Equity Research August 23, 2007 INDIA GMR Infrastructure Infrastructure Shareholding pattern Promoters Institutional investors 15.3 15.5 MFs and UTI 0.4 0.2 Insurance Cos. 1 .4 1.4 FIIs 7.3 7.7 Others 4.1 3.9 Source: www.bseindia.com Dec '06 80.6 Mar '07 80.6 Jun '07 80.6 15.5 0.3 1.3 7.7 3.9 Unrated Rs724 Building blocks GMR Infrastructure (GMR), as a pure infrastructure developer, is suitably positi oned to benefit from the strong growth envisaged in infrastructure spend via the public-private partnership (PPP) route. Of its existing projects, airports and the attached real-estate sweetener contribute maximum value for the company. We co nsider that the current market price largely captures the potential of GMRs exist ing projects valued at Rs679/share, though further upside exists from new projec t wins. Also, we believe that the stock will continue to trade at a premium as i t is the only large-cap play on pure infrastructure development. Expanding oppor tunities. With orders exceeding US$175bn slated to flow in from key sectors such as power, roads and airports where GMR has presence, the companys opportunity-sc ape is expanding rapidly. We believe GMR would continue benefiting from Indias in creasing infrastructure spend, given its good track record of timely executions and upfront monetisation of cashflows via financial engineering. Real estate pla y. GMR has ~1,250 acres of prime real estate surrounding its Delhi and Hyderabad airports projects, where it has set ambitious plans to monetise value in the ne xt few years. Valued at ~US$5bn, real-estate contributes Rs334/share. Price chart 1,200 1,000 800 (Rs) 600 400 200 0 Oct-06 Dec-06 Aug-06 Feb-07 Apr-07 Jun-07 Aug -07 Unlocking value at airports; regulatory hurdles ahead. Though encouraged by rece nt deals in non-aero revenue contracts, we foresee regulatory risk for aero char ges and competition from secondary airports to impact IRR expectations. While th e Sabiha Gokcen airport win showcases GMRs global ambitions, we assign it conserv ative valuation due to lack of clarity. We value airports at Rs210/share. Power and Roads Mixed bag. GMR has witnessed a mixed bag in power and roads sectors ev en as they garner maximum share of Indias future infrastructure spend. However, g oing forward, the company plans to bid for power projects with assured fuel link ages only. We value existing power/roads at Rs136/share. Upside from future proj ects. With 21 projects (power and roads) in the bid/RFQ stage and two announced wins, we expect potential upside. Apart from opportunity in domestic airport dev elopment, GMR is well placed to explore airport projects globally, supported by its existing partners such as Malaysia Airports Holdings. Strong cashflow genera tion post FY12-13 would aid GMR in future projects. Market Cap Reuters/Bloomberg 52-week Range (Rs) Free Float (%) FII (%) Daily Vol ume (US$/'000) Absolute Return 3m (%) Absolute Return 12m (%) Sensex Return 3m ( %) Sensex Return 12m (%) Rs240bn/US$5.8bn GMRI.BO/GMRI IN 331.1 1005/205 19.4 7. 7 11,670 61.6 264.3 (0.8) 24.9 Year to March Revenue (Rs mn) Net Income (Rs mn) EPS (Rs) % Chg YoY P/E (x) CEPS (Rs) EV/E (x) Dividend Yield (%) RoCE (%) RoE (% ) FY07 16,967 1,744 5.3 97.4 161.3 9.3 56.7 7.7 19.0 FY08E 18,554 962 2.9 (44.9) 292.5 7.9 59.5 5.2 5.5 FY09E 21,288 161 0.5 (83.2) 1,744.4 10.1 45.9 4.0 0.8 FY 10E 41,157 4,417 12.6 2,481.7 67.6 27.6 23.2 6.6 13.7Shares Outstanding (mn) Amar Kedia amar_kedia@isecltd.com +91 22 6637 7271GMR Infrastructure, August 23, 2007 ICICI Securities Well placed to exploit strong infrastructure pipeline Growing infrastructure potential More than US$300bn worth investment is proposed in the infrastructure sector for the next five years. In the three areas that GMR operates, the total proposed i nvestment exceeds US$175bn, most of which is directed at power. Infrastructure o pportunity has witnessed a sizeable growth through the past few years, with incr easing stake for private investors. Total orders in the roads sector are estimat ed at US$60bn, covering >45,000kms. Orders worth US$105bn are expected to be ann ounced in the power sector for >90,000MW in generation and 35,000MW in transmiss ion. Airport development will likely generate orders in excess of US$10bn from t hree metro airports and 35 other