The share price of GVK Power and Infrastructure was up 5.57 per cent on Monday – after it announced that it would divest 33 percent stake in Bangalore International Airport to Fairfax India Holdings Corporation.

The deal is valued at Rs 2,149 crore.

The company would use the proceeds to repay debt of around Rs 2,000, which would result in savings in interest payments to the tune of Rs 300 crore per annum, said the company in its statement to the stock exchanges.

The interest coverage ratio – which gives an indication of the ability to pay debt – is poor for the company.

In FY 2014-15, the interest coverage ratio was 0.34 which improved slightly to 0.42 for the nine-month period ending Dec'15. A company’s ability to meet interest expenses might be questionable if the ratio is 1.5 or below.

The company had Rs 24,873 crore of debt in its books, as of March '15 – half of it in the form of term loans from banks. Total debt-equity ratio is quite high at 12.8. After the partial repayment of debt, the debt-equity ratio would come down to about 11.8 – which would still be high.

GVK Airport developers, a wholly owned subsidiary of GVK Power & Infrastructure has been on the deleveraging path since last year.

The parent company has been making losses in each of the last three financial years. For the financial year 2014-15, it made a loss of Rs 1,136 crore.

Even for the nine-months ending Dec ’15, it continued to make losses. However, the loss figures were lesser in the current financial year – at Rs 526 crore against the nine-month loss of Rs 726 crore made in the previous year.

Interest payments have been mounting in recent times for the company. For the nine-months ended Dec ’15, interest payments were Rs 1,470 crore – an increase of 42 per cent over that of the previous year. Interest payments constitutes almost half (48 per cent) of the sales for the company.

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