GMR Infrastructure Limited (NSE:GMRINFRA) has been on my radar for a while, and I've been consistently disappointed in its investment thesis. My concerns are mainly around the sustainability of its future growth, the opportunity cost of investing in the stock accounting for the returns I could have gotten in other peers, and its cash-to-debt management. It's crucial to understand if a company has a strong future based on its current operations and financial status.
GMR Infrastructure Limited provides engineering, procurement, and construction (EPC) solutions in India and internationally. Since starting in 1996 in India, the company has now grown to a market cap of ₹96.29b.
With falling revenues (year-on-year growth rate of -10.44%) I decided to dig a bit deeper into whether this was a one-off occurrence. A consensus of IN construction and engineering analysts covering the stock suggests the outlook doesn't look much brighter. According to their forecast, GMRINFRA's revenue level is expected to reduce by -15.88% by 2020. In addition to this, GMRINFRA is currently loss-making, delivering a recent bottom-line of -₹10.83b. With a declining top-line, moving towards positive earnings becomes harder, which is a concerning issue.

Investors tend to get swept up by a company's growth prospects and promises, but a key element to always look at is its financial health in order to minimize the downside risk of investing. Alarm bells rang in my head when I saw GMRINFRA's high level of debt exceeding its total level of equity. Furthermore, its interest payments as a result of this high level of debt, is not adequately covered by EBIT, at below 1x. However, its cash generated from its core activities makes up a reasonable portion of debt (0.21x), which has also been declining over time. There's room for improvement on the debt level front, which could be lowered to a more prudent amount. The current state of GMRINFRA's financial health lowers my conviction around the sustainability of the business going forward. GMRINFRA has high near term liquidity, with short term assets (cash and other liquid assets) amply covering upcoming one-year liabilities. GMRINFRA has managed its cash well at a current level of ₹67.69b. However, more than a fifth of its total assets are physical assets and inventory, which means that in the worst case scenario, such as a downturn or bankruptcy, a significant portion of assets will be hard to liquidate and redistribute back to investors.
GMRINFRA is now trading at ₹15.95 per share. At 6.02 billion shares, that's a ₹96.29b market cap, which is in-line with its peers based on its industry and adjusted for its asset level. Currently, it's trading at a fair value, with a PB ratio of 2.51x vs. the industry average of 1.34x.
A good company is reflected in its financials, and for GMRINFRA, the financials don't look good. This is a fast-fail analysis, which means I won't be spending too much time on the company, given that there is a universe of better investments to further research. For all the charts illustrating this analysis, take a look at the Simply Wall St platform, which is where I've taken my data from.
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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
About NSEI:GMRAIRPORT
Moderate growth potential very low.
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