non-metro airports. Having tasted success from some of the recent PPP initiatives, we believe the opportunity for private parti cipation in the infrastructure sector is at inflection, suggesting tremendous gr owth potential. Following the pure developer model GMR has opted for a pure-developer model as against a construction-cum-developer model and a focus on superior project selection, value enhancing bids, upfront monetisation of projects via financial engineering, timely execution and outsour cing operations & maintenance. Strategically, GMR has followed a joint-venture r oute for key projects, choosing its partners with utmost care and, thus, mitigat ing construction risks. For example, it has Limak (one of the largest constructi on companies in Turkey that has successfully completed construction of a number of projects in roads, highways, dams, hydroelectric power stations, industrial b uildings, ports and airports) as partner for its Istanbul airport project, while collaborating with Malaysia Airports Holdings and Germany's Fraport AG for the Hyderabad and Delhi airports projects. The company has recently tied up with Pun j Lloyd, a construction company, for joint bidding in road projects. Engineering , Procurement & Construction (EPC) work on GMRs projects has been outsourced to s pecialists such as L&T and Alstom with pre-defined timelines and penalty clauses , thus mitigating any risks from project delays. Further, GMR has set new benchm arks for non-aero revenue potentials in its Delhi and Hyderabad airports project s through deals with Future Group-Alpha consortium, Shoppers Stop-Nuance JV, ENIL etc. While these deals give comfort, selective disclosure by the company on inf ormation on deal values forces us to adopt a conservative approach for future de als in areas such as cargo, MRO, car parking, ground handling, fuel farm, flight kitchens etc. We believe GMR will be among the key beneficiaries of the growing infrastructure opportunity. 2GMR Infrastructure, August 23, 2007 ICICI Securities Valuation We have valued all GMR projects individually to arrive at a fair value of Rs679/ share. Since >80% of value is contributed by airports and attached real estate, we have not applied any holding company discount. We have further assumed an equ ity/quasiequity raising by the company for Rs20bn at a price of Rs1,000/share in FY10, primarily triggered by contribution required for the power project at Ori ssa. Further, since a bulk of the projects entails substantial upfront capex dep loyment while returns are spread through a long horizon (20-60 years), we believ e GMRs current financials are not an accurate representation of the companys true potential. Table 1: Valuation summary Project Real Estate GHIAL DIAL Airports GHIAL DIAL Value/ share 334 202 132 210 94 76 Discount rate/Multiple 14.0% 13.0% 6.8%-8.1% 9.6% Rate/Multiple type Cost of Equity Cost of Equity WACC WACC Key assumptions Capitalisation rate of 10% Le ase rentals of Rs25-40/sqft/mth Lease rentals of Rs100/sqft/mth Secondary airpor ts to limit upside WACC varies with Sec. 80IA benefits and zerocost debt repayme nt; 14% cost of equity Real-estate fund used is quasi-equity; rate applied @ cos t of equity 13%; no tax benefits under 80IA D/E ratio of 80:20; 14% cost of equi ty Premium applied for coal-based project Risk of PPA expiry factored in Risk ap plied for gas availability Risk applied for hydro project Risk applied for hydro project and geography D/E ratio at 20% Premium over GJEPL due to distance Value d on DCF; 13% cost of equity In-line with GACEPL Valued on DCF; 14% cost of equi ty toll risk Valued on DCF; 13% cost of equity Valued on DCF; 13% cost of equity Sabiha Gokcen 39 8.6% Power 108 Orissa 62 1.8x GEL 21 15.0% VPGL 9 1.0x Alaknand a 7 1.3x Talong 5 1.0x GPCL 4 13.5% Roads 28 GUEPL 9 Rs125mn GTTEPL 5 GJEPL 5 Rs 115mn GACEPL 3 GPEPL 3 GTAEPL 3 Total Value 679 Source: Company data, i-SEC Rese arch WACC P/BV WACC P/BV P/BV P/BV WACC EV/Km EV/Km Table 2: Potential upsides to base-case valuation Real Estate Evaluating property for development around Istanbul airport Potentia l reduction in real estate related revenue share at DIAL if allowed to route as dividends from DAPL Airports Delay in formation of airport regulator/favourablethan-expected aero-tariff regime Global