GMR Infra's New Power Plant Sets In; Shares Jump Over 12% In 2 Days

The shares of GMR Infrastructure (BSE: 532754; NSE: GMRINFRA) have been seeing a steady upswing since the markets re-opened yesterday, 7th October.

The stock closed at Rs. 17.80 on the 1^st of October. On the 7^th, after the markets re-opened, the share was trading at an intra-day high of Rs. 20.30; a jump of 14.04%. It closed at Rs. 19.80 yesterday, a gain of 11.24% from the previous day’s close.

Why did the Share Price Rise?

This surge in the share price came on the back of news that the first 685 MW unit of the GMR Chhattisgarh Energy Limited (GCEL) thermal power plant successfully synchronized with the grid. This unit has a capacity of 685 MW.

The GCEL plant is the GMR group’s first super-critical coal-based thermal power plant and is located at Raikheda in Raipur (Chhattisgarh). Once completed, the plant would have a total capacity of 1,370 MW. Work on the 2^nd unit of the power plant is reportedly underway. The project has been implemented by Doosan, a South Korean conglomerate.

This news seems to have generated a lot of enthusiasm amongst investors. The stock closed at Rs. 20.00 today; an additional gain of 1.01%. That brings the total gain over the last 2 days to 12.36%.

Our View:

Looking at the chart of the share-price:

We can see that GMR Infrastructure has been on a bit of a downward slide since August 2014, as far as share prices are concerned. The sudden slide can be attributed mainly to the record losses it reported in Q1 2015; a loss of Rs. 651.65 cr. as compared to a loss of Rs. 281.83 cr. that was reported in the corresponding quarter of the previous year. That was a massive 131.22% increase in losses.

From there on, there has been several up and down movements in the share prices. The up movements could be attributed to:

• Signing a MoU with Japan Bank for International Cooperation (JBIC);
• A contract to upgrade and renovate the 2^nd largest airport in Philippines;
• A Project Development Agreement with the Nepalese government for a 900 MW hydro-power project;
• PE firm KKR agreed to provide Rs. 1,000 cr to help GMR pare their debts.

There were also causes for concern, which could have led to prices falling:

• Coal block cancellation by the SC and its effect on power plants controlled by GMR (Although GMR Infra clarified that there would not be any adverse effect of the cancellations on its performance);
• Possibility of a rights issue by GMR, which could have led to dilution of the share-prices.

In any case, with the commencement of power generation at the new Raipur power plant, along with the company’s Asset Light Asset Right strategy of divesting stakes and selling asset (mainly to reduce debt), the stock has been seeing a small resurgence of late.

Q2 earnings releases of listed companies are expected starting this week. We shall wait and see how GMR Infra has performed in Q2. In any case, with the commencement of power generation at the new Raipur power plant, along with the company’s Asset Light Asset Right strategy of divesting stakes and selling asset (mainly to reduce debt), the stock has been seeing a small resurgence of late.

A good Q2 performance could go a long way in reinforcing the stock’s upward trend.

Disclaimer: We do not own any positions on GMR Infrastructure.