Multibagger - G V K Power & Infrastructure Ltd

GVK is a leading infrastructure asset owner which is seeing improving prospects across all its business verticals - power, airport and realty. We believe market is undervaluing the stock and see a 25% share price return as market factors in these improvements. We see robust earnings growth of 62% CAGR over FY09- 12E. Our PO of Rs57 is based on sum-of-the-parts valuation constituting airport & realty - 50%, power - 28% and balance roads and cash.

Power profitability to drive strong earnings growth
We expect a huge rise in power business profit (a 14-fold increase in EBIDTA over FY09-11) driven by (1) power plants, earlier stranded due to lack of fuel, now
operating at over 90% PLF on availability of gas from the KG basin, and (2) potential upside from merchant power sales (12% of total power generated) starting in 2HFY10 at tariffs more than twice that of contracted power.

Realty monetization likely to start from end of FY10
Mumbai Int’l Airport (MIAL), at 197 acres, has by far the largest land bank in Mumbai’s western suburbs. We expect management to unveil the development plans in next few months, which could drive its valuations upwards. We currently value them at Rs17/share (30% of SoTP), assuming around 25mn sq ft development (against a potential 70mn+) at NPV of Rs372mn/acre.

Pick up in airport passenger traffic from 2HFY10
We expect traffic to rebound from a 9% drop in FY09 to 6% growth in FY10 and 12% in FY11, given expectations of economy bottoming out end-2009. The development of new integrated terminal is on schedule to be completed by
Dec’12. We have valued airport at Rs12/sh on DCF. Risks to PO are execution delays, lower merchant tariff, lower airport PAX and downturn in realty market.