GMR Airports Limited (GMRAIRPORT) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the GMR Airport Limited conference call to discuss Q1 FY 2027 results. [Operator Instructions] Please note that this conference is being recorded. We have with us today Mr. Saurabh Chawla, Executive Director, Finance and Strategy. Before we begin, I would like to state that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Also, recording or transcribing of this call without prior permission of the management is strictly prohibited. I now hand the conference over to Mr. Saurabh Chawla for opening remarks. Thank you, and over to you, sir.

Thank you, and good morning, everyone. I'm delighted to begin this by sharing a significant milestone in our journey. GMR Airports family has further expanded with the addition of Nagpur Airport and Bhogapuram International Airport to our operating portfolio. We assumed operations of Nagpur Airport on 25th June, while Bhogapuram was inaugurated by the Honorable Prime Minister of India on 1 August and is scheduled to commence commercial operations on 17th of August. Notably, all scheduled commercial passenger operations currently handled at existing Visakhapatnam Airport will transition to Bhogapuram, creating a new aviation gateway for North Andhra Pradesh. Bhogapuram is particularly special for us. completing a greenfield airport of the scale ahead of schedule reflects the strength of our execution capabilities, deep operational expertise and the commitment of our teams. While the sector is navigating through the challenges arising from the geopolitical developments in the Middle East as well as in Ukraine and Russia, we continue to believe that the long-term fundamentals of air travel remain exceptionally strong. The International Air Transport Association, IATA, projects Asia Pacific passenger traffic to increase from approximately 1.7 billion passengers in 2024 to 4.1 billion passengers by 2044, with India expected to remain 1 of the most important contributors to this growth. Importantly, the vision of transforming India into a global aviation hub is no longer a future aspiration. It has already begun to take shape. On the Aviation business perspective, Air India has launched its hub and spoke strategy with Delhi Airport as country's first operational hub, enabling passengers from cities such as Varanasi and Amritsar to complete check-in and immigration formalities at their origin airport and seamlessly connect to international destinations through Delhi. In fact, the Delhi state government's decision to reduce VAT on ATF from 25% to 7% with effect from 16th May is proving a level playing field for Delhi Airport aiding the Envision hub strategy. At the same time, Indian carriers are entering a new phase of international expansion with Air India set to restore most of its international services from September 1, while IndiGo and other airlines are expanding the international operations and fleet size. These developments are creating a powerful multiplier effect for airport operators, particularly the hub airports, as growth extends beyond passenger volumes into the non-aeronautical revenue streams and commercial land development. On that note, let me now delve into our quarter 1 performance. Momentum in total income continued with quarter 1 at INR 40.8 billion, up 23% year-on-year. More than 50% of this income came from non-euro businesses and about 1/3 also came from the Aero revenue. EBITDA for the quarter grew 22% year-on-year to INR 15.7 billion. PAT for the quarter came at INR 1.5 billion versus a loss of INR 1.4 billion in quarter 1 of fiscal '26. Reported quarterly PAT has remained positive for the fourth consecutive quarter. Consolidated net debt, excluding FCCBs of INR 28.9 billion, which are deep in the money, remain unchanged versus last quarter at INR 340 billion. Combined net debt of Delhi and Hyderabad decreased by INR 5.9 billion offset by the increase of INR 3.1 billion at Bhogapuram and INR 2.9 billion at GAL stand-alone. On the operational front, traffic at GAL operated airports rose 1% year-on-year in quarter 1 fiscal '27 reaching 30.5 million passengers. This excludes the traffic at Cebu sale. On a quarterly basis, India's international traffic share handled by gas-operated airports was highest in past 4 years. However, as we have been alluding to in the recent past, we expect traffic to remain soft in the first half of fiscal '27 and recover only in the second half of fiscal '27. And this I would also like to highlight that we have some seasonality on a quarterly basis. Hyderabad has been impacted by the ongoing station geopolitical instability, exposure to migraine gulf fruits and rising airfares, while on domestic front, impact is due to the