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Tuesday, August 23, 2016

GMR Infrastructure Annual Report analysis 2015-16

GMR Infrastructure is the poster child of what ails infrastructure in India, and why equity investors often get the short end of the stick despite a well intentioned management. With a family trust resolving succession issues, reputed board members and iconic projects some even being the subject of case studies such as Delhi Airport/Kishangadh highway etc, GMR Infrastructure does command valuation premiums even basis reported numbers, while it trades at a P/BV of 1.6(negative PE multiple). However, it has been mired in regulatory issues(delays in gas linkages to power plants, court ordered delays in hydel plants, Maldives airport nationalization, Kishangadh highway bid cancellation due to 'force majure', CAG audit report claiming undue benefit to DIAL operator and power tariff regulators delayed acceptance of force majure to permit fuel price hike pass through), Some of these have reflected in the audit report with the management refusing to write down asset balances which are clearly doubtful,

The below table indicates that if the audit adjustments were given effect to, the company's reported loss would increase by 74%-172%, while the reported networth will erode by 53%-96%. This shows the importance of perusing the audit report and not just going by reported numbers

Little wonder then, that whenever there are regulatory announcement, the stock price oscillates like crazy. And with a F&O lot size >10,000, it is quite risky for speculators without insider information

Now, GMR is by no means alone as these links indicate. However, it is one of the most detailed and complex cases, therefore prompting me to write a blog post.

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