Debt-laden GMR Infrastructure is pinning its hopes on a turnaround based on its under construction power generation capacity becoming operational, and growth envisaged in its airport vertical with the increase in passenger traffic.
The priority now is to improve cash flows, even as gross debt levels of the company, at a whopping Rs 47,000 crore, are unlikely to come down in a hurry, Madhu Terdal, chief financial officer, GMR Infrastructure, told FE. “It is not important whether my leverage is coming down, but what is important is to know whether my EBIDTA is going up or the operating cash flows are improving, and I would say that is what is happening now,” Terdal said.
Stock market analysts of late have raised concerns whether selling assets and raising capital have actually helped reduce debt levels of GMR and many of its peers in the infrastructure sector. Jaiprakash Associates has already concluded sales of 8.4 MT of cement capacity for Rs 5000 crore, but debt levels are estimated to be still up 18% over the past two years. GVK, which has interest in power, roads and airports businesses, has seen a 9% increase in the gross debt levels in FY15 to Rs 34,000 crore.
GMR raised close to Rs 1,500 crore through a QIP in 2014. Earlier this year, it raised about Rs 1,500 crore through a rights issue, and on Friday announced raising $300 million (Rs 2,000 crore) from Kuwait Investment Authority through FCCBs. Most of this is going towards reducing debt levels.
Credit Suisse in its October 2015 ‘House of Debt’ report observed that despite selling around 23 assets and raising almost Rs 11,000 crore in the past two years, GMR’s debt levels continued to rise, and were up 18% over the period. “With Rs 480 billion of domestic debt, the company would need to make an EBIDTA of ~R50 billion just to meet interest expense,” the report said.
To GMR’s credit, by March 2016, almost 95% of the project-level debt will move from under-construction assets to operational ones, which means that as the assets become income generating, the stress on the company to service debt on idle capacity will minimise, and the interest coverage ratio will also improve, Terdal said.
Critical businesses in GMR’s portfolio are showing signs of health. In May, GMR Vemagiri Power Generation with capacity of 370 MW and the 768-MW GMR Rajahmundry Energy, both in Andhra Pradesh, bagged allocation of gas for operating at 25% PLF each, under the reverse auction process done by the ministry of power for stranded gas power plants. The company’s 600 MW GMR EMCO Energy project and 1,050 MW Kamalanga Energy unit, representing nearly 60% of GMR’s thermal power capacity, are operating at a plant load factor of nearly 83% and 70%, respectively, which boosted the company’s earnings during the quarter ended in September 2015.
The airport business is witnessing improvement in EBIDTA with increase in passenger traffic. In FY15, EBIDTA from the Delhi airport stood at R1,480 crore, while for Hyderabad it was Rs 188 crore. The recent order of the Hyderabad High Court setting aside airports regulator Airports Economic Regulatory Authority’s decision to scrap collection of user development fees at Hyderabad airport will give the company additional revenues of R380 crore annually.
The company will be looking at divesting either the entire portfolio of road assets or possibly float an investment trust in the roads business in the next 18-24 months.
“Just from the project-level debt perspective, by March 2016, the debt on under-construction assets will be down to Rs 2,000 crore from Rs 11,600 crore at the end of March 2015, while the debt on operational assets will stand at Rs 39,400 crore, against Rs 27,800 crore,” Terdal said.