant andchange in fuel system. It showed comparatively better in 9MFY11 to 50% and will go up to70% in FY12 and forward.

Particulars 2010 2011E 2012E 2013E 2014E 2015E 2030E

Installed Capacity 203.04 203.04 203.04 203.04 203.04 203.04 203.04PLF 28.0% 50.0% 70.0% 70.0% 70.0% 70.0% 70.0%

Production 56.85 101.52 142.13 142.13 142.13 142.13 142.13Total Sales 255.83 456.84 639.58 639.58 639.58 604.04 568.51Total Cost 123.37 220.3 308.42 308.42 308.42 308.42 308.42

EBIDTA 132.46 236.54 331.16 331.16 331.16 295.63 260.09Less: Depreciation 50.00 48.54 47.13 45.76 44.42 43.13 27.68EBIT 82.46 188.00 284.03 285.40 286.73 252.50 232.41

Less: Interest 90.33 96.66 82.61 72.84 63.07 53.31 0.00EBT -7.87 91.34 201.42 212.56 223.66 199.19 232.41Tax -1.34 15.53 34.24 36.13 38.02 33.86 39.51

EAT -6.53 75.81 167.18 176.42 185.64 165.33 192.90

(E: Keynote Capitals Institutional Research Estimates)

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Cost of Equity 12%

Gross PV 1466.44Debt 1000NPV 466.44

No of Shares 389.24NPV per Share 1.2

Power Generation Ltd (Andhra Pradesh plant)

The third and latest (operational since 2008) operational power plant is located in Vemagiri,Andhra Pradesh. This plant is natural gas-based, with a capacity of 388.5 MW. In FY09, thePLF of this plant was quite low due to gas unavailability. However, it has improved significantlyin recent times with gas supply coming in from the KG basin. However, PLF improvedsignificantly and it was ~86% in FY10. This plant is proposed to have a mix of PPA andmerchant, wherein 20% of the capacity could be sold on a merchant basis. GMR is planningto expand capacity in the same location by adding another 768 MW, which is likely to beoperational in FY12.

VPGL's original 15-year PPA with AP Transco entails: (1) Fixed charge recovery of approx.

`0.98/unit at 80% PAF; this consists of an INR component of `0.699 and a foreign currencycomponent of US0.6cents per unit for FX debt servicing; and (2) full recovery of variable (fuel)cost, based on certain normative parameters.

The original PPA has been extended by further eight years to 2029.Furthermore, to recoupthe losses incurred in the initial years, VPGL has renegotiated the PPA to sell 20% (74MW) ofthe original contracted capacity (370MW) on merchant basis; this would take the total merchantcapacity to ~92MW.

Profits to surge in FY11:

It had generated losses of `2bn at the net level, during FY08 and FY09. In fact, it has had to

rely on `1.92bn loan from parent GMR to meet interest payments. However, things haveturned around with increased gas availability, and VPGL has been generating profits since1QFY10. We expect profits to surge further in FY11, driven by: (1) Higher PLF thanks toincreased gas availability; (2) higher merchant sale; and (3) income from carbon credits, forwhich the plant is eligible, and has already applied for with the UNFCCC.

Particulars 2010 2011E 2012E 2013E 2014E 2015E 2029E

Installed Capacity 339.89 339.89 339.89 339.89 339.89 339.89 339.89

PLF 86.0% 80.0% 80.0% 80.0% 80.0% 80.0% 75.0%Production 292.30 271.91 271.91 271.91 271.91 271.91 254.92Total Sales 792.14 736.88 736.88 736.88 736.88 736.88 690.82

Total Cost 470.61 437.78 437.78 437.78 437.78 437.78 410.41EBIDTA 321.53 299.10 299.10 299.10 299.10 299.10 280.41Depreciation 132.90 90.18 81.16 73.05 65.74 59.17 13.54

EBIT 188.63 208.92 217.94 226.06 233.36 239.93 266.87Interest 94.60 87.44 75.75 64.07 55.08 48.26 0.00EBT 94.04 121.49 142.19 161.99 178.28 191.67 266.87

Tax 16.93 21.87 25.59 29.16 32.09 34.50 48.04EAT 77.11 99.62 116.59 132.83 146.19 157.17 218.84

(E: Keynote Capitals Institutional Research Estimates)

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Under construction power project:

Currently, GMR is adding significant capacities, which are under different stages of construction.In India and Nepal, GMR is planning to add 8,307MW by FY16. Of these upcoming projects,5,370 MW (~65% of total) are thermal, 2,140 MW (~26%) hydro, and 783 MW (9%) gas-based projects. Effectively, over the next 5-6years, GMR is likely to catapult its total generationcapacity by more than 10x, to 9,116 MW compared to the current 823MW. Of the plannedcapacity addition of 8,307 MW, projects worth 4138MW are under different stages ofconstruction, while the remaining (mostly hydro projects) are in planning stages currently.

