GMR Airports Limited (GMRAIRPORT) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q4 and FY '22 Earnings Conference Call of GMR Infrastructure Limited. [Operator Instructions] Please note that this conference is being recorded. We have with us today, Mr. Saurabh Chawla, Executive Director of Finance and Strategy; and other senior management from the business. 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 his opening remarks. Thank you. And over to you, sir.

Thank you. Good afternoon, ladies and gentlemen. Thank you all for joining our fourth quarter fiscal year '22 earnings call of GMR Infrastructure. I hope all of you are doing safe and are keeping well. To begin with, I would like to just make a short comment on our economy. It's been recovering quite smartly, especially after the post third COVID wave. During Q4 FY '22, the economy displayed stability despite global headwinds arising from geopolitical tensions and interest rate hikes in the U.S. India's GDP growth rate for fiscal year '22 is expected at 8.6% compared to a contraction of 7.3% in fiscal year '21. Going forward, according to IMF estimates, India's nominal GDP is expected to cross [ 5 trillion ] by fiscal year '29. And as you are fully aware, growth in GDP implies a multiplier effect on the aviation industry like ours. Coming to our performance for fiscal year '22, GMR Infra's net revenue increased by 37% year-on-year to INR 4,377 crores, while EBITDA increased by 167% year-on-year to INR 2,103 crores in fiscal year '22, mainly driven by traffic improvements in our Indian operational airports. Net loss after tax has also reduced from INR 1,243 crores in fiscal year '21 to INR 752 crores in fiscal year '22. I would like to highlight the following key points with respect to our airport business. Firstly, on the Nagpur Airport, the Supreme Court of India has upheld the judgment of the Nagpur bench of the Mumbai High Court, which had previously quashed and set aside the letter issued by Medan, [ annealing ] the bidding process for the Nagpur airport. Accordingly, the authorities are expected to execute the concession agreement at the earliest for Nagpur Airport with GMR. Secondly, as culmination of process, Hyderabad Airport has received a letter of confirmation from Ministry of Civil Aviation, extending the term of the concession agreement for a further period of 30 years, that is from March 23, 2038 to March 22, 2058. Thirdly, we have made significant progress on our capex programs related to expansion. Delhi, Hyderabad, and Goa airports have achieved 61%, 73% and 72% completion as of March 31, '22. As you know, Goa Airport is expected to be inaugurated during August 22, while Delhi and Hyderabad is targeted for completion in September '23 and December '22. In Crete Airport, approximately 11% financial progress has been achieved with the completion of [ 76 ] earthworks in the airport area and 30% earthworks in the access roads as of March 31. We are on track to the completion target of [indiscernible] airports. Fourthly, the traffic has recovered rapidly, especially the domestic traffic post third COVID wave, which India -- in December of 2021. Domestic traffic at our Indian airports has already reached near to full recovery, while international traffic is fast catching up [indiscernible] daily average passengers in the Delhi Airport [indiscernible] have reached 65% and 74% during the week ended May 8, '22, respectively. Cargo traffic remained resilient and is unfaced by the multiple COVID waves. In our international airport business, Cebu is in a recovery phase. Its domestic daily tax is now almost 50% of pre COVID level, while international is at a nascent 7% as of April '22. Overall connectivity in our Indian airports have also increased. In Devil Airport, 77 domestic destinations are now connected as against a pre COVID level of 72%. On the international front, 49 destinations are connected as against pre COVID level of 78%, which will significantly increase as already indicated that the scheduled International operations have just begun from May 27th. In Hyderabad, 70 domestic destinations are now connected as against a pre COVID level of 55. And on the international side, 16 destinations now connected, which is equaling to the pre COVID time. At our Delhi Airport, as an interim arrangement, we and the Airport Authority of India have entered into a settlement agreement for the payment of the monthly annual fee with effect from April '22, prospectively. On our new airport wins, Medan Airport, that is Medan Airport in Indonesia, the team mobilization and preparations have begun to ensure that the SPV starts operating the airport by beginning of Q2 of fiscal year '20. Going forward, traffic recovery, we expect that a traffic recovery will gain further momentum, mainly driven by the start of the scheduled international operations. Significant population in various countries are fully vaccinated. For example, India is 64%, U.S., about 66%, U.K.-74%, Canada, 83%. And globally if we look at it, it's about 61%. Countries have also started administering booster doses, which will further boost passenger confidence to travel. Fleet addition by major Indian airlines and the takeover of Air India by the Tata's, entry of new airlines such as Akasa, including restart of jetways is further likely to boost traffic. In our view, possibly the fourth wave impact may be limited as economic and air traffic recovery post second and third waves have been quite rapid. On the ESG front, sustainability has always been an integral part of GMR's corporate costs and the business strategy. It is our strong belief that economic growth and resource conservation are complementary goals to support sustainable development. We at GMR have adopted strategies and methods to reduce adverse impacts on environment from our operations. Some of our operations are carbon neutral and we monitor our activities carefully to analyze and further reduce the emissions. The presentation with all financial numbers are already available with you. If not, you can download them from our IR section of our website. We are available to respond to your questions on this call and off-line post the call. Now I would like to open the forum, where my colleagues from the corporate side and the businesses can answer your queries. Thank you so much.

