Tough Times Ahead for GVK Power and Infrastructure

Infrastructure sector which was one of the fastest growing segments in Indian markets is now undergoing a kind of lull. Slower GDP growth for India and other factors like policy paralysis and slower Capex on account of higher interest rates were the main problems behind the same. No wonder then as many infrastructure companies were bleeding with any cash flow generation and the debt burden increased to higher levels. The un-viable projects also kept on increasing the pressures.

GVK Power and Infrastructure is one such company which has also witnessed a significant pressure in the last three years. The company which was once flying high with significant number of good projects is now struggling with many projects turning un-viable. In a bid to raise funds the company tried various ways to generate cash flows (Like QIP, New issuance of equity etc). However the debt burden of Rs 18000 crore has been on the higher side. As a result the company is planning to sell off some of its assets.

According to news reports, GVK is planning to sell-off its two projects, the Jaipur-Kishangarh project and the Bagodara - Vasad. With this the company is planning to raise around Rs 1200 crore. The news also reported that GVK is also considering the option of having all its road projects into a separate entity and has hired bankers to evaluate the assets.

Few of the private equity players have shown some interest in the projects and SBI-Macquarie is one of them. We are of the opinion that, in such a difficult scenario when the equity instruments are not getting the right valuations, raising funds through this method seems to be the only option left. Hence the move may provide some positive impetus to the counter on the bourses.

The company has earlier also gone ahead with the strategy to lighten its asset base. We expect a positive impact on the counter in short to medium term.