Anticipated Capacity Addition Year wise

Chart 10

(E: Keynote Capitals Institutional Research Estimates)

GMR Kamalanga Energy:

The company is development 1050MW plant pursuant to an MOU with the Orissa governmentsigned in June-06. This will be the company's first coal based power plant to achieve COD (byMar-12).

This project achieved financial closure in May-09, but the EPC order was already place withSEPCO of China in Sep-08. It also had already signed off-take agreements with 60% of thecapacity-25% with GRID company of Orissa and 35% with Haryana government through PTC.The company would be selling atleast 20% of the capacity on merchant basis and balance ifany could be sold through long term power sale agreements. It has secured 100% of the fuelsupply through a coal-linkage; coal supply from the linkage will taper down, once GMR is ableto access coal from the two coal blocks (Rampia, Dip side of Rampia in Orissa), being developedsimultaneously by a six-member JV.

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Project Cost (`Cr) 6040 Capex per MW of `4.3Cr

Equity 1510 Debt 4530 75% of total project cost

EMCO Energy:

In July-09, GMR acquired 100% of Emco Energy (EEL) from EMCO Ltd, at a premium of`1.20bn over EEL's book value. EEL is developing a 600MW coal-based plant (in two phases:2x300MW) in Chandrapur district of Maharashtra. The acquisition marks GMR's foray intothe power deficit Western Region (19% peak power deficit in FY09, v/s all India level of12%). The company has financial tie-up with consortium of banks of which Axis bank isbeing a lead banker.

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InterGen NV – An international Acquisition:

GMR extended its global presence further through the acquisition of 50% stake in InterGen,a leading global power generation company situated at UK. InterGen N.V., has 8088 MW ofgross operating capacity (6254 net equity MW) across five countries and about 5500 MWcapacity under development. This acquisition is the largest ever acquisition of a global energyutility by an Indian company. With this acquisition GMR Group has graduated as one of thelargest private Independent Power Producers (IPPs) in India.

Key Features:

• 89% of capacity is gas based and remaining is coal based.

• 78% of capacity is contracted on long term basis deriving secured cash flow

• All the power projects are around 6years old and still it has average remaining life of 35-40 years.

• It has presence in 5 countries

Key Project Details:

Fuel Coal Coal linkageCapacity (MW) 600 Project acquired at a premium (over book value) of

`1.2bn from Emco Ltd.

COD July-12Project Cost (`Cr) 3480 Capex per MW of `5.6CrEquity 870

Debt 2610 75% of total project cost

Vemagiri Expansion:

GMR is developing a 768MW plant at the existing Vemagiri plant site, encouraged byavailability of higher gas from KG basin and adequate land at the site. The expected CoD isJan-12, and the company has already awarded an EPC contract to L&T worth over `20bn.Financial Closure was done in Sep-10.

Key Project Details:

Fuel Gas Allocation from KG BasinCapacity (MW) 768

COD Mar-12Project Cost (`Cr) 3290 Capex per MW of `4.3CrEquity 822

Debt 2468 75% of total project cost

Chhattisgarh Project:

1370MW project is GMR's first coal project using super critical technology at Raipur district,MoU signed with the state government of Chhatisgarh. The long term PPA has already beensigned with CSEB for 35% of capacity. It is expected that another 35% would be tied up andremaining 30% could be sold on merchant basis.

Key Project Details:

Fuel CoalCapacity (MW) 1370

COD Mar-14Project Cost (`Cr) 8290 Capex per MW of `6.1CrEquity 2072

Debt 6218 75% of total project cost

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World Road Network

Chart 10

(Source: CIA world fact book, Keynote Institutional Research)

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However, GMR has announced the sale of its 50% stake in InterGen NV. The confirmationof the deal would bring 3 positives to the company.

