GMR Airports Limited (GMRAIRPORT) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to GMR Airports Infrastructure Limited conference call to discuss Q4 FY 2023 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 evening, ladies and gentlemen. Thank you all for joining the fourth quarter of fiscal '23 earnings call. The Indian economy, still remains a bright spot in the global arena. Globally, the economies are facing challenges from geopolitical uncertainties, high interest rates and banking issues. And India economic indicators are continuing to exhibit growth momentum. Monthly collections of GST, which is one indicator by April '23 was at an all-time high of INR 1.87 lakh crores. Inflation has receded, as indicated by the latest WPI and CPI numbers at minus 0.92% and 4.7%, respectively, for the month of April '23. ForEx is just slowly building up again, reaching to USD 596 billion in May '23 from USD 576 billion in January '22. We believe that India's medium to long-term growth prospects are healthy and the government's growth strong infrastructure spending, the outlook is even healthier. Regarding our performance for Q4 fiscal '23, GMR reports gross revenue increased by 48% Y-on-Y to INR 1,895 crores in the fourth quarter driven mainly by traffic improvements in our operation airports. EBITDA increased by 52% Y-on-Y to INR 259 crores. For the full year, EBITDA decreased by 18% Y-on-Y. The decline in Q4 '23 and FY '23 EBITDA is mainly due to the start of monthly annual fee payments at the airport from April '22. Additionally, Q4 '23 and FY '23 included certain one-offs related to loss on settlement of derivative instruments of INR 30 crores and INR 90 crores, respectively, with respect to the partial repayment of bonds in Hyderabad Airport. Additionally, there were certain other onetime write-offs of around INR 63 crores at Hyderabad Airport during the quarter 4 and for the full year. I would like to highlight the following key points. During the quarter, we announced the execution of the agreement and the scheme of merger of GAL and GIL, with an objective to enhance shareholder value by simplifying the corporate structure and bringing public shareholders closer to the airport assets. As part of the process, GIL and Groupe ADP will settle the cash earn-out to GIL at INR 550 crores and also the equity earn-outs at 4% out of the total 8% that was accrued to GIL. GIL raised EUR 331 million, that is INR 2,900-odd crores approximately from Groupe ADP to a 10-year 6.76% per annum coupon FCCBs due in 2033. Immediately upon completion of the merger, GMR Group will remain the single largest shareholder of GIL, while GMR Group owning 33.7%, Groupe ADP holding 32.3% and the public holding 34%, respectively, of the paid-up equity share capital. The entire merger process is expected to be completed within fiscal year '24. So far, CCI approval for the merger has been received, and application has been filed with the stock exchanges and Reserve Bank of India and the process of evaluation and approval is awaited. Second is Mopa, which is a Goa airport commenced commercial operations from January 5th, '23. Currently, IndiGo, Akasa, SpiceJet and Vistara have operations from the airport. Cumulative traffic at Mopa Airport has already crossed 1 million mark as on 1st May '23. For the month of April '23, the airport handled an average of approximately 11,000 passengers per day. International operations is expected to start from June, July of this current year. We expect the new tariff regime at Mopa to be enforced by October '23. During the quarter, we received about INR 631 crores from NIIF, a partnership that we have effected with respect to the Goa Airport. This investment is in the form of CCDs. As you're aware, in December '22, GMR and NIIF announced a financial partnership or NIIF to invest in the equity capital total of 3 airport products, which included Mopa in Goa, Bhogapuram which is Visakhapatnam Airport and Nagpur Airport, as and when Nagpur Airport concession is signed. Overall, the passenger traffic from GMR Airports, Q4 '23 the biggest strong growth. Passenger traffic was up by 55% year-on-year to 25.8 million in Q4 fiscal '23 with Delhi and Hyderabad experiencing a surge in traffic. On a full year basis, passenger traffic of our operational airports was up by 69% year-on-year to $92.8 million in fiscal year '23. In India, our market share in passenger traffic is approximately 26.6% for fiscal year '23. With respect to progress on capacity expansion in our airports. Delhi, Hyderabad and Crete. All the 3 airports achieved an 86%, 85% and 20%, respectively, the completion as of March 31, '23. As of April 30, Delhi and Hyderabad airports achieved 88% and 86% of the CapEx progress. Delhi and Hyderabad airports are targeted for completion in Q2 FY '24. We expect the new tariff regime, I believe, to be enforced by April '24. And the airport land development in Delhi Airport, we have initiated our first self-development commercial building of about 6 lakhs square feet in the Gateway District. In Mopa, Goa Airport land monetization of 2 hotel plots has been initiated in quarter 4 fiscal '23. And then Medan Airport on a Y-on-Y basis, traffic is up 76% to 1.7 million passengers in Q4 fiscal year '23. Domestic daily passengers has already reached about 112% on the April 2019 levels, while international passenger profit was about 80% of April '23. Currently 18 domestic and 6 international destinations are connected. Our Nagpur Airport review protection was filed by Ministry of Civil Aviation in Supreme Court challenging the earlier Supreme Court order. However, the petition was dismissed by the Supreme Court in its order dated May 11, '23. We expect execution of the concession impairment at the earliest. In Bhogapuram Airport, foundation stone of the airport was laid by the State Chief Minister on May 3, '23. Tender processes is on for the selection of the EPC contractors. R&R processes are fully completed and land handover processes is in final stages as joint survey of the land is underway. On the ESG front, GMR is fully aware of his role, so the business activity needs to be compatible with the permanent commitment in development and sustainability. In this direction, during the year, Delhi Airport became the first airport in the country to run entirely on hydro and solar power from June '22. Of this operational usage, Delhi Airport is switching to electric vehicles from the current conventional wafers in phase-wise manner. Hyderabad Airport has also received ACI Asia-Pacific Green Airport Gold Recognition Award sixth time in a row in 15 million to 25 million passenger capita . Delhi and Hyderabad airports have maintained an ASQ score of 5 during the quarter. The presentation of our financial numbers are already available with you. If not, you can download it from the IR section of our website. We are available to respond to your questions on this call and offline after the call. Now I would like to open the forum for queries that will be answered by my colleagues from the corporate and business teams. Thank you so much.

