GMR Airports Limited (GMRAIRPORT) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to GMR Airports Infrastructure Limited's conference call to discuss Q3 FY '23 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 the opening remarks. Thank you, and over to you, sir.

Thank you. Good afternoon, ladies and gentlemen. Thank you all for joining the third quarter fiscal '23 earnings call. During the Q3, global economies continued to face headwinds on multiple fronts, including inflation and high interest rates. However, the Indian economy continued to show resilience. Inflation levels receded as wholesale price index inflation stood at 4.95% as on December '22 from 10.7% in September '22. The WPI further eased to 4.73% in January of '23. GST collections continued to be at higher levels, given that the post-COVID economic recovery as monthly collections for Jan '23 stood at INR 1.56 lakh crores. Other economic indicators were also mostly positive and encouraging. Recent Union budget announcement is also expected to act as an enabler for growth. Capital investment has been increased for the third year by 33% to INR 10 lakh crore, which is equivalent to about 3.3% of GDP. On the airport sector, 50 additional airports, heliports, water aerodromes and advanced landing grounds will be revived for improving the regional air connectivity. This will provide huge opportunity for airport operators, including GMR. Regarding our performance for Q3, GMR Airport's gross revenue increased by 29% year-on-year to INR 1,766 crores in Q3 this year, driven mainly by traffic improvements in our operational airports. EBITDA, however, decreased by 26% year-on-year to about INR 530 crores, mainly as we started paying monthly annual fee with effect from April '22 prospectively. However, on a Q-on-Q basis, EBITDA increased by 12%. Amongst our operational airports, Hyderabad Airport for the past 3 consecutive quarters has contributed positively to a consolidated profit after tax. During 9 months of fiscal '23, Hyderabad Airport registered a PAT of INR 91 crores versus a loss of INR 72 crores during the same 9 months last year. Please note that the Hyderabad Airport EBITDA and PAT for the 9 months include -- for this current year includes a one-off loss of about INR 60 crores from settlement of derivative instruments related to the partial repayment of bonds due in 2024 and 2026. Adjusted for this one-time loss, Hyderabad PAT stood at INR 151 crores for the 9 months of the current fiscal year. I would further like to highlight the following points. As you know, we have signed a deal with Aboitiz InfraCapital for divestment of our stake in Cebu airport. During the quarter, we received INR 1,390 crores against this divestment. It is important to note that we would continue to operate as technical services provider to Cebu till December of 2026 and would also be entitled to additional deferred consideration based on the subsequent performance of the airport for the same period. During the quarter, GMR and National Investment and Infrastructure Fund also decided to enter into a financial partnership. This is the first investment of NIIF in Indian airport sector. We will be investing in 3 airport projects, including Goa, Bhogapuram, which is Visakhapatnam, airports. The transaction [indiscernible] NIIF making a primary investment of INR 631 crores in the form of compulsory convertible debenture in GMR Goa International Airport Limited, a special purpose vehicle to run and operate the new Goa Airport. This investment shall be NIIF's first investment, as I said earlier, in the airport sector in the country, and it will be the first direct investment in the state of Goa. On the overall passenger traffic for the GMR Airports, quarterly 3 (sic) [ quarter 3 ] represented a strong growth in traffic. Passenger traffic was up by 37% year-on-year to 25.8 million passengers in Q3 fiscal year '23 with Delhi and Hyderabad experiencing good surge in traffic. Domestic traffic at Delhi Airport reached a high of 102% of 2019 levels during December of '22, aided by travel from friends and family segment of the businesses and tourism. Our international traffic [ touched ] about 86%. Traffic from North America, the Middle East and Europe continued to grow beyond the pre-COVID levels. Recovery is mainly aided by traffic to and from Southeast Asia countries, including Thailand, Singapore and Malaysia. At Hyderabad Airport, domestic traffic reached 94% versus 2019 traffic levels during December '22, again, aided by friends and family travel. Corporate travel has picked up, but still lagging behind the 2019 levels. International traffic on the other hand has touched 90% mark, and