[Operator Instructions] The first question is from the line of Mohit Kumar from DAM Capital Advisors.

Congratulations on getting the concession for Nagpur Airport back. My first question is given that the world is getting normal and how do you see the pace of monetization of the balance of [ land ], especially in Delhi and Hyderabad?

So honestly speaking, which we have highlighted in many of our previous calls also, at this stage we are not looking at further monetization of land NAND. There was an option that had happened in which RT had won for a potential development of 10 million square feet in 2 parts, 5 million first and the second 5 million. We will wait for that development to take off before looking at any further monetization. But as a strategy going forward, honestly, our focus is now going to shift from monetization of land to self-development, build offices and commercial properties for build-to-suit customers. That would be our focus going forward. There could be some intermittent land parcels to be monetized, but that is not an ongoing long-term strategy as far as Delhi Airport is concerned. It's pretty much similar in Hyderabad, although in Hyderabad we have a few land parcels that have been now contracted to be delivered to third parties. These are in the area of education. They are also in residential, basically the cohabitation functions which are there in Hyderabad. Also long-term leasing of our SEZ lands for industrial development. So Hyderabad, of course, will follow a mixed use. But again, the broader strategy also would be still as we go forward, enter into the arena of self-development, which after development we can monetize those assets and then get the requisite margins on those developments, which to date we are missing in our business.

Understood, sir. Secondly, sir, on the revenue share. So if I'm correct, I believe that the -- we'll start sharing the revenue from April 1, 2022. Is my understanding correct?

That's correct, correct.

So lastly, have you filed a petition for Goa? And when do you expect clarity on the tariff order? And how will we charge in the interim once the operation starts?

Goa, we have discussed with the regulator. So we have already filed an application for the total tariff and also for the interim tariffs. Since for the total tariff, the regulator says that it will take more time, about 9 to 10 months, he has advised us to file for interim tariff valid from the date of commissioning of the airport till March 2023. So that has also been filed with them. So we are expecting that the tariff will be in place by the time we start the operations in September.

[Operator Instructions] The next question is from the line of Subhadip Mitra from JM Financials.

Two questions from my side. To begin with, I think the auditor's report talked about some qualifications, if you can help us with some color on the same? And secondly, on the EBITDA for fourth quarter, whether it's on consolidated or whether for Delhi, Hyderabad individually, we've seen a decline Y-o-Y and Q-o-Q? Any particular reason for that?

Yes, the auditor qualification is mainly related to the comparative period because in comparative period the discontinued operations are coming for the non-airport business. So the auditor qualification is related to the comparative period were not restated for the qualifications. So overall based on financial because there is no impact in the current period.