1. After repayment of acquisition debt of US$1B, it leaves GMR with equity surplus ofUS$225M, which the management intends to use for infrastructure privatizationopportunities in India

2. The acquisition debt would have led to a deterioration of GMR's leverage ratios, whichthis sale has averted. GMR's current consolidated DER stands at 2.46x, and a potentialconsolidation of InterGen would have resulted in this ratio worsening to 2.98x.

3. Better investor perception.

Road Segment:

India has one of the largest road networks (3rd largest) in the world, aggregating 3.3Mn kmand around 5% of world's total road network consists of 68.93Mn km, it stands third afterUnited States and China, aggregating 6.46Mn km and 3.58Mn km respectively.

Road network consist of national highways & expressways (2%), state highways (4%), majordistrict roads (14%) and rural including other roads (80%). Although national highways contributeonly 2% to Indian road network, it plays a vital role in handling traffic on Indian roads whichhandles 40% of traffic compared to rural roads, which consist 80% of total road network andhandle only 20% traffic. State roads and major district roads, together handle the remaining40% of traffic.

India will require US$70bn investment over the next three years to realize plans to build 20kmof road per day to ensure future growth. For this NHAI is required to award at least 21000kmover next 3 years so as to achieve the objective of constructing 7000km per year (equal to20km per day). NHDP program comprises about 54000km, out of which, about 11000kmshave already been 4-laned and another 6000km are under different stages of implementation.Thus, around 37000km is yet to be awarded for construction. However, these projects will beawarded over the next 3.5 to 4 years, assuming a construction period of 3 years.

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Real Estate & SEZ Segment:

Land adjoining airports - A prized possession

GMR has acquired a land bank of 250 acres at Delhi. At Delhi Airport, despite the challengingenvironment in the real estate market over the past year, GMR has been able to sell 45 acresraising ~`4300Cr GMR will sell the balance in several parcels over the coming seven to eightyears. Considering the initial 45 acres as benchmark, we believe, DIAL will be able to realiseon similar lines.

Total ~80% of the land bank at DIAL is located next to NH-8, which would enhance the accessto the land bank. The scope of development of the land has been enhanced to allow additional18 usages catering to commercial, office to residential, which is incidental and supplementalto the airport usage.

Land adjoining Hyderabad Airport

GMR has acquired land of 1,500 acres adjoining the Hyderabad Airport. GMR plans to develop

Total Length (km) 5846 7300 12109 6500 1000 700 388 14799 48642 380 965 49987Already 4-Lanned (km) 5793 5172 1778 301 - - - - 12895 289 917 14250Under Implement. (km) 53 1476 5060 1999 - 41 112 176 9066 85 28 9179Contract Under Implement (km) 13 113 73 17 - 2 2 1 221 6 6 233Balance Under Forward (km) - 494 5271 4200 1000 659 276 14623 26523 6 20 26549

Particulars GQ NSEW Ph.

I&II

NHDP SARDPNE

NHDPIV

TotalNHDP

PortConnect

Others Total

Ph. III Ph. V Ph. VI Ph. VII

(Source: NHAI)GMR portfolio currently has 6 operational projects (421kms) and 3 under construction projects(309kms). The government's renewed focus on road infrastructure development augurs wellfor BOT operators and meant for long term & steady growth. Looking at factors like thegovernment thrust on road development, strong political commitment, and easing liquiditywith expected revision in framework for projects, we believe that road development projectsare on a steep growth trajectory and would offer immense opportunity for GMR.

Balanced portfolio mix

GMR's portfolio of operational road assets comprises three annuity and three toll roads. Thecompany's first two road assets were both annuitybased, and they commenced commercialoperations during Oct-Dec '04. The next four projects achieved CoD during Nov-08 to Jul-09. GMR has already won 3 more road projects, of which 2 are toll-based (Hyd- Vijaywada &Hungund-Hospet) and the other is annuity-based (Chennai Outer Ring Road). These 3 assetsare currently under construction, and are expected to achieve CoD during Apr-Aug 2012.