the recovery is supported by the rising Southeast Asian tourist traffic, mainly Singapore and Thailand. Singapore Airlines converted a few narrow-bodied flights to wide-body flights, while Thai Airways resumed wide-body operations out of Hyderabad. On progress with respect to capacity expansions in our airports, Delhi, Hyderabad and Goa Airports achieved 80%, 81% and 98% completion as of December 31, 2022. As on January 31, 2023, Delhi, Hyderabad and Goa achieved 81.6%, 82% and 98.7% of the CapEx progress. At our Goa Airport, domestic operations have already commenced from January 5, 2023, and works related to the international area are in progress. Indigo, Akasa, GoAir, Spicejet and Vistara are already operational. Goa is currently serving 10 domestic destinations. International flights are expected to start from March 2023 with commencement of summer schedule. In our Hyderabad Airport, the east pier portion, which was handed over during quarter 1 was commissioned in quarter 2, while the west processor that is the international site was handed over during quarter 3 of fiscal year '23. Delhi and Hyderabad Airports are targeted for completion in September '23 and March '23, respectively. On the airport development, as you're aware, during quarter 2, Chalet Hotels Limited was awarded a contract by Delhi International Airport Limited, DIAL, to develop a hotel with 350 to 400 rooms under Terminal 3. The transaction is progressing in line with the contractual terms. In Hyderabad Airport, pursuant to the execution of sublease deed with the Amity for 20 acres of land during quarter 2 for setting up a university at AeroCity Hyderabad, the land has been handed over now to Amity. Amity also has an option for additional 5 acres of plan for school to be exercised within 12 months from the date of execution of the sublease deed for the 20 acre land. In Goa Airport, we have initiated land monetization for 2 hotel plots next to the new Goa Mopa International Airport terminal building. We expect the transactions to be closed during the current quarter as we go forward. In Crete Airport, we achieved physical progress of 17% as of December 2022. Works are progressing on multiple fronts, runway, taxiway, apron, terminal building and other buildings and on the access roads. Terminal building base slab concreting work has been completed. Concreting work on columns and mezzanine level slabs are currently in progress. Flood protection work is in progress in airport and access roads. On the Medan Airport, Angkasa Pura Aviasi, APA, the joint venture company of GMR Airports Limited and Indonesian state-owned airport operator, which is Angkasa Pura II, formally took over the operations of Medan Airport beginning in July of 2022. On a year-on-year basis, traffic is up 3.7x to about 1.45 million passengers in quarter 3 of fiscal '23. Domestic daily pax has already reached 97% of the pre-COVID level, while international pax was over 89% as of December '22. Currently, 18 domestic and 6 international destinations are connected. As you are aware, Ministry of Transport of Indonesia has already approved rise in domestic passenger service charges by 27% and international passenger service charges by 16% with effect from August 1, 2022. In Nagpur Airport, we expect execution of the concession agreement at the earliest. In Bhogapuram Airport, EOI has been received for EPC contractor selection and RFP has been issued to the shortlisted parties. Land acquisition is in advanced stages of completion by the government. R&R works are in progress on financial closure, project appraisals are underway by consultants appointed by lead lenders. On the ESG front, our endeavor is to reduce the impact of our operations on the surrounding environment by implementing best practices environmental controls. Environmental protection and sustainable development has always been our high priority. Our Delhi and Hyderabad Airports have maintained an ASQ score of 5 during the quarter. Delhi Airport was also awarded the busiest airport of the year fiscal '22 and the best sustainable airport at the Assocham 14th International Conference cum Awards on Civil Aviation. Hyderabad Airport won the Gold Recognition at the CII Excellence Summit November '22 for Business Excellence Journey. The presentation with all financial numbers are already available with you. If not, you can download it from our Investor Relations section of the website. We are available to respond to your questions on this call and off-line subsequent to the call. Now I would like to open the forum for queries that will be addressed by my colleagues from the corporate and the business teams. Thank you so much.