route rationalization by certain airlines. We see some green shoots emerging as Air India plans to restore more suspended domestic and international flights from September onwards after cutting up to 15% capacity during June to August. Total income at Delhi Airport rose 17% year-on-year to INR 20.7 billion. Aero revenues rose 24% year-on-year, and non-aero revenues increased 13% year-on-year. EBITDA for quarter 1 was up 11% year-on-year to INR 7 billion. With this, the airport has reported profit of INR 0.7 billion for Q1 fiscal '27, making it the fifth consecutive quarter of positive PAT. At Hyderabad, total income for quarter 1 was INR 6.3 billion, almost unchanged year-on-year, while Aero revenues fell 7% year-on-year. Non-aero revenues increased by 12% year-on-year. EBITDA for quarter 1 is almost unchanged year-on-year at INR 3.9 billion. PAT for the quarter was INR 847 million, up 35% year-on-year. Mopa or Goa Airport reported a total income of INR 1.3 billion in a up 23% year-on-year. Aero revenue increased 31% year-on-year as tariffs reverted to normal post discontinuation of special incentive plan. Non-aero revenues increased by 8% year-on-year. Notable achievements during the quarter are combined aero yield per pax, or YPP in quarter 1 fiscal '27 was INR 445 for Delhi, Hyderabad and Mopa. And non-aero income per pax or IPP was INR 691. This includes the revenues from non-aero businesses adjusted for revenue share paid 2 airports and non-aero revenues reported by Delhi, Hyderabad and Mopa, Goa airports. To clarify, MRO and Hyderabad hotels are not part of the above IPP number. Non-Aero and aero performance improved sequentially despite muted traffic. Coming to our non-aero adjacency business. Duty-free revenue at Delhi and Hyderabad was stable versus quarter 4 despite softness in international traffic. At both airports, Duty Free achieved highest monthly spend per passenger in June '26. At Hyderabad, the new larger duty-free store is ready, expanding the store size from 400 square meters to 1,300 square meters, that will enable us to introduce new categories and products. GAL will participate in bids for non-aero adjacency businesses that are repaid by airports as and when the respective concessions at the airports end. Construction multiple airport land development projects is underway. Details of which are available in the results presentation. Fiscal '27, we'll see the handover off DIAL's first self-development commercial building at Delhi Hero City where the pre-leasing discussions are already underway. At Mopa or Goa, sublicense agreements were signed for a retail interchange, Mice Hotel as well as a K-12 Day School, while at Bhogapuram, the hotel under the Vivanta brand is in final stages of construction. CARA upgraded the credit rating of CAL to CARA positive stable from INR 15 billion NCBs as well as long-term bank facilities. And for CARE 1+ from K1 for short-term business facilities. MRO business signed an agreement with Honeywell Aerospace for maintenance, repair and overhaul of 7 Honeywell aerospace line replacement units installed on LEAP engines powering Airbus 320neos and Boeing 737 MAX. In line with our responsibility as a leading airport infrastructure company, sustainability remains deeply embedded in the way we design, build and operate our assets. Across our portfolio, we continue to focus on decarbonization, renewable energy adoption, water stewardship, waste management, operational efficiency and community development. The ESG achievements highlighted in our investor presentation reflect our commitment to responsible growth while maintaining the highest standards of governance, safety and operational excellence. As we expand our footprint, sustainability will continue to remain a core pillar of our strategy and a key enabler of long-term value creation. In closing, GMR Airports today is very different from what it used to be a few years ago. We have evolved from being primarily an airport operator into an integrated airport infrastructure platform with growing exposure to commercial development, retail, duty-free, cargo, MRO and hospitality and the airport linked urban ecosystems. As these businesses continue to scale, we expect an increasingly diversified and resilient earnings profile that will complement our core airport operations and strengthen long-term value creation for all stakeholders. The presentation with all financial numbers is already available with you. If not, you can download it from our IR section of our website. We are available to respond to your questions on this call and offline after the call. I would like to open the forum for queries that can -- that will be addressed by my colleagues from corporate and business teams. Thank you so much.