airport opportunities opening up; substa ntial potential in Middle East Potential surprises from non-aero revenue contracts at m possible right to develop second airports at Delhi and pside potential from two power projects won (Chattisgarh ial upside from wins in ~21 projects for which bids/RFQs Source: Company data, i-SEC Research 3 DIAL and GHIAL Upside fro Hyderabad Power/Roads U and Holi Bajoli) Potent submittedGMR Infrastructure, August 23, 2007 ICICI Securities Real estate Key driver As a sweetener to develop the airports, the Government has offered GMR ~253acres and 1,000acres for development around the Delhi and Hyderabad airports respecti vely. Table 3: Real estate profile and valuation Assumed Sum of Capitalised Total GMRs Total developed lease rental DCF* rental va lue post value stake Property Acres area (mn sqft) (Rs/sqft/mth) (Rs bn) DCF (Rs bn) (Rs bn) (%) Delhi 208 41.6 100 (1.7) 94.1 92.4 50.1 Hyderabad 1,000 87.1 25 -40 23.3 89.1 112.4 63.0 *DCF used on cash flows till complete development of pr operty; capitalisation @ 10% applied post DCF horizon Source: Company data, i-SE C Research Value / share (Rs) 132 202 Building an Aerotropolis in Delhi GMR has transferred the property at Delhi to its fully-owned subsidiary, Delhi A erotropolis (Pvt) DAPL, and appointed Jones Lang LaSalle and Lehman Brothers for market research and strategic planning. The management claims that the property can be developed at an FSI of 3x, with permitted activities including airport-r elated facilities such as hospitality as well as commercial and retail activitie s etc. As per the Master Plan, initially, 45acres of the property would be devel oped as the Hospitality District by third party developers, supervised by DAPL. DAPL has already received >40 expressions of interest (EoIs) from various develo pers; the transaction is proposed to be completed by September 07. The management plans to raise ~Rs30bn through this transaction in upfront deposit from bidders , which will constitute ~75% of the bids total estimated NPV while the balance wo uld be from lease rentals. GMR proposes to use the deposit for funding the capex for phase I of its airport development commitment. Further, the culmination of the current transaction will set the benchmark for the balance land parcel of 20 8acres. We believe that DAPL is unlikely to ask for similar upfront deposit for the balance area, from where it would instead enjoy a stable rental stream, whic h is likely to be at a premium to the set benchmark. We value GMRs 50.1% share in the 253-acre property at Rs132/share. Land bank of 1,000acres in Hyderabad GMR has already received approval from the Government for setting up two SEZs (m ulti-product and aviation sector-specific) of 250acres each of the 1,000-acre la nd bank in Hyderabad. While the company maintains that this can be developed at an FSI of 3x, we believe the SEZs may restrict development to an FSI of 2x. We a ssume lease rentals of Rs25/sqft and Rs40/sqft per month for the SEZ and nonSEZ areas respectively. Further, we expect that the development would be spread over a timeframe of ~10 years so that realisations are not affected due to a sudden increase in supply. Accordingly, GMRs 63% share in the Hyderabad property is valu ed at Rs202/share. 4GMR Infrastructure, August 23, 2007 ICICI Securities Airports Unlocking value; regulatory risk ahead As an opportunity to play on the high-growth aviation sector, airports are a def ensive alternative to the bleeding airlines business. The revenue profile of an airport includes direct aero charges levied on passengers and airlines as well a s non-aero/aero-related revenues such as duty free contracts, advertisement, car go etc. While the current under-penetration of potential non-aero airport revenu e streams and exponential traffic growth promise significant potential, we belie ve the creation of Airport Economic Regulatory Authority (AERA) and competition from secondary airports is likely to restrict the upside. Both Delhi and Hyderab ad airports would enjoy a 25-year monopoly, with GMR having the first right of r efusal for a second airport within a 150-km radius in a competitive bidding proc ess, provided its bid is within a 10% range of the winning bid. However, given t he increase in lobbying from LCCs for a