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ICICI Securities Report
Traffic on airports is back, corporate structure has been simplified, a strategic investor has checked in and new terminals are being commissioned – tell-tale signs of improving earnings trajectory and increasing investor interest in airports business.
There was a drastic decline in air traffic during Covid. Now, airports of GMR Airports Infrastructure Ltd. are teeming with activity – growth is back to normal. The simplification of corporate structure has been undertaken in a series of steps:
Hived of non-airports business – it has emerged as a pure-play company in airports,
bringing strategic investor in the listed entity (in the works) and
reducing its corporate debt by selling non-core assets.
It has been roller coaster ride for airports business, but worth its while. Moreover, it is all set to capture the tariff growth by commissioning new terminals at Delhi and Hyderabad.
We expect GMR Airports Infra's Ebitda to grow two times over the next 24 months.
Initiating coverage on the stock with 'Add' rating and SoTP-based target price of Rs 48.
Risks:
Muted traffic growth,
delay in improvement in non-aero revenue and
rise in competition for Delhi airport.
Outlook and valuation
GMR Airports is the largest private airport operator in the country. It owns two out of five busiest airports in India and operates another three resulting in a market share of ~27% (calculated using GMR air traffic with respect to all India air traffic).
The company has taken a series of positive steps to strengthen and reduce the complexity of the business structure. Groupe ADP's presence as a strategic partner may help in leveraging its international relationships and expertise to improve retail and duty free business.
Also, the improving footfall at the airports, a renewed focussed retail strategy and monetisation of the land parcels are likely to yield into higher value for minority shareholders.
It is also looking to increase its stake in non-aero businesses, thus, increasing the value creation for minority shareholders. A similar strategy is also being followed for city side development.
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