[Operator Instructions] We take the first question from the line of Prateek Kumar from Jefferies.

Firstly, on Hyderabad airport traffic to be extremely weak in recent quarters, could you highlight any initiatives specifically if you might be taking to revive traffic related to some loss of tracked to competing airports? And what should be our growth expectation for this airport for FY '27-'28 in this current environment?

As far as the Hyderabad airport is concerned, I think the new rules are also being now opened for the international. As far as the domestic is concerned, efforts are being made to provide some incentives to the airlines. As it is, we have not lost the traffic to any competing airports, it is all India phenomena expect Delhi, which has got growth. So the traffic, what we are expecting in '26, '27 is more or less of the last year, traffic about $30.5 million to $31 million.

Prateek, again, I want to highlight over here is that while TSs a component Hyderabad a bulk of our traffic, but as we have now made this into a platform, there are multiple streams of revenue that flow into our consolidated results. So in the -- in our May call, we had already highlighted that there will be a soft first half based on the airlines inputs as they rationalize their routes. And now as we speak right now, we are giving you a much more robust outlook for the second half of this year, given, again, the inputs that we have from the airlines as they come back with an expanded capacity.

Sure. My other question is on the new aero tariff framework, which has been talked about. Would you update on Ara's thinking around the proposed shift lavage airport should be allowed to recover a charge only after completion of underlying. This could mean for your tariff expectations which you talked about of increasing versus prior period for the next center.

Are you referring to the incremental IRR concept of RERA or which 1 you are referring?

Yes, incremental. So last quarter, we guided for like at Hyderabad will be higher versus a comp period. So what is our expectation now in new framework? I know it's still in discussion in seating. But how should we think for modeling to?

Modeling purposes, the conceptually, it is actually 1 and the same. There is not much difference between earlier concept and a new concept. What the regulator was mentioning is that the increased tariff will be provided once the asset is put to use construction is completed. However, the good thing is in the consultation paper of Hyderabad, we can also see, has already acknowledged that INR 13,800 crores is being spent by Hyderabad Airport. And accordingly, the tariffs also will go up soon after the construction is completed. That is what is the recommendation. However, we have already made a request to be regulated that the moment to provide the increase in tariff after put to use, then there will be a sudden spike in the tariffs. So to equalize it toward a period of time, we have still suggested the regulator that the current methodology should be continued, and the airlines are also expressed this more or less the same view, though they did not say specifically because they also do not want any spikes suddenly. In case of Hyderabad, for example, September '29, when the construction completes, the current tariff, which has proposed INR 485 will become almost INR 900, but that is not advisable for the airlines or the airports. So we have suggested the regulator. Our regulator has actually requested us to come back with a revised formula. So more or less, we will be sticking on to the existing methodology only. We have to still wait and see how the regulatory is going to respond.

Okay. And a question on other airports. So like Bhogapuram airport based on the current tariffs, which came recently, what is the implied by PP and how does this compare versus your expectation of airport and operation scale up?

The Bhogapuram airport the to tariff is basically regulator provides around 60% to 75% of the actual tariff only. So he has given us the average yield of around INR 200 as ADHOC, our expectation should be in the range of between INR 1,800 to INR 2,000 per pax.

Regulator has given INR 200 versus expectations about INR 1,800.

No, no, 1,200 is the tariff. And normally, a regulator provides around between 60% to 75% of the actual tariff only they give as a home. They don't give nearer to the study. So our tariff expectation between INR 1,700 crore to INR 1,900 yield per pax. Final tariff.

Okay. Lastly, on Nagpur Airport, could you share FY '26 revenue, EBITDA for the airport?

FY '26 -- no, because the last year, they have closed -- it was operated by MIL. They have closed with around INR 140 crores of the revenue and EBITDA about INR 40 crores to INR 45 crores, if I'm correct, because they don't have any interest or they don't have anything else. I think they have posted a PAT around INR 30 crores, INR 35 crores.

And we will start seeing 15% revenue share -- or sorry, 18% an share on this INR 140 crore number coming up and that will impact EBITDA. How should we think of EBITDA in FY '27?

No. We continue to pay 14.9% of the revenue share. That is as per the concession agreement. And we have already started because in June, we have already started July. And EBITDA -- their EBITDA and our EBITDA is not comparable because the way they operate non-aero revenue under the areas are very, very premature, whereas we are going to totally ramp up the entire terminal as well as non-aero areas. So we are expecting that our EBITDA and profit should be much better.

We take the next question from the line of Nathan Gee from Bank of America.

Maybe 2 questions from me. Firstly, just in terms of Delhi, are you able to talk about 1Q costs. I think they were up about 19% year-on-year. the drivers of that? And is that a good run rate for the next few quarters? So that's the first question. Second question is just in terms of short-term traffic. Anything you can say around the July traffic trends? And so it is June a good image for how July is trending?

In case of the Delhi, in the first quarter, the expenses have gone up on 2 fronts. One is being the summer there is reflect charges have gone up by about INR 17 crores, INR 18 crores. The second 1 is airport operator fees payable on the previous year turnover. So the previous turnover is more than INR 7,800 crores on the year-end basis. That's why there is an extra provision towards the airport operator fee in the first quarter. These are the 2 major. And small repair and maintenance, about INR 10 crore extra has come up during this quarter. And it will be moderated over a period of the next 3 quarters.