Understood. So these are largely for the discontinued operations and that for the previous year, am I right?

Yes. So these are largely for the discontinued operations except one, which is for the [indiscernible] so there is no financial impact for the same because that qualification was corrected in the March '21 study.

Understood. Okay. And on the second question on the EBITDA, if you could please help.

As far as the DIAL EBITDA is concerned, it has come down on a year-on-year comparison, FY '21, last quarter, we have accounted the [indiscernible] basis. Subsequently, since as per the agreement, revised agreement with Bharti, we have taken over 2.72 million square foot, and balance 2.16 million square foot they will be taking over only in April 23. It has been reversed. So that is the impact. The amount accounted for in FY '21 last quarter is very high amount on entire 4.9 million, whereas now it is accounted for 2.78 million.

So sir, what is the quantum that has got reversed?

The total reversal as far as the Bharti is concerned as an exceptional item is about INR 325 crores has been reversed.

Okay. And anything on Hyderabad specifically?

There's not much difference in Hyderabad. Hyderabad year-on-year comparison -- so the EBITDA has moved INR 104 crores to INR 87 crores. It is basically some operational expenditure has been accounted for in the last quarter.

Okay. There are no one-offs over there?

Nothing, nothing. So just to add on this, as the airports come back to normalcy and start looking at actually now growth from where when COVID hit, there will be some mobilization of people, which will start getting accounted for. So that is where a little bit of additional expense that has happened. But nothing more than that.

[Operator Instructions] The next question is from the line of Apoorva Bahadur from Investec.

Sir, I wanted to know, I think in the last quarter you had guided basically [indiscernible].

Sorry to interrupt you, Mr. Bahadur, may I request you to come closer to the phone, your audio is quite low.

I hope it's better now.

Thank you.

Sir, I wanted to know on the debt refinancing for contingent liabilities. I think we were looking to refinance part of the non-airport business debt. So that's the contingent liabilities, which have been moved to the airport business out of [indiscernible]. So any update on that, sir?

Yes. So there are 3 main contingent liabilities which are continuing on the books of GIL versus the -- what they have given to GPUIL. The first one is related to the acquisition financing that was done many years back for acquiring the 30% stake in PT GEMS. That acquisition financing was to the tune of almost $500 million. Today, the outstanding is about $165 million. And as you may be aware, coal prices have shot up over the last almost 9 to 12 months. And recently, of course, they have been hovering around $100 a tonne. So with an expanded capacity of almost 35 million, 36 million tonnes on an annual basis and a coal price of almost $100 a tonne, this business is throwing exceptional amounts of cash for the shareholders. So as we speak right now, theoretically, as we speak right now, this $165 million of outstanding will come down to 0 in a very short period of time within this fiscal year. Having said that, GPUIL is currently in the process of refinancing this $165 million. And the term sheet that GPUIL has signed with respect to that refinancing and with just no corporate guarantee from GIL. So I've given the 2 indications. One, the cash flow itself is very robust to bring it down to 0 within the current fiscal year. And the second one is that it is in the process of refinancing. The second asset under which there was a guarantee that was with respect to Bajoli Holi. The Bajoli has now achieved completion as of end of March of '22. So the guarantee that was given, that falls off and what will be continuing over there is just a comfort letter as a sponsor. But as we go forward, as the asset becomes stable because there is a phase wise in which these runoff river projects are energized, we will be refinancing the debt at Bajoli, and that should also within this -- by end of this fiscal year, that guarantee also should get removed from -- or comfort letter actually should get removed. It's not even guarantee, it's a comfort letter, which would get removed from the books of GIL. The third one is related to the restructuring that was done at Rajahmundry, which is the gas plant. And for that restructuring, GIL had given a guarantee. As we speak right now, gas is still not available, but there is a stay which is there in place in the ports of -- against banks to take any action on this because it was the responsibility of the state to provide the gas, which they have not been able to provide. Having said that, we are again in the process of disposing of that asset. We should be working towards selling that asset over the next few quarters. And we are getting good inquiries, especially from buyers out of Africa. So we may sell that asset by end of this fiscal year or early next fiscal year and remove that guarantee also. So general guidance to you is that at least 2 out of the 3 guarantees will automatically get removed upon the consummation of their transactions. And the third, which is the Rajahmundry 1, we do expect it to get completed, but it may flow into the next fiscal year. That's the broad guidance to you.