secondary airport and congestion problem s, we believe the second airport is inevitable in key metros such as Delhi and H yderabad. We have, thus, factored in these risks to arrive at a relatively lower IRR of 12% and 11% for Delhi and Hyderabad airports, which compares with a WACC of 9.6% and ~7.4% respectively. Further, we have relatively moderate IRR expect ations at 18% from the recently won Sabiha Gokcen airport at Istanbul. Table 4: Airports Profiles and valuation Estd. FY07 Traffic Aero to noncapacity traffic CAGR aero revenues Airport (mn) ( mn) FY07/34 FY09 FY36 Delhi 100 20 4.9% 40:60 25:75 Hyderabad 40 6 6.5% 42:58 32 :68 Istanbul 10 3 5.8%* 80:20 66:34* *CY28; # Concession fee as a share of total fee of 1.93bn Source: Company data, i-SEC Research Project capex (Rs bn) 86.0 24 .8 25.0 AAI Revenue share 46% 4% 4-7%# IRR 12% 11% 18% Project NPV (Rs bn) 53.4 52.6 34.3 GMR stake 50.1% 63% 40% Value/ share (Rs) 76 94 39 Delhi Airport valued at Rs76/share While non-aero revenues will likely register sharp growth, we expect aero-revenu es to decline post FY45 following crosssubsidisation from non-aero revenues, as per the agreed formula Aero-revenues of the GMR-led consortium Delhi Internation al Airport (Pvt) DIAL are regulated at 11.6% of capital employed as per the foll owing formula: Add: Add: Add: Less: 11.6% regulated return on aero assets Depreciation on aero assets Aero O&M expenses Tax on aero profits 30% of aero-related revenues While aero revenues are likely to witness a sharp jump in FY10 when the above fo rmula falls into place, we estimate that post FY36, increasing share of non-aero revenues in the overall mix would likely lead to a decline in aero revenues. To tal revenues of DIAL are further subject to a 45.99% revenue share with the Airp orts Authority of India (AAI), thus limiting overall upside. We value GMRs 50.1% stake in DIAL at Rs76/share using a WACC of 9.6%. Unlike popular belief, we trea t the ~Rs30bn, which GMR plans to raise from development of phase I of real-esta te property, as quasi-equity and apply cost of equity on the same. 5GMR Infrastructure, August 23, 2007 ICICI Securities Hyderabad Airport valued at Rs94/share GMR Hyderabad International Airport (GHIAL) is currently much better placed vis-vis DIAL since its revenue share with AAI is just 4% and, also, it has no cap on the aero-revenues. However, with the formation of AERA (proposed by the Civil A viation Ministry and which, we believe, is inevitable and would be in place by t he next 3-4 years), we expect that the aero-charges will follow a similar trend across all airports in the country. Hence, the upside will again be from non-aer o revenues and commercial development of real-estate offered as sweetener to GHI AL. However, with a lower share of international traffic (which has higher purch asing capacity), we expect GHIAL to command lower per passenger revenue as compa red with DIAL. We value GMRs 63% stake in GHIAL at Rs94/share, using a discount r ate that varies between 6.8% and 8.1% (accounting for the tax benefit status und er Sec 80IA and the expiry of interest free loan from the Government of Andhra P radesh after 15 years). Sabiha Gokcen Airport valued at Rs39/share GMR (40%) recently won the fiercely competitive bid for operating the second air port at Istanbul as part of a consortium with Malaysia Airports Holdings (20%) a nd Limak (40%). The project entails a capex of 450mn for building a 10-million pa ssenger capacity in addition to a concession fee of 1.93bn spread over 18 years. Sabiha Gokcen (currently, 3mn international and 0.5mn domestic capacity) has wit nessed very high traffic growth in the past few years, since Istanbuls larger Ata turk Airport is facing capacity crunch, which is expected to remain due to its e xpansion being physically impossible. On the downside, Sabiha Gokcen is located on the Asian side of Istanbul that is less popular with tourists. Further, the r egions uncertain geo-political climate on account of its proximity to war-prone c ountries, leads to relatively moderate growth assumptions. Project cost of Sabih a Gokcen at NPV of ~US$1.8bn for an ultimate passenger capacity of 10mn looks hi gh as compared with the US$3bn paid by TAV Havalimanlari, operator of Ataturk Ai rport (20mn capacity), for a 15-year concession. Further, TAV withdrew from the b idding for Sabiha Gokcen, citing the reason of price being beyond its profitabil ity calculations. Given TAVs experience in operating the regions largest airport, we choose to be conservative in our estimates for Sabiha Gokcen. We have valued GMRs share in the consortium at US$335mn or Rs39/share, suggesting an IRR of 18%. 