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

Good to see a very, very good recovery in traffic. So 3 questions on my side. First is -- two questions on the financials. First is, can you please explain the exceptional income booked during the quarter. In the most accounts, nothing you mentioned about this particular income of 3 billion which are booked.

This exceptional income is on account of the disposable of partial equity investment in the Cebu. So that has been recorded as an exceptional item in the [indiscernible] financial statement.

Okay. So part has been booked in this quarter, part has been in the last quarter. Am I right?

No. This is partially booked in this quarter. Balance unlocked shares we will record in 2024.

Understood, sir. Secondly, you spoke about 600 million, which you booked as exceptional expense in Hyderabad regarding some derivative transaction for the bond. Has it been booked entirely in this quarter or it is for the entire 9 months? It looks like the number is for [indiscernible] quarter. Can you confirm that?

This is one-time charge. This is basically the Hyderabad Airport has [ gone ] liability management. We have repaid 140 million of the international bonds by raising the domestic paper. In the [ context ] to whatever the derivative instrument we have already created versus amount realized, the difference amount has been charged to P&L account, but there is no -- really, there Is no cash outgo as such. It is only a notional entry.

This happened in this quarter, right, entire amount?

Entire amount is this time only one-time process.

It's not that -- for the same transaction, more bookings will be done during...

No, no. Only one.

Just asking because Hyderabad Airport EBITDA is lower Q-o-Q, and I think the operating expense is higher. So this -- I'm assuming that this [ INR 660 crore ] expense has been booked in the Hyderabad Airport in this quarter. Is that right?

Yes. Correct.

Understood. Lastly, sir, what is the CapEx and debt capitalization possible for Delhi and Hyderabad Airports especially in FY '24?

No, the entire Hyderabad Airport will be completed the capitalization by June '23, and Delhi Airport is expected to complete by September '23. The capitalization will happen in '23, '24 financial year.

Okay. Sir, the CapEx number capitalization in June '23 for Hyderabad and the date [indiscernible] get to that?

No. The total Hyderabad CapEx program is about INR 6,700 crores. So the entire amount will -- of course, partly is getting capitalized, and the full calculation will be done by June '23, is about including what has already been capitalized will be around INR 6,600 crores. The entire debt has already been tied and the money is already here in the bank account. There is no need to further raise any further debt.

And on Delhi, is it INR 100 billion? Is that amount?

Sorry?

On Delhi -- in Delhi, the amount is INR 10,000 crores.

It is about INR 11,500 crores.

[Operator Instructions] The next question is from the line of Aditya Mongia from Kotak Securities.

Just checking that I'm audible to you.

Yes, yes.

Got that. Sir, I'm just trying to kind of focus more on the non-aero part of the Hyderabad Airport on the OpEx basis. It seems that these numbers over the last 3 years have quite meaningfully improved, whether we see non-aero or retail. If you could explain why this kind of uptick is happening and should we not assume further uptick happening from here on as you open up your new retail space at the Hyderabad Airport?

Rajesh, why don't you take it.

See this increase on improvement that we are seeing in non-aero revenue in Hyderabad, it's a combination of a couple of things. One, the quality of passenger traffic has improved. So that is one contributor. Secondly, a bit of refresh on the retail side, which has happened. And also we have kind of expanded the retail area. If you would have traveled recently through Hyderabad, you would have seen on the land site, there are a number of retail outlets, including F&B outlets, which have come up. So these are the 3 main contributors for improvement in the non-aero revenue over the last few quarters that we would have seen. And we firmly believe that this is the trend we should keep seeing it as we go along.

Okay. And just a follow-up question, let's say, on a 9-month basis, retail spending at Hyderabad is net INR 50-odd per pack versus being almost INR 110-odd in Delhi. Do you see a sense of whether these numbers would be converging over time? Because obviously, [ this was ] larger earlier, now it is lesser. I'm just trying to get a sense.

Yes. So on each of the airports, all depends on the quality of the passenger traffic. Just to point in reference, when you look at Delhi, the sales tax -- SPP that we call it for duty free business is close to about $13, I'm talking about more in terms of dollars, and Hyderabad is close to now about $7 to $8. And -- but then we have seen that this has moved up from $4 to $8 in Hyderabad and actually in Delhi from about $8 to about $13. So that's the -- again, so these numbers -- as the quality of passenger traffic keeps improving with your offerings, you'll definitely see the numbers moving up. Now whether Hyderabad will be able to do exactly like Delhi, that's – again, it is dependent on the quality of passenger traffic, as I said.

But would it be fair to assume that the handicap of there being, let's say, limited space was a lot more in Hyderabad and Delhi so far and [indiscernible] opening up a lot more for Hyderabad [indiscernible].

Yes. You're right. I think since we are now expanding our footprint in Hyderabad, so that is going to be one enabler for [indiscernible].