Okay. Very useful, sir. Sir, on this Rajahmundry, the inquiries that you're getting, is the consideration adequate to pay off the entire debt? Or will we have to take some haircut over there?

Well, I would be able to guide you better once we have something firm on the table. But so far it is a combination of equipment sale and land monetization. The land over there has now become more of an urban land and hence there is a much better value associated on that. So it is a combination of equipment, which is, as you may be aware, it's a plant which is mothballed, and it's a very -- it's a GE plant, which has not been operated and hence almost as good as new. So that is something it will be a combination of both. And we believe that we should be able to get the full value of the -- to satisfy the lenders over there.

Okay. Sir, you also highlighted that on land development side we will be entering into, focusing more on self-development. Have you earmarked any capex for this? Any specific amount? How much will we be spending and over what time frame?

We are proposing over a period of next 3, 4 years will be around INR 400 crores to INR 500 crores. As of today, we are just concentrating on completing the expansion. So it will be a small amount of maybe INR 50 crores to INR 100 crores only will spend in the next 1 or 2 years.

So for self-development, honestly, really requires actually construction finance. You're not putting much of your equity, cash equity into it. So not much will be allocated on these self-developments and it's just a beginning of a particular process as we speak.

Okay. Sir, also any update from KIA on the FCCB conversion for the airport business, basically any strike price that has been determined yet?

Well, we are in conversation with KIA. And as you are aware, they have been very supportive of our efforts to create a pure airport platform and also spin out the non-airport businesses. They have, honestly speaking, benefited in value creation because prior to the demerger last year similar time, the stock price was about INR 22, INR 23. Today, it's at about INR 35, INR 36, has seen a high of more than INR 40. So they have benefited in that where they have facilitated this value creation. As and when we culminate our conversation, obviously we will inform the markets as to where they go. But between GIL and GPUIL, the allocation for GIL is about $25 million and for GPUIL it is about $275 million.

Right, sir. Sir, last question from my side and that is, I believe we were due to receive some EBITDA base payout from ADP this year based on the performance of the airport business. So I wanted to know if we have received the amount and what quantum?

We have not yet. The process is a little different. It doesn't happen instantly as soon as the fiscal year ends. So we'll have to wait till this audited numbers go out. And then the process of validation and verification and the understanding as for the shareholder agreement will be entered into. So it's not like an instant take or pay kind of a transaction. So it will happen within the first 6 months. Also just to highlight that -- last year we had the issue of the minimum payment to airport authority. So that is still pending. So as and when that gets also addressed, then we will take it forward because the quantum gets determined based on all matters being settled.

Okay. So unless that AI due issue is settled, which is in the court, we will not receive the EBITDA-based payout. And sir, if the -- and hopefully the issue is settled in our favor, what would be the quantum which you will receive this year for the EBITDA-based payout?

We have almost achieved EBITDA, which is the requirement is about INR 2,250 crores. We have almost touched around INR 2,200 crores, right. So which were able to get more than INR 300 crores.

The next question is from the line of Aditya Mongia from Kotak Securities.

The first question that I had was related to the trends in non-aero revenues per pax that you've highlighted in your presentation, which suggests some meaningful improvement versus takeover times for both the airports. Could you give us some sense as to the reasons why this improvement is happening and whether this is sticky or transient?