6GMR Infrastructure, August 23, 2007 ICICI Securities Power Untapped opportunity GMR commenced operations as a pure power play; however, it has not had an inspir ing performance in the sector. Although the company has three commercialised pla nts as of now, two have an uncertain future due to lack of fuel linkage (Vemagir i Power Generation VPGL) and PPA expiry closing in (GMR Energy GEL). VPGL is exp ected to receive gas only after September 08, even though the plant was commercia lised in September 06; forcing the company to book losses due to interest and dep reciation. Although GMR Power Corporation (Pvt) GPCL and GEL produce power, thei r tariff is in excess of Rs6-8/unit, making it uncompetitive. As such, PLF for b oth these plants has remained low in the recent years, though the company contin ues to earn fixed charges. Moreover, GELs PPA is expiring in June 09, leading to u ncertainty. On the upside, GEL operates a barge-mounted power generation facilit y, which allows the company to transfer it to a desired location (KG basin) at a cost of Rs5-6bn. GMR has three other power plants in various stages of developm ent, likely to be operational by FY10-12 (Table 5). Table 5: Existing power proj ects Capacity Project (MW) Location GEL 220 Mangalore GPCL 200 Chennai VPCL 388.5 And hra Pradesh Alaknanda 140 Uttarakhand Orissa 1,050 Orissa Talong 160 Arunachal P radesh Source: Company data, i-SEC Research Fuel Naptha LSHS Gas Hydro Coal Hydr o GMR stake (%) 100 51 100 100 100 100 Cost (Rs mn) 9,779 8,703 11,834 8,260 45, 650 9,200 CoD Jun-01 Feb-99 2009 2011/12 2010 2011/12 PPA Expiry Jun-08 Feb-14 2 021 2075 2035 NA PPA Terms 85% PLF, Take/Pay fixed charges 68.5% PLF, Take/Pay f ixed charges 80% PLF, Take/Pay fixed charges 12% of power free to the State 25%, at 80% PLF to GRIDCO 14% free power; 2paise/KwH to the State Power projects valued at Rs108/share We value the six power projects (Table 5) at Rs108/share, with ~60% share to be contributed by the yet-to-be-operational Orissa plant. We have used a DCF approa ch for valuing the two operational plants while the others have been valued usin g P/BV. Risks remain for valuation of non-operational plants, since they are yet to attain financial closure. GMR has recently announced winning a 1,000MW coalbased project in Chattisgarh and another 180MW hydel project in Holi Bajoli, Him achal Pradesh. Due to lack of information, we have not included these projects i n our valuation, though they have the potential for an upside to the power portf olio. Further, we estimate that GMR may need to raise equity/quasi-equity funds for these projects. Going ahead, GMR intends to bid for projects with definite f uel linkage/hydro/thermal plants only. The company has recently bid for three BO OT hydro projects in Nepal. GMR is further evaluating bids for nine hydro projec ts in Himachal Pradesh as well as the following transmission line development pr ojects: Evacuation System for North Karanpura (EoI invited by Rural Electrificat ion Corporation REC), Talcher Augmentation System (EoI invited by REC), Evacuation System for Maithon RB, Kodarma & Bokaro extension (EoIs invited by Power Finance Corporation PFC) E nabling import of NER/ER surplus by NR (EoI invited by PFC) 7GMR Infrastructure, August 23, 2007 ICICI Securities Roads Strong track record; limited contribution GMR has had a good track record in the roads sector, having completed two of its projects ahead of the deadline and secured bonus from NHAI for one of them. GMRs business strategy has been to procure long-term contracts with vendors for oper ations & maintenance of roads, allowing it to control costs. The company has als o monetised upfront value from both its existing annuity projects by securitisin g 75% of future cash flows, hence capturing value for shareholders at an early s tage. GMR currently has four more road projects that are in various stages of de velopment (Table 6). Table 6: