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Wednesday, May 28, 2008

GMR Infra:-Why to avoid?

Scripscan:GMR Infra
View:Avoid
Reasons:Read on


[GMR Infra news,views and analysis/why to avoid/valuations expensive/large gestation period for projects/private equity play/no growth in earnings/stay away and avoid/much better bets available]

My view:-In my community a stock which has been a hot subject offlate has been GMR Infrastructure.Its included in the fno segment thereby making it a favourite of both the traders and investors fraternity.I have really got no clue regarding this inclusion of fno mechanism.Valuation wise its horrendoulsy expensive having a forward PE of over 80.People without any idea about the business have been speaking amazing things about the company.Nevertheless its an "infra" stock and our investors are great fans of the word,"infra".So if its attached behind a company name dont lag behind but just go for it.SO in my own language let me dig a bit more and present the same to you guys.It can be a buy for everyone but not for me,why?Read on.

Now the company is executing a number of projects on the basis of PPP,including the Delhi and Hyderabad Airports.Even DIAL and HIAL, are separate concerns partially owned by GMR and the JV partners including india govt and some other institutions.Apart from the 2 Airports, in separate SPVs a number of projects are being put up in the Power and Road Development segment.The Revenues on commencement would accrue to these SPVs and in turn to GMR in proportion to its ownership of a slew of enterprises under its belt. This will make earnings not only extremely volatile, but lumpy depending upon the accounting policy implemented by GMR Infra.It would be prudent to note that the projects are on a BOOT basis, with periods ranging from 15 to 60 years. These are large gestation periods projects with high executional risks and it would take a long time before gmr can even make some money out of them.

Gmr infra is expected to post an EPS of 1.80 paisa in 09 and 2rs in 10.Further equity can get diluted which hasnt been taken into consideration.Being simple gullible investors we opt for companies which have got high growth potential,huge growth in earnings and tiny equities.So that growth comes profits increases multifolds and eps blosters equity being low.God knows why people are sticking to GMR which is discounting its 2 year forward multiple by as high as 75 times.To me stocks like GMR hold no relevance to an individual investor as the companies will show only marginal profits on huge and ever growing equity, that is being constantly raised to bag new projects with minor and majority stakes.

So its not gonna give you a great dividend yield,neither its going cheap valuation wise.These stocks can only suit to momentum players and those which are in the Venture Capital, Private Equity play etc.So will you still buy it?



Regards,
ARUN
I can be reached at:-arunanalyst@rediffmail.com

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