[Operator Instructions] We have our first question from the line of Mohit Kumar from ICICI Securities.

Yes. Thanks for the opportunity. My first question is on the financials. So the expenses have gone up by INR 3 billion Q-o-Q. Of course, you mentioned that they pay their one-off and write-offs. But these write-offs are close to around INR 1.2 billion -- sorry, INR 1.8 billion, while the others have gone up by roughly around INR 3 billion? So can you please explain the -- are there any other one-offs in this?

Yes, why don't you take this.

Sure. There are only 2 major expenses we have incurred. One will be one of the upfront fee paid to bank facilities since we have completed their fund raising of the however they're called and at a much cheaper rate, the upfront fee which we have paid to the bankers of the facilities is now charged to be in the accounts since we have reached the finality of the project. And also, we are just completing the project in calculating their effect and is going to be major items. The second one is basically, as you know, Hyderabad Airport has done the refinancing of FY '24 bonds at a much cheaper price for their longer term NAV. So one of the -- regarding the earlier bonds where we have done hedging, which has to be now canceled to the extent of that the loss on the cancellation of hedging has also been charged off in the account, even though there is no cash flow issued. These are the 2 major and some of the expenditure we have incurred on the legal and professional charges in all the airports for the various cases which are happening, especially upon the CGF issues appealed before TDSAT in a good way. Some of the legal expenses, professional expenses we have incurred, that has been provided for. These are the major reasons for increase in the cost results, only one time, and this will only be a recurring intention.

Sir, how much this amount -- cumulative amounts to, the total amount one-off?

In case of being write-off of the, bank charges will be around INR 60 crores. And in case of the legal expenses, will be around INR 50 crores to INR 70 crores. And in case of the fees which we have paid in terms of the GMR Airports Limited, we have raised the funds. Since you are aware that Cebu, we have already divested, we got the funds and we have prepared some of the loans and the upfront fee which we have paid them, which were supposed to amortize for a period of 3 years now charged off to paying account. There's a positive development since we have repaid the loans, that extra have been charged, that is about INR 30 crore to INR 40 crore.

Understood. My second question is one of the slides you are talking about the refinancing of the debt at GMR Airport. What is the debt at GMR Airport and what is the rate interest that we are paying right now? What is the kind of savings that is possible in, let's say, in FY '25?