Project Length Project COD Concession Concession Statuscost Period Type

Tuni-Anakpalli (GTAEPL) 59Kms 304 Oct-04 17.5 Annuity OperationalTambaram-Tindivanam (GTTEPL) 93Kms 390 Oct-04 17.5 Annuity OperationalPochanpalli (GPEPL) 103Kms 690 Mar-09 20 Annuity Operational

Ambala-Chandigarh (GACEPL) 35Kms 499 Nov-08 20 Toll OperationalFaruknagar-Jadcherla (GJEPL) 58Kms 516 Feb-09 20 Toll OperationalTindivanam-Ulundurpet (GUEPL) 73Kms 882 Jul-09 20 Toll Operational

Hyderabad-Vijaywada (GHVEPL) 181Kms 2193 Jul 12 25 Toll Under ConstructionHungud-Hospet (GHHEPL) 99Kms 1701 Dec-12 19 Toll Under ConstructionChennai Outer Ring Road 29Kms 1167 Jun-12 20 Annuity Under Construction

Relatively shorter gestation ofroad projects balances thelonger gestation period of

power/airport projects

(Source: Company)

NHDP & Other NHAI Projects

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an aerotropolis on 1,000 acres. The aerotropolis will include commercial, retail and conventioncum entertainment spaces. It also includes a health corridor spanning across 25 acres, whichwill include multi speciality hospital & research and trial facilities. The thematic developmentof infrastructure surrounding the airport will receive a significant boost on account of theincreased air traffic.

Aviation & logistic SEZ

Out of the remaining land of 500 acres at the Hyderabad Airport, GMR plans to develop alogistics and aviation SEZ spanning 250 acres each. GMR has signed a JV agreement withMalaysian Airlines to set up a maintenance repair & overhauling (MRO) facility spanning across25 acres. GMR has also signed an agreement with CFM, a French multinational, to set up anaviation training school. The increase in fleet utilisation by existing carriers and the probableexpansion of aircraft fleets with the growing traffic augurs well for the proposed MRO facility inHyderabad. GMR is also looking at setting up a 250- acre multi-produce SEZ of logistics.

Krishnagiri SEZ

GMR has entered into an MoU with Tamil Nadu Industrial Development Corporation (TIDCO)for development of a multi-product SEZ. GMR plans to develop 3,300 acres focusing onbiotechnology, IT & ITeS, electronic and engineering industries. The proximity of Krishnagiridistrict to Bangalore (IT hub) and Hosur (automobile industry hub) will support the overalldemand for the SEZ. About 70% of the private land has been procured.

Mining assets

GMR has acquired a 100% stake in PT Barasentoso Lestari (Indonesian mine). These minesare believed to have an overall 108 million tonnes of mineable coal reserves. The annualproduction capacity is believed to be around 6 million tonnes and the mine is expected tocommence operations by FY13. The said mines are expected to export coal to India for thecoastal power projects of GMR. By taking stakes in mining assets abroad, GMR has mitigatedthe risk of rising fuel prices for their thermal power plants.

GMR has also acquired a 38.5% stake in Homeland Energy Group (HEG). HEG, via itssubsidiaries, is holding a 75% stake in Kendal & Eloff mines in South Africa. Both minescombined are expected to have a mineable reserve of ~300 MT and is expected to have anannual production capacity of ~14 MT.

Concerns:

� Adverse regulatory developments may impact operations:

GMR has interests in several business sectors that are regulated in nature. Anydisappointing amendment of the regulatory framework may impact the operatingperformance of the company. The regulations of the aviation sector are at the formulationstage. The delay in implementation of the new regulatory framework may adversely impactthe revenues of the airport segment.

� Passenger traffic risk at airports:

Any slowdown in passenger traffic will hurt financial performance of the airports. Wehave assumed passenger traffic to grow at a CAGR of 10% over next three years at Delhiairport and 15% at Hyderabad Airport.

� Traffic risk at toll based BOT projects:

Vehicle traffic is the source of revenue for toll-based projects so any slowdown or changein our vehicle estimates would have an adverse impact on the overall profitability of theprojects.

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� Operation and expansion of power project linked to fuel availability:

The commencement of gas from Reliance KG-D6 block has assured a regular supply offuel for existing plants. However, any disruption could result in the operating performancegetting impacted. GMR has significant gas-based expansion plans in Andhra Pradesh.Non availability of fuel may significantly impair the position of the company.

� Project execution risk:

The Company is adding significant power generation capacity which will determine futureprofitability and valuation of power segment. Any delay or failure in execution of theseexpected projects could lead to cost and time overrun, affecting adversely power segment'sfinancials and valuation.

� Cash flows to remain choppy:

Short-term cash flows are dependent on real estate projects ancillary to the airport segment.Since the company is in the capital expenditure phase, the company needs to generatesignificant cash flows from real estate deposits in order to meet future funding requirements.

