GMR Infra’s stock valuation could get a boost from Energy IPO 

 

 

 

On Monday, GMR Infrastructure Ltd filed the draft prospectus to offer shares of its 100% subsidiary, GMR Energy, to the public. It’s an exit route for private equity investors in the entity and will help garner funds to meet equity and debt reduction needs. From an investor standpoint, the move along with several asset divestments through fiscal 2014 could help improve stock valuation.

 

So far, GMR has invested roughly Rs.6,500 crore in various power projects. Analysts’ estimates of GMR’s 80% stake in its energy entity range between Rs.1,600 and Rs.2,000 crore. However, a recent restructuring of the private equity investors’ holding in the company pegged valuation at a higher level. Thus, through these ambiguities, the public offering will set a valuation benchmark for the energy arm and other such entities. The stock has moved up by about 5% since the announcement.

 

So far, the energy business’s contribution in the estimated stock price has been insignificant given the beleaguered state of the power sector. Poor generation due to shortage of gas or high price of coal resulted in poor valuation for the business. Almost 90% of GMR’s stock valuation came from airports.

 

According to an Edelweiss Research report, “We expect GMR to hold 65-70% stake in the energy company post-listing.” Divestment will also reduce concerns about exit opportunities for private equity firms.

Meanwhile, the group’s net consolidated debt stands at around Rs.36,000 crore (as on September 2013). 

 

In any case, from the current price levels of Rs.23, downsides are limited given that the prospects for infrastructure could get better in the near to medium term.

md.aquil alam

pgdm 2nd semester 

source.live mint