GMR Infrastructure (GMR) has raked in Rs 8,000 crore by offloading a stake in its airport subsidiary — GMR Airports (GAL). The company intends to utilise this entire consideration to pay down debt. The deal ascribes GAL a base valuation of Rs 18,000 crore, which could go up to Rs 22,500 crore, subject to the company achieving certain milestones over the next five years. While this undershoots our estimates, the deal is greatly positive for GMR as it would: a) help cut debt, particularly the corporate debt worth about Rs 6,400 crore; and b) simplify its corporate structure via a demerger of the airport and non-airport businesses. We broadly maintain the valuation for the airport business, but now factor in the new shareholding structure and deleveraging, which yields our revised SoTP-based TP of Rs 24/share (Rs 23 earlier). Maintain ‘Buy’.
A group of investors (Tata Group, GIC and SSG Capital) are going to invest Rs 8,000 crore in GMR’s airport vertical. While Rs 1,000 crore would be invested directly in GAL, the balance Rs 7,000 crore would be utilised to purchase a stake in GAL from GMR. The company will funnel out these funds to repay Rs 1,000 crore worth of debt in GAL and Rs 6,400 crore of debt at the GMR level. As a result, GMR’s overall net debt will slide from about Rs 20,000 crore to approximately Rs 12,000 crore.
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The stake sale will aid GMR to: a) slash debt, which has been a major overhang for investors; b) pave the way for an exit of PE investors in GAL; and c) simplify the business structure through a demerger and eventual listing of the airport and non-airport businesses. We believe this would allow the airports vertical to fetch a premium valuation, which is warranted given GAL’s lucrative assets and leadership in the airports space in India.