Peer Comparisons

Key Operating parameters of Peer Group (FY10) (`Cr)

GMR Gammon GVK L & T RelInfra India PIL Infra

CMP 39.1 110.7 25.3 1541.9 604.3Market Cap 1553.7 1502.2 3995.4 93662.0 16168.3

52Week High/Low 68.7/29.8 241.9/100.3 51.4/24.2 2212/1463 1225/492Net Sales 4566.51 6994.15 1786.64 43836.84 14563.9Operating Profit 1655.65 786.62 497.48 9637.77 2345

Adjusted Net Profit 136.27 28.15 155.24 3845.25 1407.3EPS 0.8 2.89 0.99 88.44 60.84Book Value 18.18 141.94 21.12 347.65 790.17

PE 48.9 38.3 25.6 17.4 9.9P/BV 2.2 0.8 1.2 4.4 0.8

(Source: Company & Keynote Capitals Institutional Research)

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Segment Basis Value to GMR Value Per Share

Total Airport DCF 3350.8 8.6Total Of BOT Power Projects DCF 4032.6 10.4

Total of Road Projects DCF 2579.1 6.6Real Estate & SEZ Project NAV 5964.1 15.3Cash & Others BV 2812.7 7.2

Total 18739.3 48.1

Airport GMR Stake Total Value EquityValue Value Per`Cr to GMR Share

DIAL 54% 1764.2 952.7 2.4HIAL 63% 2075.1 1307.3 3.4ISGIA 40% 538.0 215.2 0.6

MIAL 77% 1137.2 875.7 2.2Total of Airport 3350.8 8.6PowerChennai Power Plant 51% 342.2 174.5 0.4

Kakinada Power Plant 100% 466.4 466.4 1.2Vemagiri Power Plant 100% 1065.8 1065.8 2.7Kamalanga Power 80% 1184.3 947.4 2.4

Emco Power Plant 100% 296.6 296.6 0.8Vemagiri Expansion 100% 1081.8 1081.8 2.8Total of Power 4032.6 10.4RoadsTuni-Anakpalli 100% 274.9 274.9 0.7Tambaram-Tindivanam 100% 71.4 71.4 0.2

Pochanpalli 100% 246.7 246.7 0.6Ambala-Chandigrah 100% 516.2 516.2 1.3Thondapalli-Jadrecha 100% 387.3 387.3 1.0

Tindivanam - Ulundurpet 100% 792.3 792.3 2.0Vijaywada-Hyderabad 100% 95.0 95.0 0.2Chennai Outer ring road 91% 30.6 27.8 0.1

Hungund Hospet 91% 184.0 167.4 0.4Total of Roads 2579.1 6.6

Valuations:

We have valued the company on SOTP methodology. All projects are valued on DCF basis.The real estate segment is valued on NAV basis. Considering all different segment like airport,roads projects, power project separately in the valuation except the power project which areunder development and with the given expected growth in the revenue and earnings at therate of 14%, 17% & 10% for the year FY11E, FY12E & FY13E respectively, we arrive at fairvalue of `48.1 per share. We initiate coverage with 'buy' recommendation considering thepotential upside of 23%.

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2 Years Forward BV Band

Chart 12

(E: Keynote Capitals Institutional Research Estimates)

Revenue Growth

Chart 13

(E: Keynote Capitals Institutional Research Estimates)

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It is expected that the company’s revenues would be growing at a steady pace between 10-17% during FY11-13E.

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EBIDTA Growth

Chart 14

(E: Keynote Capitals Institutional Research Estimates)

EBITDA Margins are growing whereas there has been slow down in EBITDA growth. Thesubstantial growth seen in FY09 was due to higher growth in revenues and secondly due tolower base effect. It can be seen that the EBITDA is growing consistently to ̀ 1527Cr in FY10from `668Cr in FY08 and is expected to be at `2637Cr in FY13E. The substantial growth inmargins is mainly due to the operation of higher margins project such as power, roads &airport.

It is expected that margins to stabilize at between 38-40% levels going further as more andmore project are getting operational. However the growth in EBITDA would come down dueto stabilization of the revenues.

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PAT has grown steadily to ̀ 292Cr in FY10 from ̀ 210Cr in FY09 at CAGR of 11.6%. However,net PAT is expected to come down in near future mainly higher depreciation from airportsegment and airport segment is expected to break even in FY13E surging the PAT to ̀ 349Cr.

