Edelweiss Securities has maintained 'Buy' on GMR Infrastructure with target price of Rs 30 as against current market price (CMP) of Rs 20 in its report.
Commenting on the investment rationale, the stock broker said, ''GMR has restructured the Rs 14 billion private equity (PE) deal in its power holding company, GMR Energy (GEL). Using blended nearly 11% returns over five years, we estimate PE investors to eventually get stocks worth Rs 23 billion.
Of this, Rs 11.36 billion would come from issuance of compulsorily convertible preference shares (CCPS) in GMR while the balance would be converted into GEL shares at pre-agreed valuations within three years.
''We had valued GEL at Rs 20.9 billion (100% equity value) versus implied value (emanating from the deal) at Rs 60 billion. After reducing the Rs 11.36 billion stake in GEL, the residual Rs 48.6 billion valuation is 2.9x our assumption (provides Rs 8/share upside to our SOTP value). Since the stake in GEL is subject to exit valuations over the next two-three years, we are currently not revising our target price.
However, restructuring eliminates significant dilution/funding concerns surrounding this PE deal. Maintain 'Buy/SO' with SOTP of Rs 30.''
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