Marwadi Shares & Finance (MSFL) has maintained 'Sell' on GVK Power & Infrastructure with a price target of Rs 11.40 as compared to current market price (CMP) Rs 12.35 with downside potential of 9% in its report dated Nov. 16, 2012. The broking firm gave following investment rationale on the stock:

JI, JII & Gautami reported a PLF of 60%, 27% & 26% as against 73%, 68% & 63% in Q1FY13 respectively, indicating a deteriorating gas supply position. However to counter the same the management is synchronizing JII & Gautami on alternate fuel as the tariff for these plants is  based on Plant Availability Factor & not on Plant Load Factor. In the airports division, the MIAL & BIAL domestic passenger traffic declined y-o-y by 12% & 13% respectively impacting the overall growth.

Both the Alaknanda & Goindwal Sahib project capex is on schedule and expect the 1st unit to achieve COD in Q4FY13 & Q1FY14 respectively. The Tokisud mine is also expected to start commercial operation in Q1FY14. However, uncertainty on the funding of airport capex still remains with the Ministry of Civil Aviation yet to take a stand on the abolishment of ADF & delays in real estate development. 

GVK Power & Infrastructure's operating woes across power & airports division continued over Q2FY13 as well. Unavailability of gas resulted in the power PLF’s declining from 66% in Q1FY13 to 35% in Q2FY13. Consequently, the power revenue was down 39% on a q-o-q basis & down 36% on a y-o-y basis. However, the net profit of power division was higher, supported by reversal of maintenance provisions done in Q1FY13. Airports too registered poor passenger volume nos with 8.3% & 9.9% y-o-y decline in the passenger traffic at MIAL & BIAL respectively. The operating profit for MIAL was lower than expectation primarily on account of higher operating expenses but registered a 80bps sequential improvement.

Although the traffic growth on the operational road project was lower at 1.8% the steady performance was supported by higher tariff.  With no surprises on the operational front in the near term the market is expected to concentrate on the outcome of uncertainty related to abolishment of ADF as a source of funding the airport capex. Endorsement of AERA's stand on ADF by the Ministry of Civil Aviation shall be a positive outcome for GVKPIL. In addition, any development on fund infusion in the airport division & real estate development shall be the key events to look out for in the medium term, for stock price performance. We prefer to wait for the aforementioned events to materialize & continue to maintain sell with a price target of Rs 11.4.

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