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Financials

Profit & Loss (`Cr)

(E: Keynote Capitals Institutional Research Estimates)

Particulars FY08 FY09 FY10 FY11E FY12E FY13E

Net Sales 2294.8 4019.2 4566.5 5032.9 5660.9 6500.3Growth (%) 35.3% 75% 14% 10% 12% 15%Total Expenditure 1696.3 2952.4 3202.2 3004.9 3164.4 3810.7

PBIDT (Excl OI) 598.5 1066.8 1364.3 2027.9 2496.5 2689.6Other Income 69.7 21.4 163.4 30.0 40.0 50.0Operating Profit 668.2 1088.2 1527.7 2057.9 2536.5 2739.6

% of Sales 29.1 27.1 33.5 40.9 44.8 42.1Interest 168.7 368.2 722.3 1180.3 1416.5 1237.1PBDT 499.5 720.0 805.4 877.7 1120.0 1502.5

Depreciation 178.5 389.8 612.2 755.9 890.3 974.1PBT 321.0 330.2 193.2 121.7 229.7 528.4Tax 58.5 53.0 -32.2 -18.8 10.9 127.0

Net Profit 210.1 274.8 292.4 205.6 264.3 396.4

Operational Cash Flow

Chart 16

(E: Keynote Capitals Institutional Research Estimates)

There has been consistent growth in cash flow from operation except for the year FY09 dueto the recession and consolidation effect.

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Consolidated Balance sheet (`Cr)

Particulars FY08 FY09 FY10 FY11E FY12E FY13E

Share Capital 364.1 364.1 366.7 389.2 389.2 389.2Total Reserves 5753.1 6107.0 6300.3 9265.9 9730.2 10326.6Shareholder's Funds 6117.2 6471.1 6667.0 9655.1 10119.4 10715.9

Minority Interest 1112.6 1806.1 1790.2 1393.7 2050.0 2000.0Deferred Tax Liabilities 42.5 316.2 333.9 366.0 395.0 425.0Total Debts 7976.9 12210.2 20837.4 23375.6 23967.4 25059.4

Total Liabilities 15249.2 20803.6 29628.5 34790.5 36531.9 38200.3Net Block 5269.9 9651.6 12548.0 14584.8 15808.0 17464.8Capital Work in Progress 3679.6 6790.3 10382.9 13000.0 13232.4 14000.0

Investments 4899.6 1310.9 4560.1 4560.1 4560.1 4560.1Inventories 38.0 131.9 115.9 120.0 130.0 140.0Sundry Debtors 411.6 660.9 864.9 966.6 1012.4 1263.2

Cash and Bank 894.5 2466.5 1682.6 1984.2 2322.7 1618.8Loans and Advances 573.1 1266.3 1315.6 1400.0 1630.6 1715.0Other current assets 5.8 17.8 161.7 130.0 100.0 90.0

Total Current Assets 1923.0 4543.4 4140.7 4600.8 5195.7 4827.0Total Current Liabilities 1366.1 1493.2 1965.2 2030.3 2264.3 2651.5Net Current Assets 556.9 3050.2 2175.5 2570.5 2931.4 2175.5

Total Assets 15249.2 20803.0 29666.4 34715.3 36531.9 38200.3

(E: Keynote Capitals Institutional Research Estimates)

Cash Flow (`Cr)

(E: Keynote Capitals Institutional Research Estimates)

FY08 FY09 FY10 FY11E FY12E FY13E

Profit Before Tax 321.0 330.1 193.1 121.7 229.7 528.4

Add: Depreciation 178.5 389.8 612.2 755.9 890.3 974.1Add: Interest Expenses 168.7 464.9 824.4 1180.3 1416.5 1237.1Add: Others -125.3 -144.2 -346.2 30.0 50.0 50.0

Changes In working Capital 215.4 -545.6 18.7 2087.9 2586.5 2789.6Cash Flow after changes in WC 758.3 495.1 1302.2 -93.4 88.2 147.0Tax Paid -61.2 -99.8 -51.1 1994.5 2674.6 2936.5

Cash From Operating Activities 697.2 395.3 1251.1 18.8 -10.9 -127.0Cash from Investing Activities -9660.0 -2795.3 -10059.3 2013.3 2663.8 2809.6Cash from Financing Activities 8547.3 3952.6 8109.3 -5694.7 -1371.6 -3228.5

