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Monday, June 13, 2016
Gammon Infrastructure Projects Ltd: Bulls On Charge...
CMP: Rs.4.70 P/E: 7.52 Industry P/E: 49.46
The government of India is going ahead with the idea of creating a stressed asset fund, which in the common parlance is called a bad bank; to take care of the bad assets. A bad bank, as is present in China for instance, buys up all bad loans from other banks. This will provide some relief to the companies like Gammon Infrastructure Projects Ltd, who have substantial amounts of debts in the books.
The company has recently done a strategic deal by sale of fixed assets, which added to the topline in Q4Fy16. It has further cleaned up its balance sheets and so now it is having cash surplus.
Any public-private partnership (PPP) business -- especially for infrastructure development -- is a capital hungry business; which needs large amounts of debt funding. The debt of the company which was initially in the order of Rs.4,500 crore, was reduced by Rs.2,000 crore after selling off six projects. So, now present level it will be approximately Rs 2,500 crore. The company is presently doing debt servicing.
Its asset basket is in order of around Rs.20,000 crore. Once it sells some of the projects it will deplete by another Rs.3,500 crore. The projects under implementation will be two projects which are likely to be completed in two years time - there are some projects; which are on pre-development stage, so that needs to take shape. It still has around two operational projects in road and two operational in port that should give additional size to operate and add more assets as the opportunity comes in to the basket. So, looking forward the asset baskets of Gammon Infrastructure Projects Ltd, should increase.
Last year the Corporate Debt Restructuring Empowered Group-(CDR EG) in its meeting held on November 23, 2015, discussed and noted the invocation of strategic debt restructuring (SDR) in the company by the CDR Lenders, pursuant to Reserve Bank of India (RBI) circular dated June 08, 2015.
In March, 2016, Gammon Infrastructure said it had completed the first tranche of stake sale in nine projects on approval from National Highways Authority of India (NHAI) and lenders. The infrastructure firm had announced to sell stakes in 9 projects valued at Rs.6,750 crore to Brookfield and Core Infra India Fund, a deal that will fetch Rs.563 crore on completion as well as reduce its debt considerably. The transaction, one of the largest asset sales at one go in the Indian infrastructure space, was announced barely days after the government last year allowed the highways developers to divest 100% equity in projects two years after the completion; by making additional funds available for investment in projects.
Conclusion: Looking at the above points and taking into account the daily candle stick chart pattern, it is safe to assume that the scrip of Gammon Infrastructure Projects Ltd, will give good returns in the short term. Therefore, fresh positions can be initiated in the stock, with short term targets of Rs.5.20-6.30 and Rs.9. A reasonable P/E re-rating can even take the stock above Rs.15, in the medium term.