JP Morgan maintains Overweight rating on GVK Power

GVK POWER

RESEARCH: JP MORGAN

RATING: OVERWEIGHT

CMP: RS 43.40

JP Morgan maintain Overweight rating on GVK Power with a new price target of Rs 57. GVK reported net profit of Rs1.56B for FY10, inline with the estimate of Rs1.68B. JP Morgan cut FY11 estimates by 9.8%, due to two key regulatory uncertainties:

a) difference of opinion with state power regulator on ability to sell 20% merchant power from J2 and Gautami (137MW) power plants: They now assume that merchant sale would commence no earlier than Oct-10 ,

and b) lack of clarity on airport charges – new airport regulator wants airports to pass on full benefit of non-aeronautical revenues to airport users– this would reduce the return assumptions and also be contrary to OMDA.

BIAL is 19%, power is 29% and road is 9% of the value. Resolution of regulatory uncertainties, monetization of Mumbai real estate and progress on fuel tie-ups for recently announced 1.6GW gasbased projects are stock catalysts, while change in regulatory policies poses downside risk to the new price target.