JP Morgan upgrades GVK Power to ‘overweight’; sees sharp price upmove

MUMBAI: JP Morgan has upgraded GVK Power & Infrastructure from ‘neutral’ rating to ‘overweight’ and increased the target price to 19 from Rs 12 earlier. According to the brokerage, funding concerns for the company are set to ease and there are catalysts on the horizon.

“On 21 Dec-12, AERA approved an ADF of Rs 34 billion, providing funding visibility on 90% of current project cost for MIAL. As per news reports, GVK has informed NHAI of its intention to exit the Shivpuri-Dewas road project (Rs 32 billion project cost), citing environment approval concerns. Excluding this project, the medium-term equity funding gap has eased to Rs 4 billion (excluding MIAL) primarily for road projects, manageable in our view,” the report said.

The catalysts that may ease pressure on the stock include MMRDA’s final approval for Mumbai Real Estate monetization which may come soon, ending the two-year long wait.

The brokerage has also incorporated 161 per cent AERO charge increase in its MIAL model as AERA has tentatively proposed (vs. 352 per cent received by Delhi airport). “We estimate 92 per cent EBITDA growth in FY14E led by commissioning of new projects and the MIAL tariff hike,” the report said.

JP Morgan has increased its December-13 price target to Rs19 from Rs12 previously on account of an improved estimate for Mumbai's core airport business and a lower illiquidity discount for the associated real estate.

“Our SOTP valuation includes: a) Rs16 for Mumbai airport and real estate, b) Rs5.4 for Bangalore airport c) Rs13 for power assets, and d) Rs5 for roads. We also subtract Rs16 from fair value for debt outside of key subsidiaries, including acquisition loans for airports,” it added.

Key downside risks include non approval for monetization of Mumbai airport land and denial for increase in AERO tariffs. Increased capex commitments and ambition are potential stock overhangs as well.

The stock ended at Rs 15.25, up 6.27 per cent, on the NSE. It touched a high of Rs 15.75 and a low of Rs 14.40 in trade today.