Existing road projects Project Location GTTEPL NH45, Tamil Nadu GTAEPL NH5, Andhra Pradesh GACEPL NH21, The Punjab GPEPL NH7, Andhra Pradesh GUEPL NH45, Tamil Nadu GJEPL NH7, Andhra P radesh * Estimated Source: Company data, i-SEC Research Length (Kms) 93 60 35 11 3 73 46 Concession Period (years) 2.5 + 15 2.5 + 15 2.5 + 17.5 2.5 + 17.5 2.5 + 17.5 2.5 + 17.5 CoD 11-Oct-04 24-Dec-04 1-Nov-08* 1-Apr-09* 1-Apr-09* 1-Feb-09* Revenue p.a. (Rs mn) 837 597 Toll 1,084 Toll Toll Project Cost (Rs mn) 3,620 2,9 52 3,911 6,900 7,950 4,713 Debt (Rs mn) 2,715* 2,214* 2,815 5,520 5,963 3,535 Eq uity (Rs mn) 905* 738* 1,096 1,380 1,987 1,178 Existing road projects valued at Rs28/share We value all road projects, except GMR Ulundurpet Expressways (Pvt) GUEPL and GM R Jadcherla Expressways (Pvt) GJEPL, based on a DCF analysis since they have a s table revenue and EBITDA profile (margin expected at 80-85%). The other two (tol l projects) are valued using multiples approach. Together, the roads portfolio i s valued at Rs28/share, suggesting limited contribution in the overall portfolio mix. However, GMR has already submitted RFQs for additional eight road projects (Table 7), which are bigger in terms of capex deployment and could pose some up side to the overall roads portfolio valuation going forward. At the same time, p hase V of NHDP is likely to be more competitive because most projects are high d ensity corridors with heavy traffic potential. Thus, bidding for these projects is likely to be more intense, affecting their rate of return. Table 7: Road proj ects under bid/RFQ stage Project Type Chennai-Tada 6 laning Delhi-Hapur 6 laning Chandikholr-Bhubaneswar 6 laning Delhi-Agra 6 laning Surat-Dahisar 6 laning Panipat-Jalandhar 6 laning C hilkaluripet -Rajamundry 6 laning Gurgaon-Kotputli-Jaipur 6 laning Source: Compa ny data, i-SEC Research Length (Km) 50 60 70 180 245 300 270 230 Project Cost (R s mn) 2,890 3,470 4,050 10,400 14,160 17,340 15,610 13,290 Status RFQ submitted RFQ submitted RFQ submitted RFQ submitted RFQ submitted RFQ submitted RFQ submit ted with Punj Lloyd RFQ submitted with Punj Lloyd 8GMR Infrastructure, August 23, 2007 ICICI Securities Table 10: Cash Flow Statement (Rs mn, year ending Mar 31) FY07 FY08E FY09E FY10E Operating Cash flow 3,049 2,0 08 2,747 9,081 Working Capital Changes 1,811 (1,529) (1,328) 661 Capital Commitm ents (17,202) (39,595) (57,483) (94,113) Free Cash Flow (12,341) (39,115) (56,06 4) (84,371) 116 3,219 595 607 Cash flow from Investing Activities Issue of Share Capital 12,684 - 20,000 Buyback of shares Inc (Dec) in Borrowings 7,354 21,647 50,389 58,459 Dividend paid Extraordinary Items Chg. in Cash & Bank balance 6,24 3 (6,269) (2,101) 2,975 Source: Company data, i-SEC Research Financials Table 8: Profit and Loss Statement (Rs mn, year ending Mar 31) FY07 FY08E FY09E FY10E Operating Income (Sales) 16,9 67 18,554 21,288 41,157 Operating Expenses 11,531 12,792 12,608 20,478 EBITDA 5, 437 5,762 8,679 20,679 % margins 32.0 31.1 40.8 50.2 Depreciation & Amortisation 1,346 1,641 3,182 5,271 Gross Interest 1,441 2,190 4,209 6,221 Other Income 183 595 595 607 Recurring PBT 2,833 2,526 1,884 9,793 Add: Extraordinaries Less: Ta xes 415 507 468 2,270 Less: Minority Interest 673 1,057 1,255 3,107 Net Income ( Reported) 1,744 962 161 4,417 Recurring Net Income 1,744 962 161 4,417 Source: C ompany data, i-SEC Research Table 9: Balance Sheet (Rs mn, year ending Mar 31) FY07 FY08E Assets Total Current Assets of which cash & cash eqv. Total Current Liabilities & Provisions Net Current Assets Investmen ts of which Strategic/Group Other Marketable Net Fixed Assets of which Capital W ork-in-Progress Total Assets 19,172 12,036 13,000 6,731 7,471 11,701 2,625 5,076 6,961 1 FY09E 10,421 4,630 4,233 6,187 3,361 FY10E 16,927 7,605 8,425 8,502 4,6 61 Table 11: Key Ratios (year ending Mar 31) FY07 Per Share Data (Rs) EPS(Basic Recurring) Diluted Recur ring EPS Recurring Cash EPS Book Value per share (BV) Growth Ratios (%) Operatin g Income EBITDA Recurring Net Income Diluted Recurring EPS Diluted Recurring CEP S Valuation Ratios (x) P/E P/CEPS P/BV EV / EBITDA EV / Operating Income EV / Op erating FCF Operating Ratio Admin & Other expenses / Revenue Generation & Operat ing expenses / Revenue Other Income / PBT (%) Effective Tax Rate (%) NWC / Total Assets (%) Inventory Turnover (days) Receivables (days) Payables (days) D/E Rat io (x) 5.3 5.3 9.3 45.6 FY08E 2.9 2.9 7.9 59.9 FY09E 0.5 0.5 10.1 60.4 FY10E 12. 