So basically, the spender pax has substantially gone up in case of the duty-free where there is a huge sales are taking place. And also the advertisement has come back in a very good number, and the cargo has thrown a very good results. So these have actually enhanced our non-aero revenues.

So again, [ GRK Babu ] has highlighted, I would just like to articulate our strategy. Our focus on the non-aero is very sharp, whilst as macros improve, the number of travelers will improve as disposable incomes go up. People will move away from railways and start to travel. It's -- everybody has seen what has happened once the per capita income goes above $2,500. So all that will happen. But from our side, our key focus would be as management over here, what all can I do to offer our customers more brands so that they can shop in our airports rather than get cannibalized by airports, especially the hubs of the Middle East or Far East. So that is our focus, and it's good to see that as we increase the brands, as we increase the visibility of these brands at our airport, the spends have started to go up. just to anecdotally tell you that there was a time when we used to only offer Red Label and Black Label whiskeys, but now the whole fare is there, and everybody wants to buy. And on a product price basis, actually we are more competitive than even Dubai. It's a notion in people's mind that Dubai would be cheaper. Actually, we are cheaper than Dubai in many, many products. So that would be the focus. Second is also how the traffic is moving. So previously there were a lot of focus of the policy makers was to -- which encourage actually hub travel. So a lot of the travel got -- demand got cannibalized by Middle East especially. Now with the direct flights going into North America and obviously, Europe, we have direct flights, but also now direct flights into Australia. We see a lot of shopping happening over here rather than getting people waiting at Dubai or Doha to shop. So that is further adding incremental demand at our airport. A lot of work we are doing. As you are aware, we have an industrial partnership with Groupe ADP. We are working very closely with them as to what all we can offer at our airports, how we bring more brands into our airports and continuously increase the spend per passenger. The way I would like you to look at an airport is actually it is a shopping area. I would like people to shop more and more at the airport, and we provide services to facilitate that shopping, shipping whatever is necessary. So it's a large retail mall, which is where the base -- the cost is being serviced by the aeros and the clean comes from the non-aero. That's the way we are focusing on our business.

The second question that I had was more to do with the interest rates that on a blended basis, Delhi and Hyderabad would start being and the time period post which, let's say, a meaningful refinancing can happen on those rates?

No. Hyderabad, if you look at it, the rate of interest blended rate is -- which are fully hedged, they've got 3 bonds. One is [ $350 million, $300 million, $300 million, total $950 million ] bonds. So the average rate of interest is less than 9% -- 10% all together. And the repayment which are coming up is only in '24 and '27 and '29. And at appropriate time we get them either refinanced depending upon the cash flows, we fully repaid, that is Hyderabad is concerned. And the DIAL, the average rate of interest of the existing bonds, the 3 bonds about $522 million bond is there. Then we have $450 million bond -- another $500 million bond, then $450 million. So altogether, about $1.45 billion. The average rate of interest will be around, including hedging is about 10.4% to 10.5% in.

Sure. Got that. The third question that I had was there was a hint given that obviously, Indonesia would start contributing in the next year. I wanted to get a sense of what kind of EBITDA run rate post revenue share should the analysts be budgeting even for the full year?

You are asking Medan. Medan Airport we'll be taking more only in July. And as of today, I mean, the revenue share payable in case of Medan is about 19%. And as -- and we have already filed an increase in the tariff, that is already under the consideration of the government. And this will start throwing the cash first 2 years, after that it will get into an expansion. So there should not be any -- I mean, pax it will be positive for 2 years. After that it will get into the full expansion.

Medan is a 10 million passenger As of today it's a 10 million passenger. And our strategy, of course, there is to leverage its own balance sheet for funding going forward. Do you want to add something.