The GMR Airport, we are talking about the total debt will be around INR 3,300 crores by March since after repayment of the process, which we have seen. And in the current financial year, we'll be doing the refinancing to the extent about INR 17 billion to INR 18 billion.

My last question is on the Bhogapuram, what is the time line we are looking at for the airport? And what is the total project cost?

The total project cost, which is almost finalized, in case of the Bhogapuram will be around INR 47 billion and which includes the amount to be refunded by the government of Andhra Pradesh which is about INR 1.3 billion. And the time line is the Chief Minister has already laid the foundation stone and the joint survey of the land is going on. We are likely to take over the land, that some more cases are pending in High Court, which are only for the compensation, which are likely to be settled in a matter of one month. So when they take over the land by end of June, and in the meantime, we have already completed -- we have already issued the tender for EPC contract internationally. Four builders have come and who are now shortlisted. They are going through the entire site and they're asking for all the certifications we are providing. So likely to start the construction maybe middle of July or 1st of August. Hopefully, everything goes well.

Will it take 2 to 3 years or 2 years, sir or?

The date from the date of the year [indiscernible]. It is 36 months, exactly 3 years. If you start on 1st of August, by 31st July 2026, it is completed.

[Operator Instructions] We have a question from the line of Ankur Shroff from Swarnaratna Infrastructure Private Limited.

I wanted to know regarding the land to be provided to Bharti. I think 2 quarters back, you had said that by March 2023, we should be able to provide the land. So any kind of clarity and update on that, please?

This is the second tranche of the Bharti deal that you're talking about, yes?

Yes, sir, the 2.6 million.

Yes. 2.17 million, the land in February month, we have issued a notice to market to come and see the land process. The land process have already been now seen by them now and is almost concluded and they will be taking over very, very shortly.

[Operator Instructions] We have a question from the line of Aditya Mongia from Kotak Securities.

Congratulations for a good set of results on the volumes and spending. And this is where some of my questions lie. I wanted to get a sense from your perspective on the non-aero spending at the Hyderabad Airport. It seems that on a pro-tax basis, this number has improved quite meaningfully on a Q-on-Q basis at about 8%, 9%. And versus the pre-COVID level, it's probably up in the range of 40% or so. The question essentially relates to whether this is being driven more and more by the incremental retail area that has been opened. And if so, does it have any positive to -- for Delhi in the near future?

So Aditya, this is Rajesh. I just take your question. So you're right, when you look at non-aero, there are 3, 4 contributors for how do you improve your non-aero revenue. So one such contributor is the additional space. Second is how do you define the layout tax flow because that increases our penetration. Third is the category selection. So at all our airports, these are some of the steps which we have taken, Hyderabad has already expanded the footprint and hence the larger area is available for Duty Free arrival, Duty Free store. And similarly, Delhi, we are expanding T1 so we'll have additional space over there. So one, I think this whole -- whatever growth we are seeing to a larger extent, which is sustainable. And this is what we will be increasingly we should be seeing at our airports without making any forward-looking statements, but this is the way we are kind of looking at improving our non-aero commercial revenues.

Sure. The second question was more linked to -- in some ways, understanding where are the contribution to interest expense coming in beyond the mainstay business of Delhi and Hyderabad. Now if I see your overall intersection, it's more than about INR 2,000 crores in this year, whether Delhi and Hyderabad cumulatively would be contributing probably half of that. It would make -- it's easier for us to appreciate if you could tell us what are the other big components of interest expense. I'm assuming some part of it is the stand-alone operations but it doesn't explain a whole lot the 50% that you even explained?

No. There are 3 interest components in consolidated financials. One is DIAL, other one is GHIAL, the other one is GMR Airports Limited. So GMR Airports Limited also the interest will be around INR 5 billion.

Yes. So let's say INR 5 billion of airports, another INR 8 billion of Delhi, another INR 3 billion of Hyderabad. And then, let's say, slightly more of Goa. There's still a meaningful INR 600 crores unexplained kind of number. Just trying to get a sense whether there's no clarity on which all other assets are contributing over here.

Yes. So there is one more. Actually, when we consolidate the GMR Airport Infra Limited, there is one more entity, GMR Infra Developers Limited, which come into the picture. So there is a INR 1,680 crore loan. So there is additional interest cost is coming for that loan. And that loan has been repaid in the April 2023. And from there, we proceed.