6 12.6 27.6 126.5 1 1 3,361 4,661 2,624 43,231 81,185 132,126 219,668 14,232 57,557 88,146 141,675 232,831 59.8 20.0 147.2 97.4 (15.1) 9.4 6.0 (44.9) (44.9) (15.8) 14.7 50.6 (83.2) (83.2) 28.4 93.3 138.3 2,638 2,482 173.3 Liabilities Borrowings 37,057 58,704 109,094 167,552 Deferred Tax Liability 145 145 145 145 Equity Share Capital 3,311 3,311 3,311 3,511 Face Value per share (R s) 10 10 10 10 Reserves & Surplus* 16,612 21,354 21,516 45,732 Less: Misc. Exp.# 4,828 4,828 4,828 4,828 Net Worth 15,095 19,837 19,998 44,415 Total Liabilities 57,557 88,146 141,675 232,831 *excluding revaluation reserves; # = not written off Source: Company data, i-SEC Research161.3 91.1 18.6 56.7 18.2 (25.0) 292.5 108.1 14.2 59.5 18.5 (8.8) 1,744 84.2 14.1 45.9 18.7 (7.6) 67.6 30.8 6.7 23.2 11.6 (5.8) 15.8 52.1 6.5 13.7 (2.3) 7.1 57.7 135.3 2.5 28.6 40.3 23.6 20.1 0.3 6.6 52.7 167.3 3.0 34.3 24.9 31.6 24.8 1.1 6.7 39.8 163.0 5.5 21.0 28.7 6.2 23.2 0.4 5.4 32.1 98.1 3.8 Table 12: Quarterly trends (Rs mn, year ending Mar 31) Sep-06 Dec-06 Net sales 3,125 3,554 % growth (YoY) 4 1.3 62 EBITDA 1,250 1,526 Margin (%) 40.0 42.9 Other income 86 121 Add: Extraord inaries Net profit 256 533 Source: Company data, i-SEC Research Mar-07 6,196 75 1,380 22.3 (1) 219 Jun-07 4,766 16 1,385 29.1 192 464 Return/Profitability Ratio (%) Recurring Net Income Margins 10.2 RoCE 7.7 RoNW 1 9.0 EBITDA Margins 32.0 Source: Company data, i-SEC Research 5.0 5.2 5.5 31.1 0.7 4.0 0.8 40.8 10.6 6.6 13.7 50.2 9GMR Infrastructure, August 23, 2007 ICICI Securities Annexure: Profile GMR Infrastructure is one of the leading and fastest growing private sector infr astructure companies, with core interest in Energy, Roads and Airports. Going fo rward, GMR plans to tap opportunities in the core areas of the countrys infrastru cture development including Realty, Construction and Transportation. Specific pr oject details are as follows: Power GMR Power Corporation (Pvt), Tamil Nadu (GPCL): Commissioned in 1998, the 200MW Chennai plant is the first independent power project in Tamil Nadu. GMR Energy, Karnataka (GEL): Commissioned in 01, the 220MW plant is the worlds largest and Ind ias first barge-mounted combined cycle power plant. Vemagiri Power Generation, An dhra Pradesh (VPGL): With a 388.5MW capacity, the plant is located at Vemagiri i n Andhra Pradesh. GMR (Badrinath) Hydro Power Generation (Pvt), Uttarakhand: The 140MW hydroelectric power project is expected to be operational by 1112. Kamala nga Thermal Power Project, Orissa: GEL has signed a PPA with GRIDCO to set up a 1,000MW coal-based thermal power plant, expected CoD by 10. Talong Hydro Power Pr oject, Arunachal Pradesh: The 160MW hydro-power project is located in the East K emeng district of Arunachal Pradesh, with expected CoD by end-11. Thermal Power P roject in Chhattisgarh: GMR has signed a MoU with the Government of Chhattisgarh to set up a 1,000MW coal-based thermal power plant in the state. Holi Bajoli Hy dro Power Project, Himachal Pradesh: The 180 MW hydro-power project is a run-ofthe-river project on River Ravi in Chamba district of Himachal Pradesh. Roads Through its roads segment, GMR operates two annuity-based BOT road projects, spa nning a total 152kms 4 lane highway between Tuni-Anakapalli on NH-5 in Andhra Pr adesh and a 93km stretch between Tambaram-Tindivanam on NH-45 in Tamil Nadu. Fur ther, the company has four BOT projects (of which three are toll based) under de velopment with concession period of 20 years Ambala-Chandigarh (35kms), Farukhna gar-Jadcherla (58kms), Adloor Yellareddy-Pochanpalli (107kms) and the Tindivanam -Ulundurpet (71kms). Airports GMR recently forayed into the Airport sector, through acquisition of the BOT rig hts for the existing airport at Delhi and the greenfield airport at Hyderabad. T he company has also secured a BOT right for a brownfield expansion at Sabiha Gok cen airport in Istanbul. 