Asset light, asset right. That’s the strategy infrastructure major GMR Infra has adopted to find its way out of debt troubles it is mired in.

From selling off operational projects to focusing on completing projects on hand to raising equity, GMR hopes to bring its spiralling debt under control.

GMR has a wide presence — the Delhi and Hyderabad airports, several power plants, a string of highways, and industrial zones.

But GMR’s consolidated debt has risen 20 per cent annually over the past four years, leaving it with a debt of ₹43,778 crore by end of the 2014 fiscal. So what’s troubling the company?

For one, the company’s rapid scaling up across verticals led to quick expansion in debt. Being the developer – a model where it owns the project, puts in the capital to develop it, and collects revenues – its debt requirement was high.

Two, several projects did not run to schedule, crimping expected cash flows. Higher input costs such as steel, fuel, and cement, and longer execution periods, sent project costs soaring.

For example, upward revision in costs of a coal-based power plant in Chhattisgarh amounted to ₹2,725 crore.

The long time it took for receiving all clearances for many of its power and road projects, such as the Kishangarh Udaipur stretch (from which it later withdrew), also threw plans in disarray.

Three, GMR’s power segment, which has the second-highest share in revenues after airports suffered. Uncertainty over gas pricing and supply wreaked havoc on GMR’s gas-based power plants. The two operational gas plants, totalling 608 MW, lacked gas supply from the 2013 fiscal onwards.

The Vemagiri plant, for instance, operated on a plant load factor of 27 per cent and 5 per cent in the past two fiscals.

Work on the third Rajahmundry plant has been on hold from mid-July 2012 on lack of clarity in fuel supply.

GMR’s energy division thus, had its only other large operational unit — the 220-MW Chennai plant — to rely on. Two of GMR’s coal-based plants of 1,650 MW turned operational only in the 2014 fiscal.

Several other plants – two in Nepal, two in Himachal Pradesh, for instance – have only just received all necessary clearances. Profitability dropped from 16 per cent in 2011-12, EBITDA margins crashed to 1 per cent in 2013-14.

Airports flat growth Four, revenue growth from the two airports (contributing over half of GMR’s consolidated revenues) was flat in the past two years, due to the slowdown in the economy.

GMR also lost the Male airport in the Maldives, where it holds a 77 per cent stake in December 2012, with the Maldives Government declaring the concession agreement void and subsequently taking it over. The airport generated ₹1,114 crore in revenues in 2011-12. GMR has only just won its arbitration case and damages on this a few months ago.

Consolidated revenues for the 2014 fiscal expanded 7 per cent to ₹10,566 crore, lower than the 18 per cent clip clocked in 2012-13.

With two road projects turning operational last year, highway revenues have got a leg up. Operating profit margins were healthy, holding above 20 per cent as most revenues came from operational projects which primarily require maintenance .

Interest costs as a percentage of sales hit 31 per cent of sales by the June 2014 quarter, though this is partly due to interest costs on completed power projects being charged to the P&L instead of being capitalised.

Owing to both this and depreciation, the company has been loss-making at the net level from 2010-11 onwards.

Asset sales To generate cash flows, GMR sold off some of its assets. It exited two highway projects in the 2014 fiscal, netting a profit of ₹69.7 crore.

The two together accounted for less than 2 per cent of revenues and 5 per cent of operating profits. GMR then sold South African coal mine business for a profit of ₹100 crore. The 40 per cent stake in its Istanbul airport was divested for a profit of ₹1,658 crore.

The airport generated ₹325 crore and ₹250 crore in revenues in the 2013 and 2012 fiscals. But it also accounted for over ₹1,000 crore in finance costs.

“Debt moving out of the books is to the extent of approximately ₹6,000 crores by way of divestments,” says a company spokesperson.

In July this year, GMR raised ₹1,477 crore in equities through a private placement.

The company’s promoters have infused ₹150 crore in warrants (with ₹450 crore more to come in through this route).

“In case we consider the recent equity raising by way of QIP and warrants in the net worth, the net debt to equity is at a very healthy 3.22 times,” says the company.

This apart, “now that the asset creation mode is over and the group is into cash generation mode, the debt position is expected to decrease.

“The group continues to maintain the investment holiday announced two years ago, and has not undertaken any major new projects.”

And finally, GMR is looking to the IPO market for its energy and airport verticals in the light of the amenable capital market conditions.

(This is part of a series on how companies are managing debt to gear up for better times.)

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