Understood. I'll take this offline also just to get a better understanding. But coming back to numbers and I think this question was asked on the EBITDA and how it has changed from 3Q to 4Q. See the increase in other expenses is to the tune of about INR 3.5 billion. And what we are kind of seeing as one-offs is a number that is less than 50% of the gap. So I'm just trying to be certain, should we be looking at full year numbers and adjustment for these one-offs or looking at 4Q numbers, which look quite weak and then analyzing the number. Just trying to get a sense of how [indiscernible] moving so much in a single quarter.

I think we have already explained that the more expenses like the write-offs of the upfront utility bank line of credits and also the cancellation of the hedgings, which we are taking in place of the Hyderabad, where we have repaid the loans to exit the $230 million. So our hedgings have been canceled, it has also been charged off. It is more than nearly INR 1 billion. Plus, we also have additional legal and professional charges where we have repaid the same proceeds. You've got the money and we repaid the loans and amortization expenses have been charged to these account. And also additional legal expenses, they have incurred professional charges towards the various cases we are having, especially the -- in case of any of the cases and CGF cases in case of Hyderabad and some other cases in various forms. And there is some amount of expenditure are also from Goa, which is -- but most of these expenses are nearly to the extent about INR 2.5 billion is one-off time and it will not dissipate it. That is what we wanted to communicate.

Sure. So you're seeing INR 2.5 billion, including the Goa issues or let's say, the initial Goa losses is where maybe Goa will continue, but other agreements of INR 2.5 billion should be recurring incrementally?

No, no, no, it's not like that. I mean what we said is out of other expenses to the extent of INR 2.5 billion one-off tax expenses, which will not dissipate.

Additionally, I think. when it comes to Goa, whilst Goa maybe contributing negative EBITDA at this stage, primarily because of 2 reasons. One, these were the partial of patients in the last quarter. And secondly, the current interim ad hoc tariff is significantly lower than what we would be expecting to be final tariff which might take another quarter or so. So once we have the final tariff, you'll see Goa contributing positive to EBITDA.

That I completely understand. And one more question from my side. See, on the Delhi airport, it seems as if on a Q-on-Q basis, you've been able to improve your volume numbers. Is this something specific to Delhi because I think seasonality should be against the aviation sector on a Q-on-Q basis. So is there something special happening in Delhi? Or is it always that you said 4Q can be better than 3Q in spite of seasonality trends?

I think the traffic, the way the trend is it is across India, is not specific to Delhi just because the volumes are better in Delhi, it provides a big trend you see. If you look at actually Hyderabad has actually gone bigger than Delhi percentage-wise. We have only INR 17.7 million we have achieved. And in case of Hyderabad, it is about 5.7 billion. So the trend you see, I mean, it's not specific to Delhi.

Sure. Maybe last question from my side. We've seen quite a few routes being started from Hyderabad and the international side of things. And I think this has been our focus area. Could you give us some kind of forward-looking guidance or what kind of growth in international numbers in Hyderabad one can expect from here on maybe for the next 2 years? I understand the bases are pretty low over here so just thinking because you're competing with Bangalore and trying to do more.

Yes, we have been trying to do better. For example, recently, I think we have -- the operations have already started to land already there, and they are also signing to more international lines in Hyderabad. Our thrust is more on international traffic, but if you look at it the trend, we are competing with the vendor. In case of the Bangalore and Hyderabad even though overall traffic, Hyderabad will be lower. But when it comes to international traffic, Bangalore and Hyderabad will be almost equal. So our thrust is more and most probably, as of today, our traffic is about to 15% of the total traffic of the Hyderabad and international, 15% to 17%. So we wanted to make it around 20%, 25% is our targets.

Okay. Any incremental debt that you would be taking at an asset level in Delhi or Hyderabad? Or do you have enough cash on to...

No, I think the interest financing is complete in case of Hyderabad and Delhi. Hyderabad has already raised the money and they got sufficient cash balances. It is completing the entire construction starting, they approved the operation in September. Delhi, in the month of April, we are priced INR 1,200 crore with that entire CapEx program funding is completed. It is also expected to complete the entire construction by September, October and start [ will fit well ]. So no more fund raising is required in both airports out of play.

[Operator Instructions] We have a question from the line of Nirav Shah from GeeCee Holdings.