We have already infused the equity in case of the Medan Airport, total equity is about $25 million both shareholders together in the JV company. And the -- initially, we will be doing an expansion from $10 million to $15 million, that's called immediate capacity augmentation. Once that is achieved, beyond that, then we'll go for [indiscernible]. So as Saurabh explained that, it is a balance sheet -- is a strong balance sheet. And beyond the equity what we have infused, there is no further requirement from the shareholders, number one. Number two, Medan will be accounted on equity method because we are only, only 49% stake, whereas AP II is holding 51% stake.

Got that. Last question from my side before I get in the queue. At an overall level, the share from profits from associates appears to be a healthy INR 40 crore number for the quarter. And on a run basis is probably ahead of where we were with pre COVID basis. Is it more to do with the retail spend in Delhi, and that figuring in over here? Or is there also a component of certain loss-making Hyderabad joint ventures becoming profitable and the sustainability of this thing. Thank you.

When it comes to the JV profitability, it is basically in case of the duty free of the -- Delhi has thrown us a good amount of profits. And basically you are correct in the last year, year-to-date FY '21, we have accounted INR 117 crore loss, whereas the current year we accounted INR 71 crores in the profit. Basically, Delhi duty-free has given a good amount and [indiscernible] has given a good amount of the profits.

The next question is from the line of Apoorva Bahadur from Investec.

Just wanted to check -- so Delhi government has come out with a new liquor policy, apparently we are reading articles that the outlets are vending liquor at 30%, 40% below the MRP. So do you see any sustainable impact of this on our duty free business going ahead?

No, that will not have any impact as such, actually Delhi government has already put the restrictions on any discounting, cannot give any more discounts. As far as the -- our duty-free sales are concerned, which are basically the -- I mean, quality-wise, which is entirely different from the quality of the product, which is available in the market.

Maybe just to add to [indiscernible] have gone away to some extent. We don't see any significant impact on the duty free sales; one, because of the price itself. And secondly, the -- I think there is a -- the quality of product, people have more confidence in that in the duty free.

As a matter of fact, honestly speaking, even our duty paid business is doing quite well. So the real game is how does duty paid versus at the high street that you get in the city. So, no impact, honestly speaking on our business.

The next question is a follow-up from the line of Aditya Mongia from Kotak Securities.

I just wanted to kind of clarify regarding the operating expenses booked in the quarter, what is the element of one-off. On a Q-on-Q basis there's a I think INR 100 crore kind of increase that has happened. Is it all related to one-off? Just want to get a sense.

Which company you're referring to?

I'm sorry, I'll clarify. At an overall level the other expenses of the company have increased on a Q-on-Q basis even though top line has declined. And the question, I think there was an explanation given of provision against certain past revenues, specific to reality. I just want to kind of confirm the numbers for the one-off for the quarter?

One second. There is a one-off items which we have made a provision is the revenue share payable to airport authority is on SFIS scrips, which we were contesting with AI. This is pertained to the '18, '19, '19, '20. And finally we have agreed to pay the amount. That's why we have made a provision for INR 43 crores in the DIAL. That is one of the major expenditure which has been hit. And in the case of the DIAL, there are about INR 15 crores, INR 20 crores additional expenditure as Saurabh explained. In the last 2 quarters, we have to make various expenditure and provision which has been accounted for.

Understood. Could you share on the PAT number for Delhi duty free for the year and or for the quarter?

Delhi duty free total PAT is about INR 180 crores for the year.

For the fourth quarter if you have the number handy, it would be very useful because the full year is not adequate representation of next year given COVID.

Aditya, this nitty gritty number detailings can be provided to you or off-line.

As there are no further questions from the participants, I now hand the conference over to Mr. Saurabh Chawla for closing comments.

Thank you. Thank you, ladies and gentlemen, for this call. We are available offline for any minute details that you may require, whether from the JV entities or subsidiary entities or any clarification on the balance sheet. Please reach out to Amit and Bishnu, and we will endeavor to answer your questions as quickly as possible. Thank you so much and have a wonderful week. Thank you.

Thank you. On behalf of GMR Infrastructure Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.