Also you need to keep into perspective, as I keep highlighting to you is, as we become whether international hubs or regional hubs as -- and we -- I mean, yesterday's announcement by Air India is very heartening towards [indiscernible]. As they start to gather pace of long-distance, wide-bodied aircraft that fly, like Rajesh mentioned the quality of passenger, the claw back to the spend that really happens in other international head starts to come back to the Indian airports. And this will have, I would say, a long-term improvement in improving our SPPs. There could be some dips or surges on a quarterly basis. But on a long-term basis, it's a very positive, I would say, forecast as we go forward.

Well said. Sir, there's a last question from my side. What are the refinancing rates that [ are on ] offer at the current repo for Delhi and Hyderabad?

You are talking about the refinancing?

Basically, if you -- the fact that you are probably nearing the end of your construction period, is there a scope of interest rates going down for these assets?

No. See, Hyderabad Airport is concerned that whatever the fund required for the expansion has already been raised. And we'll keep refinancing the bonds which are falling due as and when. So for example, 2024, the bond is falling due about 300 million. Out of that 140 million we have already done the liability management in December by raising domestic paper at 8.8% quarterly interest. So -- and we are also planning to have another liability management shortly. And the bonds will be refinanced as when they fall due. And depending upon the cash flows are sufficient, we may repay them. Other way, we go for the refinance.

So 9% below rates are possible in the...

We've already got at 8.8% quarterly interest in Hyderabad. It is on INR 1,150 crores we have raised.

The key over here is not 9% or 8.8%. The key is what is the saving that we have versus the quoted dollar bonds that we have outstanding. So we need to look at from that perspective. Again, there has been recently some disruption on the Indian paper for very different reasons. Obviously, the [ India name ] does get impacted in the credit markets. So we use that as an opportunity in our liability management. And we go for the long term -- long-tenor bond. So December, what we did that INR 1,150 crores was a 10-year paper. And the interest rate is fixed for 5 years.

The next question is from the line of [indiscernible] from Barclays.

I just have one question with -- and this is with regards to the status of your legal issue with regards to the force majeure, your revenue share between 2020 and 2021. What's the status on that? When do we expect some form of final resolution?

The status is basically the cross-examination is going on right now. That is arguments by the layers are going on. It is expected the timelines have been extended up to August 2023. So we expect the final award before August -- I think about July month.

[Operator Instructions] The next question is from the line of Nikhil Abhyankar from DAM Capital.

I got a couple of questions. Sir, you mentioned in your opening remarks about the Amity University developing a parcel of land in [indiscernible]. So can you give some more details on this project?

This is basically a city which is being set up by them on a 20-acres plot. So the entire payment more or less has already been received. There is some deferred payment will be to be received. It is a long-term, and they are setting up the university. We have already started operations on [indiscernible]. And within 1.5 years to 2 years, the entire campus will be ready.

And what are the payments that we will receive, sir?

It is about INR 80 crores to INR 100 crores.

Annually?

No, that is the full amount for the entire [indiscernible].

Okay. And sir, the second question is regarding the CCD, INR 631 crores. So after the conversion of these debentures, what will be the stake of NIIF in Mopa?

It is 49%.

49%.

Yes, to 49%. So it could be lower depending upon how the project progresses.

[Operator Instructions] The next question is from the line of [indiscernible], an individual investor.

Congratulations on a good set of numbers, sir. I just want to know about Nagpur...

But your voice is not that clear.

Is it clear now, madam?

Yes.

So I just want to know about Nagpur Airport. Why it is taking so long to start operations?

Sorry, your voice is not clear.

Very muffled. We can't understand your question, sorry.

Yes. I just want to know about Nagpur Airport, why it is taking so long to take the operations with.

No. Nagpur Airport after Supreme Court final judgment, the government again has filed for a curative petition, so it will be disposed of. It's likely to be disposed of in over 1 or 2 months.

Ladies and gentlemen, this was the last question for today. I would now like to hand the floor over to the management for closing remarks.

Thank you, friends. Thank you for joining our call for the quarterly 3 (sic) [ quarter 3 ] financial results. The team, of course, is available offline. Should you have any specific queries regarding our strategy, our balance sheet, we would be happy to answer. Thank you so much for joining in. Thank you. Bye-bye.

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