Net Cash Inflow / Outflow -415.5 1552.6 -698.8 4118.0 -824.7 -145.1Opening Cash & Cash Equivalents 1300.0 884.5 2456.5 436.6 467.5 -564.0Closing Cash & Cash Equivalent 884.5 2456.5 1672.6 1672.6 1984.2 2322.7

Ratios (`Cr)

Turnover Ratios FY08 FY09 FY10 FY11E FY12E FY13E

Total Assets Turnover 0.15 0.19 0.15 0.14 0.15 0.17Fixed Assets Turnover 0.44 0.42 0.36 0.35 0.36 0.37W.C. Turnover 4.12 1.32 2.10 1.96 1.93 2.99Inventory Turnover 60.39 30.47 39.40 41.94 43.55 46.43Debtors Turnover 5.58 6.08 5.28 5.21 5.59 5.15Creditors Turnover 1.33 2.09 2.02 1.73 1.65 1.73Advances Turnover 4.00 3.17 3.47 3.59 3.47 3.79Net W.C. Days 88.58 277.00 173.88 186.42 189.01 122.16Inventory Days 6.04 11.98 9.26 8.70 8.38 7.86Debtor Days 65.47 60.02 69.13 70.10 65.28 70.93Creditor Days 274.97 174.30 180.33 211.39 220.81 210.87

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(E: Keynote Capitals Institutional Research Estimates)

Valuation Ratios (x) FY08 FY09 FY10 FY11E FY12E FY13E

Market Price (`) 39.1 39.1 39.1 39.1 39.1 39.1Book Value Per Share 16.8 17.8 18.2 24.8 26.0 27.5EPS (x) 0.6 0.8 0.8 0.5 0.7 1.0P/BV (x) 2.3 2.2 2.1 1.5 1.5 1.4PE 67.8 51.8 49.0 74.0 57.6 38.4EV/EBIDTA (x) 50.9 31.3 22.3 16.5 13.4 12.4

Return Ratios (%) FY08 FY09 FY10 FY11E FY12E FY13E

ROCE 3.5% 3.6% 3.3% 4.0% 4.8% 5.0%ROE 3.4% 4.2% 4.4% 2.1% 2.6% 3.7%

Margins (%) FY08 FY09 FY10 FY11E FY12E FY13E

EBIDTA 29.1% 27.1% 33.5% 40.9% 44.8% 42.1%EBIT 21.3% 17.4% 20.0% 25.9% 29.1% 27.2%EBDT 21.8% 17.9% 17.6% 17.4% 19.8% 23.1%EBT 14.0% 8.2% 4.2% 2.4% 4.1% 8.1%EAT 9.2% 6.8% 6.4% 4.1% 4.7% 6.1%

Other Ratios FY08 FY09 FY10 FY11E FY12E FY13E

Interest Coverage (x) 3.0 2.0 1.1 0.7 0.8 1.2EPS Growth (%) 20.5 30.8 5.6 -33.8% 28.6% 50.0%Debt Equity (x) 1.3 1.9 3.1 2.4 2.4 2.3

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Subramanyam Ravisankar

Director - Equities [email protected] +91 22 3026 6018

Institutional Equity Team

Analysts / Associates

Krishna Mahale [email protected] +91 22 3026 6059

Denil Savla [email protected] +91 22 3026 6073

Hetal Shah [email protected] +91 22 2269 4325

Ashwin Chavan [email protected] +91 22 3026 6059

Rohan Admane [email protected] +91 22 2269 4322

Rajesh Sinha [email protected] +91 22 3026 6073

Mamta Singh [email protected] +91 22 3026 6057

Sanjay Bhatia [email protected] +91 22 3026 6065

Technical Analyst

Nilesh Dhruv [email protected] +91 22 3026 6040

Puja Shah [email protected] +91 22 3026 6072

Farha Shaikh [email protected] +91 22 3026 6057

Dealing / Sales

KEYNOTE CAPITALS LTD.Member

Stock Exchange, Mumbai (INB 010930556)National Stock Exchange of India Ltd. (INB 230930539)

Over the Counter Exchange of India Ltd. (INB 200930535)Central Depository Services Ltd. (IN-DP-CDSL-152-2001)

4th Floor, Balmer Lawrie Building, 5, J. N. Heredia Marg, Ballard Estate, Mumbai 400 001. INDIATel. : 9122-2269 4322 / 24 / 25 • www.keynoteindia.net

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