10GMR Infrastructure, August 23, 2007 ICICI Securities GMR Hyderabad International Airport Limited (GHIAL): GHIAL, a joint venture betw een the GMR Group, Malaysia Airports Holdings Berhad, the Government of Andhra P radesh and AAI is developing the new international airport at Hyderabad under th e PPP initiative. Phase I of the project would be completed by March 08 to handle a 12mn passenger/annum capacity and cargo of 1,00,000te. GHIAL will be a stateof-the-art airport with modern facilities such as hotels, business centres, exhi bition centres, shopping malls, residential and commercial areas, all within the complex. Delhi International Airport (P) Ltd (DIAL): DIAL, a joint venture betw een the GMR Group, AAI, Fraport, Eraman Malaysia and India Development Fund is m andated to modernise and restructure DIAL. The airport shall cater to 37mn passe ngers per annum in phase I with an ultimate design capacity to handle 100mn pass engers per annum. Phase I will be operational by 10, before the Commonwealth Game s. Sabiha Gokcen International Airport (SGA) at Istanbul, Turkey: The consortium of GMR Infrastructure, Limak Insaat Sanayi San Ve Tic A.S Turkey (Limak) and Ma laysia Airports Holdings Berhad will develop and operate the Sabiha Gokcen Inter national Airport (SGA) at Istanbul, Turkey. The BOT project involves constructio n of a new international airport terminal with a 10mn capacity in 30 months besi des managing the existing domestic and international terminals (with a passenger capacity of 3.5mn per annum). The current international terminal will be conver ted to a domestic terminal, subsequent to construction of the new terminal. Char t 1: Corporate structure GMR Infrastructure Limited Energy 100% GMR Energy Limited (GEL) 220 MW 51% GMR Power Corporation Limited (GPCL) 20 0 MW 100% Vemagiri Power Generation Limited 100% GMR (Badrinath) Hydro Power Gen eration (GBHP) 140 MW 100% Kamalanga Thermal Power Project, Orissa 100% Talong H ydro Power Project, Arunachal Pradesh 74% Road Airports 63.0% GMR Hyderabad International Airport Limited (GHIAL) 50.1% Delhi Internatio nal Airport Private Limited (DIAL) 40% Sabiha Gokcen International Airport, Ista nbul GMR Tambaram-Tindivanam Expressways (GTTEPL) 93 Kms 100% GMR Tuni-Anakapalli Exp ressways Private Limited (GTAEPL) 59 Kms 100% GMR Ambala-Chandigarh Expressways Private Limited (GACEPL) 35 Kms 100% GMR Jadcherla Expressways Private Limited ( GJEPL) 58 Kms 100% GMR Pochanpalli Expressways Private Limited (GPEPL) 103 Kms 1 00% GMR Ulunderpet Expressways Private Limited 73 Kms Operating Companies Under Implementation Operating-cum-development Percentage of holding represents our direct and indirect shareholding Source: Company 11GMR Infrastructure, August 23, 2007 ICICI Securities Management GMR Infrastructure is managed by a 14-member board led by Chairman and Managing Director, Mr G.M. Rao, who is also the founder chairman of the Group. Mr. Rao ha s past experience in banking (ING Vysya). Mr. GBS Raju is the Group CFO and alon g with seven independent directors, three group directors and two directors supe rvise the companys day-to-day functions. Mr. G Kiran Kumar has been on the compan ys board since 1999, heading GHIAL as the managing director. Mr. Srinivas Bommida la is a group director. He has over 23 years of experience in infrastructure, ag riculture, FMCG and services. Currently, he is the managing director of DIAL. Mr . BVN Rao is a group director and has been associated with GMR Group since 1990. He heads the energy and the roads sectors. Chart 2: Management structure Chairman & Managing Director Mr. G M Rao BOARD OF DIRECTORS ROADS Mr. BVN Rao AIRPORTS ENERGY Mr. BVN Rao GROUP CFO Mr. GBS Raju GTTEPL GTAEPL GACEPL GJEPL GPEPL GUEPL Source: Company DIAL Mr. Srinivas Bommidala GEL GPCL VGPL GHIAL Mr. G Kiran Kumar 12GMR Infrastructure, August 23, 2007 ICICI Securities ANALYST CERTIFICATION We /I, Amar Kedia, PGDM research analyst(s) and the author(s) of this report, he reby certify that all of the views expressed in this research report accurately reflect my/our personal views about any and all of the subject issuer(s) or secu rities. We/I also certify that no part of our compensation was, is, or will be d irectly or indirectly related to the specific recommendation(s) or view(s) in th is report. Disclosures: ICICI Securities Limited (ICICI Securities) and its affiliates are a full-servic e, integrated investment banking, investment management and brokerage and financ ing group. 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