The 62% jump in consolidated revenue to Rs. 744.6 crore did not translate into better profit
The December quarter earnings of GVK Power and Infrastructure Ltd (GVKPIL) were disappointing. The company posted a net loss of Rs. 14.5 crore compared with a net profit of Rs. 43.9 crore a year ago, which was also the expectation on the Street for the quarter.
The 62% year-on-year jump in consolidated revenue to Rs. 744.6 crore did not translate into better profit. That was because the earnings were struck by an 82% jump in interest costs from three months ago, and about 122% higher from the year before. The hefty Rs. 143.6 crore interest expense almost obliterated the Rs. 152.4 crore profit before interest and tax.
According to an Edelweiss Securities Ltd report, the company had borrowed around Rs. 2,400 crore at an average interest rate of 13.5% to fund its stake increase in both Mumbai and Bangalore airports during the quarter. With this, GVKPIL holds 50.5% and 43%, respectively, in the two assets. The two prime airports will certainly benefit from increasing business and tourist travel, but the interest overhang will continue to hit profit.
Meanwhile, there’s no solace on the power front either. Subdued power generation on account of the paucity of gas at three units has led to a lower plant load factor compared with both the year-ago period and the September quarter.
Operating margin for the segment was nearly 300 basis points down from the September quarter. One basis point is one-hundredth of a percentage point.
The outlook hinges on improved gas supply, which has been a serious issue for several quarters now. Meanwhile, there have been cost escalations on GVKPIL’s hydropower projects expected to be commissioned in the coming fiscal, points out an ICICI Securities Ltd note.
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