New “Asset-Light, Asset-Right” Strategy to benefit GMR Infra
The Bangalore based publicly traded infrastructure development company, GMR Infrastructure has adopted a new strategy of being “asset-light, asset-right”. This move that the company sought more than a year back with the intention of operational optimization seems to be reaping dividends. The basic motive behind this move was to streamline the company’s operations so as to keep under check the burden that was created on the balance sheet of the company.
Asset Offloading:
As per the balance sheet for the quarter ending June, 2013, the company’s financial leverage was reportedly at 3.3 times, with the net debt being Rs. 35,847 crore. This was 6% more than the figures for the corresponding period in the previous year. In the meantime the company went ahead with its move to commission its high investment coal-based power projects, with a potential power generation capacity of upto 1,500 MW in the long run. Besides, the company decided to let go of three of its assets during the last year which enabled it to control its leverage to a certain extend. The assets that the company shed include a foreign power project, significant divestment of majority share in a highway project as well as selling off its share in coal mine in South Africa that had run into loses. This move proved to be a master stroke by the company as Rs.1,500 crore equity could be released to be be utilized for its other lucrative operations.
Fresh approach adopted:
Shareholders of the company were informed by the chairman of GMR Infrastructure that the company had adopted a fresh approach to garner capital, considering the declining current account deficit and limited liquidity that was prevalent in the financial markets, both domestic and global. This changed approach was adopted following an extensive analysis conduced by the company focused on identifying the current trends existing in the infrastructure sector. As a result, it was inferred that the need of the hour was to adopt a pro-active approach towards operating cash flows, besides developing a capital recycling system. Following this, the company went ahead with its fresh approach towards improving profitability by shedding current unprofitable assets, and also improve operational efficiency by cost reduction and revenue enhancement.
The shares of GMR Infrastructure have hit an all time low of Rs.10.65 per share during the middle of August, 2013 inspite of selling at Rs.18-Rs.24 per share across last year. However, according to the opinion of industry analysts who have been keeping track of the infrastructure sector, including GMR Infrastructure, sale of some assets by the company in FY13 has enabled the company to breathe easy, thereby facilitating the accumulation of the company’s stocks so as to generate operational cash flows for its future operations. Besides, the company has been generating considerable revenues from its airport and highways projects, despite the fact that availability of gas to provide fire for two of its power plants on India’s eastern coast is still a matter of grave concern for the company.
Divesting its stake in three other highway projects, besides monetizing its holding partly in an operational airport asset are options that the company is considering as reported by senior management officials of the company. Apart from that, the company is planning to raise Rs. 1,500 crore through a public offer for its energy operations, for which talks are in the final stages. All these measures would enable the company to get it act right and surge ahead in all its operations.
