We maintain ‘buy’ on GMR Infrastructure with a target price of Rs 30 per share. We have valued GMR Energy (GEL) at R2,090 crore (for 100% stake) and, assuming a 20% dilution towards PE investors, had ascribed Rs 1,670 crore (Rs 4 per share) in GMR’s SOTP.
Based on the aggregate deal, we estimate that an upside to our valuation can be R8 per share. The higher deal value is a positive for the stock and restructuring eliminates concerns on further debt build-up/redemption to PE investors.
GMR had raised R1,400 crore in 2010 in GEL through a PE consortium comprising IDFC and Temasek, among others. These investors were to be provided an exit within three years through an IPO of GEL. GMR has renegotiated the deal by allotting R1,134 crore worth of CCPS in the listed company and an equivalent worth of shares in GEL (the unlisted company).
The deal is structured in such a manner that appreciation on initial investment based on the agreed hurdle rate has been capped. The CCPS will get converted into GMR shares during September-October 2015 based on Sebi determined price. Any upside beyond this will be through the stake sale in GEL.
GMR has completed the development of the Delhi airport and monetised 45 acre of land there. If GMR manages to sell the remaining 205 acre at a price greater than the value at which it has sold 45 acre currently, it could result in further upsides.