Divestment of 30% stake in GMR Energy is part of GMR Group’s effort to deleverage its balance sheet, reduce interest burden and bring about some stability to group’s finances. However, the size of the deal is still relatively small and it may have to make more efforts on the same lines.\u00a0<\/p>\n
The genesis of the current fire fighting efforts lies in its break-neck speed of growth during FY05-10 when its balance sheet size rose by more than ten time from less than Rs 3,000 crore to almost Rs 30,000 crore. This was the period when it also acquired distressed assets from the market hoping to turn it around.\u00a0Clearly, such growth can be managed only if everything goes as per plan, which was not the case.<\/p>\n
From a strategic perspective, major setbacks that the company had to face were sharp increase in prices of gas and drop in availability from KG basin, a low cost source of gas, which made its gas based power plant idle hitting profitability severely. Other factors would be delay in monetisation of land parcels at the airports, delays in road projects and more recently, cancellation of license of Male airport, where, although company may win the case but for now, it is stuck. It may be noted that the company’s finance cost rose from Rs 850 core in FY10 to more than 3,500 crore in FY15, more than four times increase in five years..! In \u00a0comparison, income has barely doubled let alone the profits.<\/p>\n
A professor once said, “There are no solutions in life. Only trade-off..!” GMR’s effort can certainly be classified as part of that trade-off. To the credit of the company, it had been alert to its weakening balance sheet and had been proactive in its efforts to deleverage, refinancing and so on. It may be noted that there are many more companies which undertook a similar strategy in earlier years and are in much worse position now such as going through Strategic Debt Restructuring process. To reduce its debt level, it sold stakes in most of its overseas ventures in Airports, Energy and Mining sectors. Other than that it has also strategically divested its stake in two of highway project in the domestic sector,\u00a0which were not high value deal but reduced a portion of debt obligation and probably also, management’s headache..! And now, it must be debating\u00a0when to go for an\u00a0Initial Public Offering for Energy and Airports verticals, the most desired source of finance.<\/p>\n
While the company has been taking steps to strengthen its balance sheet it\u00a0still has some ongoing projects which would require funds before its starts generating cash and a debt level close to Rs 50,000 crore. There are still many ifs and buts on its way to become a more stable company, although, the worst may probably be over.<\/p>\n
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Divestment of 30% stake in GMR Energy is part of GMR Group’s effort to deleverage its balance sheet, reduce interest burden and bring about some stability to group’s finances. However, the size of the deal is still relatively small and it may have to make more efforts on the same lines.\u00a0<\/p>\n","protected":false},"author":8,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[856],"tags":[100,351,352,449,46,669,724],"class_list":["post-3295","post","type-post","status-publish","format-standard","hentry","category-corporate","tag-airports","tag-gmr","tag-gmr-energy","tag-ipo","tag-power","tag-road","tag-strategy","membership-content","access-restricted"],"yoast_head":"\n