GVK Power (GVKPOW) has two power plants, the 220 MW Jegurupadu-II and 464 MW Gautami plant. These are lying idle due to non availability of gas. Gas availability is expected to commence from October 2008. This should help to increase its revenues in its power division. MIAL has been allotted around 2000 acres of land for development of the Mumbai Airport. Out of this, around 10% will be available for commercial development. With projects ranging from power, infrastructure, realty, coal mines and expected oil and gas blocks we expect GVK Power to put up a good performance in the coming year and post good numbers. We also expect that in another six months, GVK Power will announce commercial production.

Company background

GVK is a diversified business entity with its primary focus on urban infrastructure projects. The company also has a significant presence in the hospitality, services and manufacturing sector. In the Indian growth story, GVK has realised the need for infrastructure development and embraced this challenge to create world class infrastructure, particularly in power, airports and roads.

The company has an asset base of close to Rs 50 billion (US$1.22 billion) and an order book worth around Rs 150 billion (US$3.66 billion). GVK also has the strength of 7,000 technical professionals with the required capabilities.

Airport assets

GVK Power & Infrastructure (GVK) has a stake in the development project of the Mumbai Airport. In the consortium, Mumbai International Airport (MIAL), GVK owns around 36% stake. According to the concession agreement, MIAL has to share 38.7% of revenues with AAI. The project entails spending Rs 6000 crore to refurbish the existing terminals and building a common terminal for both domestic and international flights by FY11E.

The capacity of the airport is to cater to 4-4.5 crore passengers. MIAL'’s aeronautical revenues from FY10E will be linked to 11.6% WACC according to the concession agreement. The main source of revenue in developing private airports is the non-aeronautical revenues in which MIAL signed a three-year advertising contract. This is expected to rake in Rs 64 crore in FY08. We also expect non-aeronautical revenues for MIAL to rise threefold in FY10E. MIAL has been allotted around 2000 acres of land for development of the Mumbai Airport. Of this, around 10% has been made available for commercial development according to the concession agreement.

Jegurupadu (Phase-I) - This project is a 217 MW mixed fuel combined cycle power plant located in Andhra Pradesh. The project is facing shortage of natural gas. It is operating at around 60-70% PLF. We expect the supply of natural gas to commence from October 2008.

Jaipur-Kishangarh Expressway (JKE): This is a toll road project, which involves four-laning of a two-lane road in Rajasthan. Revenues from roads increased 25% to Rs 34.8 crore in Q1FY09 from Rs 30.4 crore in Q1FY08.We believe it will continue performing well.

GVK Coal (GC): This project has equity IRR in excess of 35%. The captive coal mine in Jharkhand has reserves of around 55 million tones.

GVK Oil & Gas Exploration

GVK, together with BHP-Billiton, had bid for the exploration of seven oil and gas blocks under the government’s NELP-VII programme. The consortium has been declared as the preferred bidder for all seven blocks, which are located on the west coast of India.

The Q1FY09 revenues increased by 10.8% Y-o-Y to Rs 133 crore, driven by a 6.2% and 14.6% Y-o-Y increase in revenues of the power and roads divisions, respectively. EBITDA grew slower than sales at 3.2% Y-o-Y to Rs 50.3 crore, as EBIT margins of the power division dropped by 570 bps Y-o-Y due to major maintenance expenses on one turbine of the J-I power plant. Interest cost (-54% Y-o-Y) came in lower than expected due to repayment of loans of the J-I power plant.

Other income fell 18.6% Y-o-Y due to investment of cash surplus in SPVs. GVK provided tax at 9.6% in Q1FY09 as compared to 22.9% in Q1FY08 and estimates of 20%, mainly due to lower other income. GVK’s share of profits from MIAL increased by 39.1% Y-o-Y to Rs 12.3 crore, driven mainly by a 67% Y-o-Y increase in non-aero revenues at the Mumbai airport. Consequently, PAT post minorities and after adding share of income from associates, jumped 88% to Rs 40.5 crore.