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Gayatri Projects
Reco: Hold
PT: Rs150
CMP: Rs139

Completion of power project portfolio; valuation limits upside, maintain Hold

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Key points
 

Completion of power asset portfolio of 2,640 MW: Gayatri Projects (GPL) has completed construction of its second 660MW thermal power unit (second unit of 1,320MW Sembcorp Gayatri Power) taking its total operational power portfolio to 2,640MW. The first unit of 660MW of Sembcorp Gayatri Power was completed in November 2016. During CY2017, the company would be selling power through short term contracts (current average tariff is Rs3.60 per unit with variable cost of Rs2.10 per unit) in Tamil Nadu, Karnataka and Telangana. The company is the lowest bidder for 500MW PPA which is expected to commence from January 2018 at an average tariff of Rs4 plus per unit.

Road asset restructuring; strong EPC order intake visibility for FY2018: GPL expects to complete restructuring (carving out road assets) of its road portfolio by April-May 2017 which has a debt of Rs3,000 crore. Further the road entity will be listed with 74% to be directly owned by GPL’s shareholders. On the construction EPC front, the company will be eyeing infrastructure orders (approach roads, flyovers etc) in Navi Mumbai Airport project (tenders to be floated by CIDCO). Also, the company is one of the qualified bidders in Mumbai Trans Harbour link project for which tenders are to be concluded in the next quarter. With current order book of Rs12,023 crore and visibility of good order intake during FY2018, the management expects 20-25% standalone revenue growth from FY2018 onwards.

Maintain Hold with unchanged price target of Rs150: The completion of power portfolio, impending road asset restructuring and improving growth visibility in EPC vertical has been the key triggers in GPL’s stock performance. Further, the key monitorables going ahead will be performance (in terms of profitability) of power business and improvement in EPC revenue booking. Currently, we maintain our Hold rating on the stock with unchanged price target of Rs150.

@Stock Cash Tips