We take the next question from the line of Karthik Chellappa from Indus Capital.

Sir, 2 questions from my side. The first is, as far as our stand-alone debt is concerned, I know you had highlighted in the past that this is likely to go up and it's more opportunistic because you are preparing to bid for various projects. At what point do you think the stand-alone debt is likely to peak?

Currently, the stand-alone debt is standing around INR 7,400 crores. As of today, we have like grow another INR 200 crores only to rise as per the bondholders covenant is concerned. For the time being, we are not planning to raise any additional debt for it because we don't have any further requirement of investment. Nagpur, we have already done some investment. And as far as other projects are all concerned, we have already made investments. So right now, we are not planning for any additional debt. As there's no opportunity right now. We don't have an opportunity right now. So that's why I think the debt is peaking at about INR 7,400 crores and shall remain at this. If there is any opportunity, which requires us to raise capital, then, of course, we will raise it. And along with that, there will be, of course, EBITDA contribution that will come against that -- any GAAP debt raise that we do. So at this stage, I think from your modeling perspective, I assume that it is about INR 7,400 crores.

And so what will be the average cost of this date, sir?

No. Average cost of debt as of today is around 11%, 11.5% maximum. And another INR 1,500 crores is coming up. I mean it is completing the makeover period. We are now targeting below 10% of cost for refinancing of INR 1,500 crores. So our intention is the entire debt cost should come below 10% over the next 12 months period.

And I just also want to clarify that the 7,400 crore is the gross debt number. the net debt number is about INR 6,400 crore, INR 6,500 -- so because it has cash also sitting on its books. So I think from a tracking perspective, look at the net debt number start.

This is useful. The reason I ask is, if I look at our first quarter interest liability on GaN stand-alone, which is look about INR 290 crores, if I just annualize it, let's say, about INR 1,200 crores or so. And if I take that on the gross debt amount, the interest cost simply comes to a much higher number than 11% to 11.5%. So I'm just trying to see how to reconcile that?

I think this includes the finance cost includes the FCCB interest also.

You need to exclude the FCCB interest.

Okay. So the balance in recipe of CCD interest to just see that FCCB.

You should take it as equity because it's deep into money. The strike price is INR 43, 40. But because of the accounting standards, we need to recognize the interest on an accrual basis over there.

My second question, sir, is if you look at Hyderabad the traffic pressure, you already explained in your opening remarks. And if you look at the non-aero revenue growth, that has been very, very healthy. In fact, on a per tax basis, it is also up double digits, which are very, very commendable given the current circumstances. But despite that, the absolute EBITDA didn't grow for Hyderabad. Apart from the non-aero revenue decline and the traffic pressure, are there any other nuances which also resulted in the EBITDA not grow? Or is it just purely traffic and aero revenue decline driven?

It is more or less purely on aero income. And as far as non-aero income is actually compensated the loss of revenue under euro income, if you look at the comparison of even Q4 to Q1 are given over Q1.

Okay. And we said that the traffic improvement we expect in second half '27, but for the full year, Hyderabad value traffic volume growth will more or less be flat year-on-year, if I heard that correctly.

Yes. Yes, you heard that correctly. It will remain flat as it was last year. And that is the only, honestly speaking, the soft part of our portfolio, if you were to compare with fiscal '25. Delhi has -- is showing good growth. And hopefully, I think the second half will catch up for Hyderabad. But on an overall annual basis, it will be flat.

We take the next question from the line of Aditya Mongia from Kotak Institutional Equities.

That being said, a few questions from my side. The first question that I had was just on, let's say, the loans that have been given from GAL to outside entities. I think it's a relevant number at about INR 2,000-odd crores, if I'm not wrong. Since we have only as much of railway remaining to invest from a rotate perspective, you've said any thought process of getting this money back and then what other times are the same.

So Aditya, let me just give you a background. GAL never gave specific loans to its associate entity, which is GP while. This is part of the demerger process that happened a few years back. So in the demerger process, as per the tax laws, you have to identify the end use of the debt that is raised of the merged entity. And as per that end use, you have to then allocate it to the 2 demerged entities. So this is the history behind this current debt, which is there in GAL's books. Second thing is GAL has already received last year to receive about INR 800 crores, INR 850-odd crores from GP while, and this year also, it is expected to receive another INR 1,000-odd crores. So there is a plan that is in place, which was agreed at the time of the demerger that over a period of 4 to 5 years, GP Oil will continue to pay off its debt to GAL. So it is continuing as per the plan. And we expect that over the next 3-odd years, the total money of about INR 2,500 crores plus the interest will be received from GPL to gas. That's the broad construct.

