GMR Infra-Outrageously Priced Even At Current Levels

GMR Infra: Outrageously Priced

Should an investor Buy a stock just because an "Infra" Tag is attached to the name of a company? After all we buy a stock for its earnings and valuations and not just for the name of the projects it is executing.

Look at GMR Infra for instance, the estimated EPS for the next three years FY08 to FY10 is Rs 1.4, Rs 1.80 and Rs 1.90, giving the stock a PE of 110, PE 86 and PE 81.

GMR Infra is executing a number of projects on the PPP basis, with marquee projects that include the Delhi and Hyderabad Airports Even DIAL and HIAL, are separate concerns partially owned by GMR and partially by the JV partners including the GOI and multi-lateral development institutions.

The Revenues whenever they commence, will accrue to these SPVs and in turn to GMR in proportion to its ownership of a slew of enterprises under its belt. This will make earnings not only extremely volatile, but lumpy depending upon the accounting policy implemented by GMR Infra.

Apart from the 2 Airports, in separate SPVs a number of projects are being put up in the Power and Road Development segment.

All projects are on a BOOT basis, with terms that range from 15 to 60 years. The projects will earn Revenues with a large gestation period and such stocks may suit momentum players and those which are in the Venture Capital, Private Equity play.

These stocks hold no relevance to an individual investor as the companies will show only marginal profits on huge and ever growing equity, that is being constantly raised to bag new projects with minor and majority stakes.

The ultimate valuation tool for an investor is the earnings stream and the PE ratios, and Dividend Yield. On all three counts, stocks like GMR Infra fail to merit any attention and need to knocked off portfolios.

The Exchanges have done these stocks no good by putting them into the FNO list, making day to day moves extremely nerve wracking.

MAVERICK