Understood. Just a trite question, from a dividend perspective, this is obviously an inflow coming in. But then there will also be certain covenants wherein the debt number that to, first of all, we pay down, I'm not sure. So just trying to get a sense of is there a certain debt number we ship to 40 before you start thinking of dividend?

So honestly, I think the first step is to have from a GAL perspective, the requisite free cash coming from at least 3 streams of business. One is Hyderabad, which is already giving dividends. Two is robust growth of our non-aero business, which is already happening, and you can see it. And the third is also dividends to start flowing from Delhi Airport. And we expect dividends to start coming from Delhi Airport in next 2 years as Delhi Airport's own stand-alone balance sheet becomes positive. It's already started to generate free cash. And hence, in 2 years' time, it should be ready to start giving dividends to Gal it's 74% shareholder. So that is the plan right now. Covenants are not there. The covenants are basically our own. Our own covenants are that we need to keep our net debt-to-EBITDA at a reasonable level. We are very comfortable for a growth company like ours, which is very capital intensive in nature to have a net debt-to-EBITDA multiple of about 4% to 4.5%. And we will achieve that much ahead of the time period when dividends are expected to be declared. That's how we are moving forward.

Understood. Just see clarifications from back in the. When GAL is increasing the debt numbers, see, I can see a stand-alone level now making the PAT, that is positive even if I don't assume dividends, which is commendable in is. But still, GAL is borrowing more and more. So is this -- where is this money kind of going in right now?

There is no borrowing -- where is the boring more and more Well, which year are you looking?

So Galsandone has added INR 300 crores, right, to net debt Q-on-Q. And that's where the question is happening.

We have not added any debt what number are you looking at it?

Comment basically because we are reporting the net debt, there is a reduction of cash and hence, you are looking at the net debt number slightly moving up is the reduction of debt. The cash, which was available in our books as of year-end.

As the question is where is the cash going? Is it going into your upcoming airports or is there another 100.

One, there are no upcoming airports...

No, the cash has come down because we've made it 2 investments. One is that since Nagpur Airport has been taken over as per the concession agreement, you had to make a minimum investment of INR 168 crores. That investment has been done. And the second 1 is we have also made investment in the GCL GM cargo logistics company, about INR 100 crores. So these all the investments have been made out of the cash available, but debt has not gone up.

Understood. Sir, last and final question. On the non-aero has 2 parts, Goa has aero and non-aero, tax is a very different number this quarter. So if you can explain that. And secondly, we would have anticipated that the non-aftertax, start showing good growth trends, which are maybe not visible. So if you go to the last 2 quarters, I'll take your views on.

Actually, another thing is in continuing the CAR, we have also made investment of INR 250 crore in cargo business as a deposit, we are going to time that also depleted our cash in GAL. So there are 3 investments we made. And coming to the Goa since we have withdrawn all the infinities given to the airlines, that is the reason why even the traffic has come down, the aero revenues have gone up. That is the reason. So I think Saurabh has already explained during his in opening remarks that we have withdrawn all the incidents, which we have given to the airlines, which was about almost INR 170 crores last year. And because of that, despite the fact traffic has come down, the revenues have gone up.

Any comments on non-aero, Goa, how do this increment you since the numbers are still kind of flattish not improving?

So non-aero, if you would have seen both SPP and IPP have gone up -- in fact, SPP has gone up by almost 24% pure-play non-ecommercial SPP. And this was primarily driven by the new liquor retail store, which got opened last year after June. But as we have been communicating consistently, we look at on a more sustained basis about 7% to 8% kind of SPP growth on a very sustained basis. And overall, nonaero income going up by about 14% to 15%, depending upon the traffic growth over 7% to 8%. That's the, I would say, a more long-term. Consistent number, I would say.

Aditya, basically, the -- if you look at it, the revenues of non-aero have come down in the first quarter, mainly because the traffic has come down. The traffic in the 1.9 million to $1.2 million, it has come down. That impact is there on non-aero income, whereas Aero income has gone up because we have water on all the incentives. And as Rajesh said, that there is spend per passenger, income per passenger actually have gone up in case of Goa.